<PAGE>
MAS Funds
Supplement dated September 16, 1996 to the Investment Class Prospectus
dated January 30, 1996, as revised September 16, 1996
This supplement to the Investment Class Prospectus dated January 30, 1996, as
revised September 16, 1996 supersedes and replaces any existing supplements to
the prospectus. This supplement provides new and additional information beyond
that contained in the Prospectus and should be read in conjunction with the
Prospectus. Unless otherwise indicated in this supplement, defined terms have
the same meaning as in the Prospectus.
Select Equity Portfolio
At a meeting on July 30, 1996, the Board of Trustees of MAS Funds (the "Fund")
voted to terminate the Select Equity Portfolio. Accordingly, all references to
the Select Equity Portfolio in the Prospectus are hereby deleted.
Mid Cap Growth Portfolio
The Portfolio Summary is revised to reflect the following:
Approach The Adviser uses a four-part process combining
quantitative, fundamental, and valuation analysis
with a strict sales discipline. Stocks that pass an
initial screen based on estimate revisions undergo
detailed fundamental research. Valuation analysis is
used to eliminate the most overvalued securities.
Holdings are sold when their estimate-revision scores
fall to unacceptable levels, when fundamental
research uncovers unfavorable trends, or when their
valuations exceed the level that the Adviser believes
is reasonable given their growth prospects.
Municipal and PA Municipal Portfolios
The following changes have been adopted as a result of a Special Meeting of
Shareholders of the Municipal Portfolio and the PA Municipal Portfolio:
The investment objective of the Municipal Portfolio is as follows:
To realize above-average total return over a market cycle of three to
five years, consistent with the conservation of capital and the
realization of current income which is exempt from federal income tax,
by investing in a diversified portfolio of fixed-income securities.
The Portfolio Summary for the Municipal Portfolio is revised to reflect the
following:
Maturity and Duration: Average weighted maturity generally between 5
and 10 years.
Comparative Index: A weighted blend of quarterly returns compiled by
the Adviser using: 50% Lehman Brothers 5-Year Municipal Bond Index and
50% Lehman Brothers 10-Year Municipal Bond Index.
The investment objective of the PA Municipal Portfolio is as follows:
To realize above-average total return over a market cycle of three to
five years, consistent with the conservation of capital and the
realization of current income which is exempt from federal income tax
and Pennsylvania personal income tax, by investing primarily in a
diversified portfolio of fixed-income securities.
The Portfolio Summary for the PA Municipal Portfolio is revised to reflect the
following:
Maturity and Duration: Average weighted maturity generally between 5
and 10 years.
<PAGE>
Comparative Index: A weighted blend of quarterly returns compiled by
the Adviser using: 50% Lehman Brothers 5-Year Municipal Bond Index and
50% Lehman Brothers 10-Year Municipal Bond Index.
Other Changes
The following represents additional information pertaining to all or certain MAS
Funds portfolios, as indicated:
RISK FACTORS
* Each portfolio (except the Cash Reserves Portfolio) may invest in
certain instruments such as Forwards, certain types of Futures &
Options, certain types of Mortgage Securities and When-Issued
Securities which require the portfolio to segregate some or all of its
cash or liquid securities to cover its obligations pursuant to such
instruments. As asset segregation reaches certain levels, a portfolio
may lose flexibility in managing its investments properly, responding
to shareholder redemption requests, or meeting other obligations and
may be forced to sell other securities that it wanted to retain or to
realize unintended gains or losses.
Investment Limitations
(g) Each portfolio may pledge, mortgage or hypothecate assets in an amount
up to 50% of its total assets, provided that each portfolio may also
segregate assets without limit in order to comply with the requirements
of Section 18(f) of the Investment Company Act of 1940, as amended, and
applicable interpretations thereof published from time to time by the
Securities and Exchange Commission and its staff.
Prospectus Glossary
Investments
The definitions of CMOs, Forwards, Mortgage Securities, Swaps, and When-Issued
Securities are hereby revised as follows:
CMOs: The third paragraph of the definition is deleted and the following is
inserted in its place:
Like bonds in general, mortgage-backed securities will generally
decline in price when interests rates rise. Due to prepayment risk,
rising interest rates also tend to discourage refinancings of home
mortgages with the result that the average life of mortgage securities
held by a portfolio may be lengthened. This extension of average life
causes the market price of the securities to decrease further than if
their average lives were fixed. In part to compensate for these risks,
mortgages will generally offer higher yields than comparable bonds.
However, when interest rates fall, mortgages may not enjoy as large a
gain in market value due to prepayment risk because additional mortgage
prepayments must be reinvested at lower interest rates.
Forwards: The first paragraph of the definition is deleted and replaced with the
following:
--Forward Foreign Currency 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 do not eliminate fluctuations caused by changes in the
local currency prices of the securities, but rather, they establish an
exchange rate at a future date. Also, although such contracts can
minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time they limit any potential gain that might be
realized.
The last sentence of the second paragraph of the definition is hereby
amended to read as follows:
A portfolio's entry into forward contracts, as well as any use of cross
or proxy hedging techniques will generally require the portfolio to
hold liquid securities or cash equal to the portfolio's obligations in
a segregated account throughout the duration of the contract.
The fourth paragraph of the definition is hereby deleted and replaced
with the following:
<PAGE>
There is a risk in adopting a transaction hedge or position hedge to
the extent that the value of a security denominated in foreign currency
is not exactly matched with a portfolio's obligation under the forward
contract. On the date of maturity, a portfolio may be exposed to some
risk of loss from fluctuations in that currency. Although the Adviser
will attempt to hold such mismatching to a minimum, there can be no
assurance that the Adviser will be able to do so. For proxy hedges,
cross-hedges, or a synthetic position, there is an additional risk in
that those transactions create residual foreign currency exposure. When
a portfolio enters into a forward contract for purposes of creating a
position hedge, transaction hedge, cross hedge, or a synthetic
security, it will generally be required to hold liquid securities or
cash in a segregated account with a daily value at least equal to its
obligation under the forward contract.
Mortgage Securities: The second paragraph of the definition is hereby deleted.
The following is hereby inserted after the last paragraph of the definition:
Possible Risks: Due to the possibility that prepayments on home
mortgages will alter cash flow on mortgage securities, it is not
possible to determine in advance the actual final maturity date or
average life. Like bonds in general, mortgage-backed securities will
generally decline in price when interest rates rise. Due to prepayment
risk, rising interest rates also tend to discourage refinancings of
home mortgages, with the result that the average life of mortgage
securities held by a portfolio may be lengthened. This extension of
average life causes the market price of the securities to decrease
further than if their average lives were fixed. However, when interest
rates fall, mortgages may not enjoy as large a gain in market value due
to prepayment risk because additional mortgage prepayments must be
reinvested at lower interest rates. Faster prepayment will shorten the
average life and slower prepayments will lengthen it. However, it is
possible to determine what the range of that movement could be and to
calculate the effect that it will have on the price of the security. In
selecting these securities, the Adviser will look for those securities
that offer a higher yield to compensate for any variation in average
maturity.
Swaps: Delete the second sentence of the second paragraph of the definition and
replace it with the following:
A portfolio's obligations under a swap agreement will be accrued daily
(offset against any amounts owing to the portfolio) and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by the
maintenance of a segregated account consisting of cash or liquid
securities.
When-Issued Securities: The last sentence of the definition is hereby deleted
and replaced with the following:
A portfolio will maintain with the custodian a separate account with a
segregated account consisting of cash or liquid securities in an amount
at least equal to these commitments.
State and Local Taxes: The second sentence is hereby deleted and replaced with
the following:
The Fund will provide Pennsylvania taxable values on a per share basis
upon request.
Portfolio Management
The following lists changes in the investment professionals managing certain
portfolios:
Balanced Portfolio: Thomas L. Bennett, John D. Connolly, Gary G.
Schlarbaum, Horacio A. Valeiras and Richard B. Worley
Cash Reserves Portfolio: Abigail Jones Feder and Ellen D. Harvey
Emerging Markets Portfolio: Boykin Curry and Horacio A. Valeiras
Equity Portfolio: Arden C. Armstrong, John D. Connolly, Timothy G.
Connors, Nicholas J. Kovich, Robert J. Marcin and Gary G. Schlarbaum
Global Fixed Income and International Fixed Income Portfolios: J. David
Germany, Michael Kushma, Paul F. O'Brien and Richard B. Worley
High Yield Portfolio: Robert E. Angevine, Thomas L. Bennett and Stephen
F. Esser
International Equity Portfolio: Hassan Elmasry, Horacio A. Valeiras and
Dean Williams
<PAGE>
Mid Cap Growth Portfolio: Arden C. Armstrong and Abhi Y. Kanitkar
Multi-Asset-Class Portfolio: Thomas L. Bennett, John D. Connolly, J.
David Germany, Gary G. Schlarbaum, Horacio A. Valeiras and Richard B.
Worley
Small Cap Value and Mid Cap Value Portfolios: Bradley S. Daniels, Gary
D. Haubold, Gary G. Schlarbaum, and William B. Gerlach
Value Portfolio: Richard M. Behler, Robert J. Marcin and A. Morris
Williams, Jr.
A description of business experience during the past five years follows
for those investment professionals listed for the first time:
Robert E. Angevine, Portfolio Manager, joined Morgan Stanley Asset
Management in 1988. He assumed responsibility for the High Yield
Portfolio in 1996.
Richard M. Behler, Portfolio Manager, joined MAS in 1995. He served as
a Portfolio Manager from 1992 through 1995 for Moore Capital Management
and as Senior Vice President for Merrill Lynch Economics from 1987
through 1992. He assumed responsibility for the Value Portfolio in
1996.
Boykin Curry, Equity Analyst, joined MAS in 1994. He served as
Director, New Product Development from 1990 through 1992 for The
Advisory Board Company. He assumed responsibility for the Emerging
Markets Portfolio in 1996.
Hassan Elmasry, Portfolio Manager, joined MAS in 1995. He served as
First Vice President & International Equity Portfolio Manager from 1987
through 1995 for Mitchell Hutchins Asset Management. He assumed
responsibility for the International Equity Portfolio in 1996.
Abigail Jones Feder, Portfolio Manager, joined Morgan Stanley in 1985.
She assumed responsibility for the Cash Reserves Portfolio in 1996.
William B. Gerlach, Equity Analyst, joined MAS in 1991. He served as an
applications software programmer for Alphametrics Corporation from 1987
to 1991. He assumed responsibility for the Small Cap Value and Mid Cap
Value Portfolios in 1996.
Abhi Y. Kanitkar, Equity Analyst, joined MAS in 1994. He served as an
Investment Analyst from 1993 through 1994 for Newbold's Asset
Management and as Director & Investment Analyst from 1990 through 1993
for Kanitkar Investment Services, Inc. He assumed responsibility for
the Mid Cap Growth Portfolio in 1996.
Michael Kushma, Portfolio Manager, joined Morgan Stanley in 1988. He
assumed responsibility for the Global Fixed Income and International
Fixed Income Portfolios in 1996.
Paul F. O'Brien, Portfolio Manager, joined MAS in 1996. He served as
Head of European Economics from 1993 through 1995 for JP Morgan and as
Principal Administrator from 1991 through 1992 for the Organization for
Economic Cooperation and Development. He assumed responsibility for the
Global Fixed Income and International Fixed Income Portfolios in 1996.
<PAGE>
Closed Holidays: The description of the weekdays on which the Fund is closed for
business is revised to read as follows:
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 Cash Reserves Portfolio will be closed on Martin Luther
King Day, Columbus Day and Veterans Day.
Trustees and Officers
David P. Eastburn retired as a Trustee of MAS Funds in February, 1996
Vincent R. McLean, Trustee; Director, Alexander and Alexander Services, Inc.,
Director, Legal and General America, Inc., Director, William Penn Life Insurance
Company of New York; formerly Executive Vice President, Chief Financial Officer,
Director and Member of the Executive Committee of Sperry Corporation (now part
of Unisys Corporation).
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
- ------------------------------------------------ INVESTMENT CLASS PROSPECTUS
MAS LOGO
- ---------
MAS FUNDS
January 30, 1996
As Revised September 16, 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, twenty-four of which are described in this Prospectus. Each
portfolio in this Prospectus operates as a separate diversified investment
company except the Global Fixed Income, International Fixed Income, and Emerging
Markets Portfolios which are non-diversified investment companies. The
investment objective of each portfolio is described with a summary of investment
policies as referenced below. The Fund's Select Equity and Small Cap Value
Portfolios are not currently being offered to new investors. This Prospectus
offers the Investment Class Shares of the Fund. The Fund also offers
Institutional Class Shares and Adviser Class Shares.
Shares of the Cash Reserves Portfolio are neither insured nor guaranteed by the
U.S. Government. The Portfolio seeks to maintain, but there can be no assurance
that it will be able to maintain, a constant net asset value of $1.00 per share.
The High Yield Portfolio will invest primarily, and certain other portfolios of
the Fund may invest to varying degrees, in high yield, high risk securities
which are speculative with regard to payment of interest and return of principal
(commonly referred to as junk bonds); therefore, investments in these portfolios
may not be suitable for all investors. See High Yield Investing in the Glossary
of Strategies for additional information regarding certain risks associated with
investment in such securities.
- -------------------------------------------------------------------------------
PORTFOLIO PAGE REFERENCE
How to Use This Fixed Income: Balanced: 38
Prospectus: 3 Cash Reserves 26 Multi-Asset-Class: 39
Portfolio Summaries: Domestic Fixed Income 26 Select Equity
Equity: Fixed Income 27 Portfolio: 7
Emerging Markets 22 Fixed Income II 28 Prospectus Glossary:
Equity 22 Global Fixed Income 29 Strategies 40
Growth 23 High Yield 30 Investments 45
International Intermediate Duration 31 Other Information:
Equity 23 International Fixed Table of
Mid Cap Growth 24 Income 32 Contents: Back Cover
Mid Cap Value 24 Limited Duration 33
Small Cap Value 25 Mortgage-Backed
Value 25 Securities 34
Municipal 35
PA Municipal 36
Special Purpose Fixed
Income 37
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
<PAGE>
EXPENSE SUMMARY - INVESTMENT CLASS SHARES
The following tables illustrate the various expenses and fees that a
shareholder for that portfolio will incur either directly or indirectly. The
expenses and fees set forth below are based on each portfolio's operations
during the fiscal year ended September 30, 1995, except portfolios whose
Total Operating Expenses have been capped. An estimate has been provided for
portfolios with less than 10 months of Investment Class operations as of
January 30, 1996.
<TABLE>
<CAPTION>
<S> <C>
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses:
(as a percentage of average net assets after fee waivers)
Shareholder Service Fee 0.15%
</TABLE>
Investment Total
Advisory Other Operating
Portfolio Fees Expenses Expenses
- -------------------------------------------------------------------------------
Emerging Markets 0.460%* 0.790% 1.400%
Equity 0.500 0.150 0.800
Growth 0.500 0.150 0.800
International Equity 0.500 0.250 0.900
Mid Cap Growth 0.500 0.150 0.800
Mid Cap Value 0.000* 0.950 1.100
Small Cap Value 0.750 0.150 1.050
Value 0.500 0.150 0.800
Cash Reserves 0.140* 0.260 0.550
Domestic Fixed Income 0.285* 0.265 0.700
Fixed Income 0.375 0.155 0.680
Fixed Income II 0.375 0.175 0.700
Global Fixed Income 0.375 0.225 0.750
High Yield 0.375 0.175 0.700
Intermediate Duration 0.295* 0.255 0.700
International Fixed Income 0.375 0.225 0.750
Limited Duration 0.280* 0.170 0.600
Mortgage-Backed Securities 0.365* 0.185 0.700
Municipal 0.285* 0.265 0.700
PA Municipal 0.185* 0.365 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
* After fee waivers and reimbursements.
Absent fee waivers and reimbursements by the Adviser, Total Operating
Expenses would be 1.690%, 1.850%, 0.660%, 0.790%, 0.780%, 0.710%, 0.790%,
0.890%, and 0.990% for the Emerging Markets, Mid Cap Value, Cash Reserves,
Domestic Fixed Income, Intermediate Duration, Mortgage-Backed Securities,
Municipal, PA Municipal and Multi-Asset-Class Portfolios, respectively.
2
<PAGE>
EXAMPLE
The purpose of this table is to assist in understanding the various expenses
that a shareholder in a portfolio will bear directly or indirectly. The
following example illustrates the expenses that an investor would pay on a
$1,000 investment over various time periods assuming (1) a 5% annual rate of
return, and (2) redemption at the end of each time period. The example should
not be considered a representation of past or future expenses and actual
expenses may be greater or less than those shown. For portfolios with less
than 10 months of operations, only the 1 and 3 year examples are shown.
Portfolio 1 year 3 year 5 year 10 year
---------------------------- -------- -------- -------- ---------
Emerging Markets $14 $44 $77 $168
Equity 8 26 44 99
Growth 8 26 44 99
International Equity 9 29 50 111
Mid Cap Growth 8 26 44 99
Mid Cap Value 11 35 61 134
Small Cap Value 11 33 58 128
Value 8 26 44 99
Cash Reserves 6 18 31 69
Domestic Fixed Income 7 22 39 87
Fixed Income 7 22 38 85
Fixed Income II 7 22 39 87
Global Fixed Income 8 24 42 93
High Yield 7 22 39 87
Intermediate Duration 7 22 39 87
International Fixed Income 8 24 42 93
Limited Duration 6 19 33 75
Mortgage-Backed Securities 7 22 39 87
Municipal 7 22 39 87
PA Municipal 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 9;
GENERAL INFORMATION including INVESTMENT LIMITATIONS pertinent to all
portfolios begins on page 19;
SUMMARY PAGES for each portfolio's Objective, Policies and Strategies begin
on page 22;
The PROSPECTUS GLOSSARY which defines specific Allowable Investments,
Policies and Strategies printed in bold type throughout this Prospectus
begins on page 40;
GENERAL SHAREHOLDER INFORMATION begins on page 56.
3
<PAGE>
PROSPECTUS SUMMARY
EQUITY PORTFOLIOS
Emerging Markets - seeks to achieve long-term capital growth by investing
primarily in Common Stocks of Emerging Market Issuers.
Equity - seeks to achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk, by investing
primarily in a diversified portfolio of Common Stocks of companies which are
deemed by the Adviser to have earnings growth potential greater than the
economy in general and greater than the expected rate of inflation.
Growth - seeks to achieve long-term capital growth by investing primarily
in a diversified portfolio of Common Stocks of larger size companies that are
deemed by the Adviser to offer long-term growth potential.
International Equity - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of Foreign Equities.
Mid Cap Growth - seeks to achieve long-term capital growth by investing
primarily in a diversified portfolio of Common Stocks of smaller companies
that are deemed by the Adviser to offer long-term growth potential.
Mid Cap Value - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
in Common Stocks with equity capitalizations in the range of the companies
represented in the S&P MidCap 400 Index which are deemed by the Adviser to be
relatively undervalued based on certain proprietary measures of value. The
portfolio will typically exhibit a lower price/earnings value ratio than the
S&P MidCap 400 Index.
Small Cap Value - (not currently offered to new investors) seeks to
achieve above-average total return over a market cycle of three to five
years, consistent with reasonable risk, by investing primarily in a
diversified portfolio of Common Stocks with equity capitalizations in the
range of companies represented in the Russell 2000 Index which are deemed by
the Adviser to be relatively undervalued based on certain proprietary
measures of value. The portfolio will typically exhibit lower price/earnings
and price/book value ratios than the Russell 2000.
Value - seeks to achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by investing primarily
in a diversified portfolio of Common Stocks which are deemed by the Adviser
to be relatively undervalued based on various measures such as price/earnings
ratios and price/book ratios.
FIXED-INCOME PORTFOLIOS
Cash Reserves - seeks to realize maximum current income, consistent with
preservation of capital and liquidity, by investing in a diversified
portfolio of money-market instruments, Cash Equivalents and other short-term
securities having expected maturities of thirteen months or less. The
portfolio seeks to maintain, but does not guarantee, a constant net asset
value of $1.00 per share.
Domestic Fixed Income - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing in a diversified portfolio of U.S. Governments, Corporates rated
"A" or higher, Mortgage Securities, other Fixed-Income Securities rated "A"
or higher of domestic issuers and Derivatives. The portfolio's average
weighted maturity will ordinarily be greater than five years.
4
<PAGE>
Fixed Income - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in a diversified portfolio of U.S. Governments, Corporates,
Mortgage Securities, Foreign Bonds and other Fixed-Income Securities and
Derivatives. The portfolio's average weighted maturity will ordinarily exceed
five years.
Fixed Income II - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of U.S. Governments,
investment grade Corporates, Mortgage Securities, Foreign Bonds and other
Fixed-Income Securities (rated A or higher) and Derivatives. The portfolio's
average weighted maturity will ordinarily exceed five years.
Global Fixed Income - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in high-grade Fixed-Income Securities, Foreign Bonds and
Derivatives representing securities of United States and foreign issuers. The
portfolio's average weighted maturity will ordinarily exceed five years.
High Yield - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in a diversified portfolio of High Yield Securities, Corporates and
other Fixed-Income Securities (including bonds rated below investment grade)
and Derivatives. The portfolio's average weighted maturity will ordinarily
exceed five years.
Intermediate Duration - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of U.S. Governments and
investment-grade Corporates, Mortgage Securities, Foreign Bonds and other
Fixed-Income Securities and Derivatives. The portfolio will maintain an
average duration of between two and five years.
International Fixed Income - seeks to achieve above-average total return
over a market cycle of three to five years, consistent with reasonable risk,
by investing primarily in high-grade Foreign Bonds and Derivatives. The
portfolio's average weighted maturity will ordinarily exceed five years.
Limited Duration - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of U.S. Governments, Mortgage
Securities, investment-grade Corporates and other Fixed-Income Securities.
The portfolio will maintain an average duration of between one and three
years.
Mortgage-Backed Securities - seeks to achieve above-average total return
over a market cycle of three to five years, consistent with reasonable risk,
by investing primarily in a diversified portfolio of Mortgage Securities and
other Fixed-Income Securities and Derivatives. The portfolio's average
weighted maturity will ordinarily exceed seven years.
Municipal - seeks to realize above-average total return over a market
cycle of three to five years, consistent with conservation of capital and the
realization of current income which is exempt from federal income tax, by
investing primarily in a diversified portfolio of Municipals and other
Fixed-Income Securities and Derivatives, including a limited percentage of
bonds rated below investment grade. The portfolio's average weighted maturity
will ordinarily be between ten and thirty years.
PA Municipal - seeks to realize above-average total return over a market
cycle of three to five years, consistent with the conservation of capital and
the realization of current income which is exempt from federal income tax and
Pennsylvania personal income tax by investing in a diversified portfolio of
PA Municipals and other Fixed-Income Securities and Derivatives including a
limited percentage of bonds rated below investment grade. The portfolio's
average weighted maturity will ordinarily be between ten and thirty years.
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, Cor-
5
<PAGE>
porates, 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 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.
6
<PAGE>
SELECT EQUITY PORTFOLIO (NOT CURRENTLY OFFERED TO NEW INVESTORS)
The Select Equity Portfolio has the same investment objective as the
Equity Portfolio with the investment restriction that it not invest in
companies listed as of August 31, 1993 by the Investor Responsibility
Research Center as having direct investment or employees in South Africa. The
Portfolio is not currently accepting new investors.
RISK FACTORS: Prospective investors in the Fund should consider the
following factors as they apply to each Portfolio's allowable investments and
policies. See the Prospectus Glossary for more information on terms 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);
o From time to time Congress has considered proposals to restrict or
eliminate the tax-exempt status of Municipals. If such proposals were
enacted in the future, the Municipal Portfolio and the PA Municipal
Portfolio would reconsider their investment objectives and policies;
o Investments in securities rated below investment grade, generally
referred to as High Yield, high risk or junk bonds, carry a high degree
of credit risk and are considered speculative by the major rating
agencies;
o Investments in foreign securities involve certain special
considerations which are not typically associated with investing in
U.S. companies. See Foreign Investing. The portfolios investing in
foreign securities may also engage in foreign currency exchange
transactions. See Forwards, Futures & Options, and Swaps; and,
7
<PAGE>
o The Emerging Markets, Global Fixed Income, and International Fixed
Income Portfolios are Non-Diversified for purposes of the Investment
Company Act of 1940, as amended, meaning that they may invest a greater
percentage of assets in the securities of one issuer than other
portfolios.
HOW TO INVEST: Investment Class Shares of each portfolio are offered
directly to investors without a sales commission at the net asset value of
the portfolio next determined after receipt of the order. Share purchases may
be made by sending investments directly to the Fund, subject to acceptance by
the Fund. The minimum initial investment for Investment Class Shares is
$1,000,000 and the minimum for subsequent investments is $1,000. Purchases
may also be made through Shareholder Organizations who have a contractual
agreement with the Fund's distributor, including institutions such as trusts,
foundations or broker-dealers purchasing for the accounts of others. The Fund
also offers Institutional and 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.
8
<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 and incorporated by reference in the Statement of Additional
Information. The Fund's financial statements for the year ended September 30,
1995 have been examined by Price
Waterhouse LLP whose opinion thereon (which was unqualified) is also
incorporated by reference in the Statement of Additional Information.
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 end.
(Adjusted to reflect a 2.5 for 1 share split as of August 13, 1993 except for
the Emerging Markets, Mid Cap Value, Cash Reserves, Global Fixed Income,
Intermediate Duration, International Fixed Income 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>
Emerging Markets Portfolio (Commencment of Operations 2/28/95)
1995 $10.00 $0.10 $ 1.53 $ 1.63 -- -- --
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) --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<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>
Emerging Markets Portfolio (Commencment of Operations 2/28/95)
1995 -- $11.63 16.30% $ 42,459 1.18%*++ 2.04%* 63%
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
</TABLE>
*Annualized
**Total return figures for partial years are not annualized.
++For the period indicated, the Adviser 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 Emerging Markets
Portfolio from exceeding 1.18%. Voluntarily waived fees and reimbursed
expenses totalled 0.29%* for the period ended September 30, 1995.
##For the period ended September 30, 1995, the Ratio of Expenses to Average
Net Assets for the Emerging Markets and Equity Portfolios 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
Emerging Markets Portfolio and would be 0.60% for the Equity Portfolio.
9
<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>
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>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<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>
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 International Equity Portfolio excludes the effect of
expense offsets. If expense offsets were included, the Ratio of Expenses
to Average Net Assets would be 0.66%.
10
<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>
Mid Cap Growth Portfolio (Commencement of Operations 3/30/90)#
1995 $16.29 $0.03 $ 4.21 $ 4.24 ($ 0.03) ($ 1.90) --
1994 18.56 0.02 (0.58) (0.56) (0.01) (1.70) --
1993 14.51 0.01 4.80 4.81 -- (0.76) --
1992 14.92 0.01 0.44 0.45 (0.03) (0.83) --
1991 9.00 0.04 5.91 5.95 (0.03) -- --
1990 10.00 0.02 (1.01) (0.99) (0.01) -- --
Mid Cap Value Portfolio (Commencement of Operations 12/30/94)
1995 $10.00 $0.55o $ 2.90 $ 3.45 -- -- --
Small Cap Value Portfolio (Commencement of Operations 7/01/86)#
1995 $17.67 $0.19 $ 2.49 $ 2.68 ($ 0.14) ($ 1.93) --
1994 17.55 0.16 1.14 1.30 (0.24) (0.94) --
1993 12.84 0.18 4.64 4.82 (0.11) -- --
1992 11.45 0.10 1.48 1.58 (0.19) -- --
1991 7.20 0.23 4.21 4.44 (0.19) -- --
1990 10.42 0.28 (3.05) (2.77) (0.45) -- --
1989 8.54 0.34 1.74 2.08 (0.20) -- --
1988 10.24 0.18 (1.42) (1.24) (0.14) (0.32) --
1987 9.35 0.13 0.84 0.97 (0.08) -- --
1986 10.00 0.08 (0.73) (0.65) -- -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<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>
Mid Cap Growth Portfolio (Commencement of Operations 3/30/90)#
1995 ($ 1.93) $18.60 30.56% $373,547 0.61% 0.21% 129%
1994 (1.71) 16.29 (3.28) 302,995 0.60 0.12 55
1993 (0.76) 18.56 33.92 309,459 0.59 0.07 69
1992 (0.86) 14.51 2.87 192,817 0.60 0.05 39
1991 (0.03) 14.92 66.26 171,163 0.60 0.29 46
1990 (0.01) 9.00 (9.98) 76,398 0.64* 0.34* 23
Mid Cap Value Portfolio (Commencement of Operations 12/30/94)
1995 -- $13.45 34.50% $ 4,507 0.93%*++ 10.13%*o 639%o
Small Cap Value Portfolio (Commencement of Operations 7/01/86)#
1995 ($ 2.07) $18.28 18.39% $430,368 0.87% 1.20% 119%
1994 (1.18) 17.67 8.04 308,156 0.88 0.91 162
1993 (0.11) 17.55 37.72 175,029 0.88 1.33 93
1992 (0.19) 12.84 14.12 105,886 0.86 1.06 50
1991 (0.19) 11.45 63.07 52,182 0.88 1.70 53
1990 (0.45) 7.20 (27.63) 100,848 0.85 1.77 59
1989 (0.20) 10.42 24.85 189,223 0.85 3.48 36
1988 (0.46) 8.54 (11.50) 202,500 0.86 2.32 41
1987 (0.08) 10.24 10.53 201,621 0.92 1.67 38
1986 -- 9.35 (6.52) 87,755 0.902 2.274* 0
</TABLE>
*Annualized
**Total return figures for partial years are not annualized.
++For the period indicated, the Adviser 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.
#Formerly Emerging Growth Portfolio (through May 17, 1995) and Small
Capitalization Value Portfolio (through December 23, 1994)
##For the period ended September 30, 1995, the Ratio of Expenses to Average
Net Assets for the Mid Cap Growth and Mid Cap Value 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 0.88%*, respectively. For
the period ended September 30, 1995, the Ratio of Expenses to Average Net
Assets for the Small Cap 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.
oNet 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.
11
<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>
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>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<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>
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.
12
<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) -- --
Domestic Fixed Income Portfolio (Commencement of Operations 9/30/87)#
1995 $ 9.87 $0.52 $ 0.87 $ 1.39 ($ 0.23) ($ 0.23) --
1994 11.99 0.94 (1.23) (0.29) (0.95) ($ 0.73) ($0.15)+
1993 11.80 0.84 0.66 1.50 (0.78) (0.53) --
1992 11.34 0.87 0.76 1.63 (1.00) (0.17) --
1991 10.26 0.92 1.10 2.02 (0.94) -- --
1990 10.90 0.87 (0.45) 0.42 (0.96) (0.10) --
1989 10.78 0.86 0.08 0.94 (0.78) (0.04) --
1988 9.99 0.73 0.52 1.25 (0.45) (0.01) --
1987 10.00 -- (0.01) (0.01) -- -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
Total End of Total Period to Average to Average Turnover
Distributions Period Return** (thousands) Net Assets## Net Assets Rate
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Reserves Portfolio (Commencement of Operations 8/29/90)
1995 ($ .055) $ 1.000 5.57% $44,624 0.33%++ 5.45% N/A
1994 (.034) 1.000 3.40 37,933 0.32++ 3.70 N/A
1993 (.028) 1.000 2.81 10,717 0.32++ 2.78 N/A
1992 (.038) 1.000 3.89 12,935 0.32++ 3.95 N/A
1991 (.064) 1.000 6.63 24,163 0.32++ 6.57 N/A
1990 (.007) 1.000 0.74 23,285 0.48* 8.31* N/A
Domestic Fixed Income Portfolio (Commencement of Operations 9/30/87)#
1995 ($ 0.23) $11.03 14.33% $36,147 0.51%++ 6.80% 313%
1994 (1.83) 9.87 (2.87) 36,521 0.50++ 7.65 78
1993 (1.31) 11.99 14.08 90,350 0.50 7.15 96
1992 (1.17) 11.80 15.41 98,130 0.47 7.67 136
1991 (0.94) 11.34 20.99 83,200 0.48 8.18 131
1990 (1.06) 10.26 3.90 77,622 0.48 8.35 181
1989 (0.82) 10.90 9.14 68,855 0.49 8.24 219
1988 (0.46) 10.78 12.63 53,236 0.50 8.62 224
1987 -- 9.99 (0.10) 14,981 N/A N/A N/A
</TABLE>
*Annualized
**Total return figures for partial years are not annualized.
++For the period indicated, the Adviser 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 and
Domestic Fixed Income Portfolios from exceeding 0.32% and 0.50%
respectively for the periods indicated. 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 Cash Reserves
Portfolio. For 1994 and 1995, such fees and expenses were 0.03% and 0.09%,
respectively, for the Domestic Fixed Income Portfolio.
#Formerly Select Fixed Income Portfolio (through December 23, 1994)
##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. For the period ended September 30,
1995, the Ratio of Expenses to Average Net Assets for the Cash Reserves and
Domestic 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 0.50%, respectively.
13
<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>
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) --
Fixed Income Portfolio II (Commencement of Operations 8/31/90)
1995 $10.42 $0.71 $ 0.71 $ 1.42 ($ 0.51) -- --
1994 11.97 0.63 (1.16) (0.53) (0.67) ($ 0.21) ($ 0.14)+
1993 11.67 0.69 0.77 1.46 (0.61) (0.55) --
1992 11.34 0.77 0.61 1.38 (0.81) (0.24) --
1991 10.09 0.81 1.10 1.91 (0.66) -- --
1990 10.00 0.04 0.05 0.09 -- -- --
Global Fixed Income Portfolio (Commencement of Operations 4/30/93)
1995 $10.20 $0.71 $ 0.81 $ 1.52 ($ 0.67) -- --
1994 10.67 0.58 (0.61) (0.03) (0.41) (0.03) --
1993 10.00 0.13 0.61 0.74 (0.07) -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<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>
Fixed Income Portfolio (Commencement of Operations 11/14/84)
1995 ($ 0.60) $11.82 14.19% $1,487,409 0.49% 7.28% 140%
1994 (1.42) 10.93 (4.43) 1,194,957 0.49 6.79 100
1993 (1.44) 12.86 14.26 909,738 0.47 7.06 144
1992 (1.17) 12.67 14.35 859,712 0.47 7.50 137
1991 (0.93) 12.20 21.12 831,547 0.47 8.25 143
1990 (1.13) 10.94 3.79 666,736 0.46 8.43 209
1989 (0.77) 11.64 9.25 559,995 0.47 8.36 100
1988 (0.86) 11.40 13.43 405,385 0.49 8.91 168
1987 (1.41) 10.86 2.55 290,824 0.52 8.54 202
1986 (1.16) 11.95 21.27 95,898 0.55 8.39 169
Fixed Income Portfolio II (Commencement of Operations 8/31/90)
1995 ($ 0.51) $11.33 14.13% $ 176,945 0.51% 6.75% 153%
1994 (1.02) 10.42 (4.76) 129,902 0.51 6.07 137
1993 (1.16) 11.97 13.53 94,836 0.51 6.17 101
1992 (1.05) 11.67 13.02 78,302 0.49 7.05 182
1991 (0.66) 11.34 19.59 42,881 0.49 7.76 190
1990 -- 10.09 0.88 20,729 0.52* 8.00* 7
Global Fixed Income Portfolio (Commencement of Operations 4/30/93)
1995 ($ 0.67) $11.05 15.54% $ 55,147 0.58% 6.34% 118%
1994 (0.44) 10.20 (0.29) 43,066 0.57 5.48 117
1993 (0.07) 10.67 7.43 53,164 0.58*++ 5.08* 30
</TABLE>
*Annualized
**Total return figures for partial years are not annualized.
+Represents distributions in excess of realized net gain.
++For the period indicated, the Adviser 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 Global Fixed
Income Portfolio from exceeding 0.58%. Voluntarily waived fees and
reimbursed expenses totalled 0.18%* for the Global Fixed Income Portfolio
in 1993.
##For the period ended September 30, 1995, the Ratio of Expenses to Average
Net Assets for the Fixed Income, Fixed Income II and Global Fixed Income
Portfolios excludes the effect of expense offsets. If expense offsets were
included, the Ratio of Expenses to Average Net Assets would be 0.48%, 0.49%
and 0.56%, respectively.
14
<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) -- --
Intermediate Duration Portfolio (Commencement of Operations 10/3/94)#
1995 $10.00 $0.69 $ 0.42 $ 1.11 ($ 0.43) -- --
International Fixed Income Portfolio (Commencement of Operations 4/29/94)
1995 $10.05 $0.67 $ 0.92 $ 1.59 ($ 0.63) -- --
1994 10.00 0.21 (0.11) 0.10 (0.05) -- --
Limited Duration Portfolio (Commencement of Operations 3/31/92)#
1995 $10.19 $0.56 $ 0.22 $ 0.78 ($ 0.55) -- ($0.01)+
1994 10.72 0.56 (0.52) 0.04 (0.51) (0.04) ($0.02)+
1993 10.58 0.32 0.22 0.54 (0.32) (0.08) --
1992 10.00 0.19 0.49 0.68 (0.10) -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
Total End of Total Period to Average to Average Turnover
Distributions Period Return** (thousands) Net Assets## Net Assets Rate
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
High Yield Portfolio (Commencement of Operations 2/28/89)#
1995 ($ 0.98) $ 9.08 13.58% $220,785 0.50% 10.68% 96%
1994 (0.85) 8.97 3.57 182,969 0.50 9.01 112
1993 (0.72) 9.49 20.12 50,396 0.53++ 8.94 99
1992 (0.85) 8.58 22.49 20,491 0.53++ 9.74 148
1991 (1.51) 7.80 36.70 6,453 0.76 19.45 106
1990 (1.45) 7.07 (16.26) 4,820 0.82 16.93 65
1989 (0.13) 9.98 0.91 3,479 0.73* 11.66* 17
Intermediate Duration Portfolio (Commencement of Operations 10/3/94)#
1995 ($ 0.43) $10.68 11.39% $ 19,237 0.52%*++ 6.56%* 168%
International Fixed Income Portfolio (Commencement of Operations 4/29/94)
1995 ($ 0.63) $11.01 16.36% $127,882 0.54% 6.35%* 140%
1994 (0.05) 10.05 1.01 66,879 0.60*++ 5.83* 31
Limited Duration Portfolio (Commencement of Operations 3/31/92)#
1995 ($ 0.56) $10.41 7.95% $100,186 0.43%++ 5.96% 119%
1994 (0.57) 10.19 0.40 62,775 0.41 4.16 192
1993 (0.40) 10.72 5.33 128,991 0.42++ 3.92 217
1992 (0.10) 10.58 6.90 13,065 0.49* 4.99* 159
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
+ Represents distributions in excess of realized net gain.
++ For the period indicated, the Adviser 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,
Intermediate Duration, International Fixed Income and Limited Duration
Portfolios from exceeding 0.525%, 0.52%, 0.60%, and 0.42%, respectively.
Voluntarily waived fees and reimbursed expenses totalled 0.22% and 0.09%
in 1992 and 1993 for the High Yield Portfolio; 0.08%* for the period ended
September 30, 1995 for the Intermediate Duration Portfolio; 0.11%* in 1994
for the International Fixed Income Portfolio; and 0.03% and 0.02% for the
years ended September 30, 1993 and 1995, respectively.
# Formerly High Yield Securities Portfolio and Intermediate Duration Fixed
Income Portfolio, respectively (through December 23, 1994)
## For the period ended September 30, 1995, the Ratio of Expenses to Average
Net Assets for the Intermediate Duration and International Fixed Income
Portfolios 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 High Yield and Limited Duration
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
0.42%, respectively.
15
<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>
Mortgage-Backed Securities Portfolio (Commencement of Operations 1/31/92)
1995 $ 9.95 $0.72 $ 0.47 $ 1.19 ($ 0.65) -- --
1994 10.95 0.52 (0.83) (0.31) (0.45) ($ 0.21) ($0.03)+
1993 10.44 0.63 0.48 1.11 (0.60) -- --
1992 10.00 0.29 0.28 0.57 (0.13) -- --
Municipal Portfolio (Commencement of Operations 10/01/92)#
1995 $10.04 $0.59 $ 0.71 $ 1.30 ($ 0.59) -- --
1994 11.15 0.51 (1.01) (0.50) (0.54) -- ($0.07)+
1993 10.00 0.37 1.04 1.41 (0.26) -- --
PA Municipal Portfolio (Commencement of Operations 10/01/92)#
1995 $10.13 $0.58 $ 0.77 $ 1.35 ($ 0.57) -- --
1994 11.26 0.56 (1.00) (0.44) (0.64) ($ 0.05) --
1993 10.00 0.39 1.17 1.56 (0.30) -- --
Special Purpose Fixed Income Portfolio (Commencement of Operations 3/31/92)
1995o $11.52 $0.91 $ 0.75 $ 1.66 ($ 0.65) -- --
1994 13.40 0.80 (1.28) (0.48) (0.78) ($ 0.53) ($0.09)+
1993 12.72 0.88 0.92 1.80 (0.82) (0.30) --
1992 11.80 0.39 0.72 1.11 (0.19) -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
Total End of Total Period to Average to Average Turnover
Distributions Period Return** (thousands) Net Assets## Net Assets Rate
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage-Backed Securities Portfolio (Commencement of Operations 1/31/92)
1995 ($ 0.65) $10.49 12.52% $ 49,766 0.50%++ 6.35% 107%
1994 (0.69) 9.95 (2.95) 119,518 0.50++ 5.30 220
1993 (0.60) 10.95 11.03 50,249 0.50++ 6.92 93
1992 (0.13) 10.44 5.75 13,601 0.50*++ 8.11* 133
Municipal Portfolio (Commencement of Operations 10/01/92)#
1995 ($ 0.59) $10.75 13.37% $ 36,040 0.50%++ 5.64% 58%
1994 (0.61) 10.04 (4.64) 38,549 0.50++ 4.98 34
1993 (0.26) 11.15 14.20 26,914 0.50*++ 4.65* 66
PA Municipal Portfolio (Commencement of Operations 10/01/92)#
1995 ($ 0.57) $10.91 13.74% $ 15,734 0.50%++ 5.56% 57%
1994 (0.69) 10.13 (4.08) 23,515 0.50++ 5.39 69
1993 (0.30) 11.26 15.81 15,633 0.50*++ 4.74* 94
Special Purpose Fixed Income Portfolio (Commencement of Operations 3/31/92)
1995o ($ 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 realized net gain.
++For the period indicated, the Adviser 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 Mortgage-Backed
Securities, Municipal and PA Municipal Portfolios from exceeding 0.50% and
0.50%, 0.50%, respectively, for the periods indicated. Voluntarily waived
fees and reimbursed expenses totalled 0.30%*, 0.06%, 0.01% and 0.01% for
the period ended September 30, 1992, and the years ended 1993, 1994 and
1995, respectively, for the Mortgage-Backed Securities Portfolio; 0.20%*,
0.06% and 0.09% in 1993, 1994 and 1995 for the Municipal Portfolio; and
0.25%*, 0.09% and 0.19%* for 1993, 1994 and 1995, respectively, for the PA
Municipal Portfolio.
+Represents distributions in excess of net investment income.
#Formerly Municipal Fixed Income Portfolio and Pennsylvania Municipal Fixed
Income Portfolio, respectively (through December 23, 1994)
##For the period ended September 30, 1995, the Ratio of Expenses to Average
Net Assets for the Mortgage-Backed Securities and the Municipal Portfolios
excludes the effect of expense offsets. If expense offsets were included,
the Ratio of Expenses to Average Net Assets would not significantly differ.
The PA Municipal Portfolio had no such expense offsets. For the period
ended September 30, 1995, the Ratio of Expenses to Average Net Assets for
the Special Purpose Fixed Income Portfolio excludes the effect of expense
offsets. If expense offsets were included, the Ratio of Expenses to Average
Net Assets would be 0.48%.
16
<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) -- -- --
Select Equity Portfolio (Commencement of Operations 2/26/88)
1995 $17.29 $0.27 $ 2.07 $ 2.34 ($ 0.30) ($ 7.53) --
1994 18.41 0.71 0.06 0.77 (0.70) (1.19) --
1993 17.65 0.31 1.49 1.80 (0.32) (0.72) --
1992 16.09 0.32 1.76 2.08 (0.31) (0.21) --
1991 11.86 0.34 4.26 4.60 (0.33) (0.04) --
1990 13.69 0.30 (1.63) (1.33) (0.34) (0.16) --
1989 10.90 0.38 2.82 3.20 (0.34) (0.07) --
1988 10.00 0.19 0.82 1.01 (0.11) -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<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
Select Equity Portfolio (Commencement of Operations 2/26/88)
1995 ($ 7.83) $11.80 26.22% $ 29,581 0.62%++ 2.48% 73%
1994 (1.89) 17.29 4.50 29,155 0.62++ 1.75 27
1993 (1.04) 18.41 10.46 295,050 0.60 1.78 33
1992 (0.52) 17.65 13.26 205,264 0.60 1.89 19
1991 (0.37) 16.09 39.48 118,557 0.60 2.41 29
1990 (0.50) 11.86 (10.07) 71,481 0.61 2.75 39
1989 (0.41) 13.69 30.20 34,415 0.64 3.29 35
1988 (0.11) 10.90 10.13 20,541 0.70* 3.13* 16
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
++ For the period indicated, the Adviser 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 and the Select Equity Portfolios from exceeding 0.58% and 0.61%,
respectively. Voluntarily waived fees for 1994 and 1995 were 0.26% and
0.14%, respectively, for the Multi-Asset-Class Portfolio; for the Select
Equity Portfolio, such fees were less than 0.01% and 0.13%* for 1994 and
1995, 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 and Select Equity Portfolios excludes the effect of expense
offsets. If expense offsets were included, the Ratio of Expenses to
Average Net Assets would be 0.57% and 0.61%, respectively.
17
<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.
The Municipal and PA Municipal Portfolios may also advertise or quote
tax-equivalent yields and after-tax total returns. A tax-equivalent yield
shows the level of taxable yield needed to produce an after-tax equivalent to
the portfolio's tax-free yield. This is done by increasing the portfolio's
yield (computed as above) by the amount necessary to reflect the payment of
Federal income tax (and Pennsylvania income tax, in the case of the PA
Municipal Portfolio) at a tax rate stated in the advertisement or quote. An
after-tax return reflects the average annual of cumulative change in value
over the measuring period after the deduction of taxes at rates stated in the
advertisement or quote.
From time to time the Cash Reserves Portfolio may advertise or quote its
yield and effective yield. The yield of the Cash Reserves Portfolio refers to
the income generated by an investment in the portfolio over a stated seven
day period. This income is then annualized. That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment.
The effective yield is calculated similarly, but the income earned over the
seven day period by an investment in the portfolio is assumed to be
reinvested when the return is annualized. The "effective yield" will be
higher than the yield because of the compounding effect of this assumed
reinvestment.
The performance of a portfolio may be compared to data prepared by
independent services which monitor the performance of investment companies,
data reported in financial and industry publications, returns of other
investment advisers and mutual funds, and various indices as further
described in the Statement of Additional Information.
The performance of Institutional Class Shares, Investment Class Shares and
Adviser Class Shares will differ because of any class specific expenses paid
by each class and the shareholder servicing fees charged to the Investment
Class Shares and distribution fees charged to Adviser Class Shares.
18
<PAGE>
The Annual Report to Shareholders of the Fund for the Fund's most recent
fiscal year-end contains additional performance information that includes
comparisons with appropriate indices. The Annual Report is available without
charge upon request by writing to the Fund or calling the Client Services
Group at the telephone number shown on the front cover of this Prospectus.
GENERAL INFORMATION:
The following information relates to each portfolio of the Fund and should be
read in conjunction with the specific information about each portfolio.
Objectives: Each portfolio seeks to achieve its investment objective relative
to the universe of securities in which it is authorized to invest and,
accordingly, the total return or current income achieved by a portfolio may
not be as great as that achieved by another portfolio that can invest in a
broader range of securities. Fixed-Income Portfolios will seek to produce
total return by actively trading portfolio securities. The objective of each
portfolio is fundamental and may only be changed with approval of holders of
a majority of the shares of each portfolio. The achievement of any
portfolio's objective cannot be assured.
Suitability: The Fund's portfolios are designed for long-term investors who
can accept the risks entailed in investing in the stock and bond markets, and
are not meant to provide a vehicle for playing short-term swings in the
market. The Fund's portfolios are designed principally for the investments of
tax-exempt fiduciary investors who are entrusted with the responsibility of
investing assets held for the benefit of others. Since such investors are not
subject to Federal income taxes, securities transactions for all portfolios
except the Municipal and PA Municipal Portfolios will not be influenced by
the different tax treatment of long-term capital gains, short-term capital
gains, and dividend income under the Internal Revenue Code. Investments in
the Municipal and PA Municipal Portfolios are suitable for taxable investors
who would benefit from the portfolios' tax-exempt income.
Securities Lending/Restrictions: Each portfolio may lend its securities to
qualified brokers, dealers, banks and other financial institutions for the
purpose of realizing additional income. Loans of securities will be
collateralized by cash, letters of credit, or securities issues or guaranteed
by the U.S. Government or its agencies. The collateral will equal at least
100% of the current market value of the loaned securities. In addition, a
portfolio will not loan its portfolio securities to the extent that greater
than one-third of its total assets, at fair market value, would be commited
to loans at that time.
Illiquid Securities/Restricted Securities: Each of the portfolios may 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 may
exceed 100% due to changes in portfolio duration, yield curve strategy or
commitments to forward delivery mortgage-backed securities.
19
<PAGE>
Portfolio turnover rates for certain portfolios are as follows: International
Equity -- 112%, Mid Cap Growth -- 129%, Mid Cap Value -- 639%, Domestic Fixed
Income -- 313%, Fixed Income -- 140%, Fixed Income II -- 153%, Global Fixed
Income -- 118%, Intermediate Duration -- 168%, International Fixed Income --
140%, Limited Duration -- 119%, Mortgage-Backed Securities -- 107%, 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 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.
Select Equity Portfolio: The Select Equity Portfolio has the same investment
objective as the Equity Portfolio with the investment restriction that it
will not invest in companies listed as of August 31, 1993 by the Investor
Responsibility Research Center as having any direct investment or employees
in South Africa. The Select Equity Portfolio is not currently accepting new
investors. The Investor Responsibility Research Center (IRRC) is an
independent, not-for-profit corporation that conducts research and publishes
impartial reports on contemporary social and public policy issues and the
impact of those issues on major corporations and institutional investors. In
May 1986 the IRRC's South Africa Review Section first published a
comprehensive directory of U.S. and Canadian companies which do business in
South Africa.
Investment Limitations: Each portfolio is subject to certain limitations
designed to reduce its exposure to specific situations. Some of these
limitations are:
(a) with respect to 75% of its assets, a portfolio will not purchase
securities of any issuer if, as a result, more than 5% of the portfolio's
total assets taken at market value would be invested in the securities of any
single issuer except that this restriction does not apply to securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. This limitation is not applicable to the Global Fixed
Income, International Fixed Income and Emerging Markets Portfolios. However,
these portfolios will comply with the diversification requirements imposed by
Sub-Chapter M of the Internal Revenue Code;
(b) with respect to 75% of its assets, a Portfolio will not purchase a
security if, as a result, the portfolio would hold more than 10% of the
outstanding voting securities of any issuer. This limitation is not
applicable to the Global Fixed Income, International Fixed Income and
Emerging Markets Portfolios. However, these portfolios will comply with the
diversification requirements imposed by Sub-Chapter M of the Internal Revenue
Code;
(c) a portfolio will not invest more than 5% of its total assets in the
securities of issuers (other than securities issued or guaranteed by U.S. or
foreign governments or political subdivisions thereof) which have (with
predecessors) a record of less than three years of continuous operation;
20
<PAGE>
(d) a portfolio will not acquire any securities of companies within one
industry, if, as a result of such acquisition, more than 25% of the value of
the portfolio's total assets would be invested in securities of companies
within such industry; provided, however, that (1) there shall be no
limitation on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ; (2) the Cash Reserves
Portfolio may invest without limitation in certificates of deposit or
bankers' acceptances of domestic banks; (3) utility companies will be divided
according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; (4) financial service
companies will be classified according to the end users of their services,
for example, automobile finance, bank finance and diversified finance will
each be considered a separate industry; (5) asset-backed securities will be
classified according to the underlying assets securing such securities, and
(6) the Mortgage-Backed Securities Portfolio will concentrate in
mortgage-backed securities.
(e) a portfolio will not make loans except (i) by purchasing debt securities
in accordance with its investment objectives and policies, or entering into
Repurchase Agreements, (ii) by lending its portfolio securities and (iii) by
lending portfolio assets to other portfolios of the Fund, so long as such
loans are not inconsistent with the Investment Company Act of 1940, as
amended or the Rules and Regulations, or interpretations or orders of the
Securities and Exchange Commission thereunder;
(f) a portfolio will not borrow money, except (i) as a temporary measure for
extraordinary or emergency purposes or (ii) in connection with reverse
repurchase agreements provided that (i) and (ii) in combination do not exceed
33 1/3 % of the portfolio's total assets (including the amount borrowed) less
liabilities (exclusive of borrowings);
(g) a portfolio will not pledge, mortgage, or hypothecate any of its assets
to an extent greater than 50% of its total assets at fair market value; and
(h) a portfolio will not invest its assets in securities of any Investment
Company, except by purchase in the open market involving only customary
brokers' commissions or in connection with mergers, acquisitions of assets or
consolidations and except as may otherwise be permitted by the Investment
Company Act of 1940, as amended.
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.
21
<PAGE>
Emerging Markets Portfolio - (a non-diversified portfolio)
Objective: To achieve long-term capital growth by investing
primarily in common stocks of emerging markets
issuers.
Approach: The Adviser evaluates both short-term and long-term
international economic trends and relative
attractiveness of emerging markets and individual
emerging market securities.
Policies: Generally at least 65% invested in Equity Securities
of Emerging Markets Issuers Derivatives may be used
to pursue portfolio strategy
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: Emerging Markets Issuers Foreign Equities ADRs Eastern European Issuers
Investment Funds Foreign Currency Forwards Cash Equivalents
Repurchase Agreements Common Stocks Preferred Stock Convertibles
U.S. Governments Zero Coupons Agencies Corporates
High Yield Foreign Bonds Futures & Options Swaps
Investment Companies When Issued Rights Warrants
Brady Bonds Loan Participations Structured Investments
Structured Notes
</TABLE>
Comparative Index: MSCI Emerging Markets Free Index
Strategies: Emerging Markets Investing
Foreign Investing
Non-Diversified Status
- -----------------------------------------------------------------------------
Equity Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with
reasonable risk, by investing primarily in
dividend-paying common stocks of companies which are
deemed by the Adviser to demonstrate long-term
earnings growth that is greater than the economy in
general and greater than the expected rate of
inflation.
Approach: The Adviser evaluates both short-term and long-term
economic trends and their impact on corporate profits
and the relative value offered by different sectors
and securities within the equity markets. Individual
securities are selected based on fundamental business
and financial factors (such as earnings growth,
financial position, price volatility, and dividend
payment records) and the measurement of those factors
relative to the current market price of the security.
Policies: Generally at least 65% invested in Equity Securities
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally greater than $1 billion
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
</TABLE>
Comparative Index: S&P 500 Index
Strategies: Core Equity Investing
22
<PAGE>
Growth Portfolio
Objective: To achieve long-term capital growth by investing
primarily in common stocks of large size companies
which the Adviser believes offer long-term growth
potential.
Approach: The Adviser selects common stocks which meet certain
criteria which the Adviser believes are related to the
stability and growth of the fundamental
characteristics of the company.
Policies: Generally at least 65% invested in Equity Securities
of companies offering long-term growth potential Up to
5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally greater than $1 billion
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
</TABLE>
Comparative Index: S&P 500 Index
Strategy: Growth Stock Investing
- -----------------------------------------------------------------------------
International Equity Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with
reasonable risk, by investing in common stocks of
companies based outside of the United States.
Approach: The Adviser evaluates both short-term and long-term
international economic trends and the relative
attractiveness of non-U.S. equity markets and
individual securities.
Policies: Generally at least 65% invested in Foreign Equities of
issuers in at least 3 countries other than the U.S.
Derivatives may be used to pursue portfolio strategy
<TABLE>
<CAPTION>
<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
23
<PAGE>
Mid Cap Growth Portfolio
Objective: To achieve long-term capital growth by investing
primarily in common stocks of smaller and medium size
companies which are deemed by the Adviser to offer
long-term growth potential. Due to its emphasis on
long-term capital growth, dividend income will be
lower than for the Equity and Value Portfolios.
Approach: MAS screens a universe of about 900 companies to find
a relatively small number of high quality companies
that it believes have passed the earliest and riskiest
stages of growth. MAS selects individual stocks by
fundamental business and financial factors relative to
the current market price. The fund will purchase
shares of companies that MAS believes are capable of
sustaining short-term and long-term earnings growth
and that are capable of producing positive earnings
surprises relative to consensus earnings estimates.
Policies: Generally at least 65% invested in Equity Securities
of mid-cap companies offering long-term growth
potential Up to 5% invested in Foreign Equities
(excluding ADRs) Derivatives may be used to pursue
portfolio strategy
Capitalization Range: Generally $300 million to $3 billion
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
</TABLE>
Comparative Index: S&P MidCap 400 Index
Strategies: Growth Stock Investing
- -----------------------------------------------------------------------------
Mid Cap Value Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with
reasonable risk, by investing in common stocks with
equity capitalizations in the range of the companies
represented in the S&P MidCap 400 Index which are
deemed by the Adviser to be relatively undervalued
based on certain proprietary measures of value. The
Portfolio will typically exhibit a lower
price/earnings value ratio than the S&P MidCap 400
Index.
Approach: The Adviser selects common stocks which are deemed to
be undervalued at the time of purchase, based on
proprietary measures of value. The Portfolio will be
structured taking into account the economic sector
weights of the S&P MidCap 400 Index, with sector
weights normally being within 5% of the sector weights
of the Index.
Policies: Generally at least 65% invested in Equity Securities
of mid-cap companies deemed to be undervalued Up to 5%
invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally matching the S&P MidCap 400 Index
(currently $500 million to $3 billion)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable 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
24
<PAGE>
Small Cap Value Portfolio (not currently being offered to new investors)
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with
reasonable risk, by investing in common stocks with
equity capitalizations in the range of the companies
represented in the Russell 2000 Small Stock Index
which are deemed by the Adviser to be relatively
undervalued based on certain proprietary measures of
value. The Portfolio will typically exhibit lower
price/earnings and price/book value ratios than the
Russell 2000. Dividend income will typically be lower
than for the Equity and Value Portfolios.
Approach: The Adviser selects common stocks which are deemed to
be undervalued at the time of purchase, based on
proprietary measures of value. The Portfolio will be
structured taking into account the economic sector
weights of the Russell 2000 Index, with the
portfolio's sector weights normally being within 5% of
the sector weights for the Index.
Policies: Generally at least 65% invested in Equity Securities
of small-cap companies deemed to be undervalued Up to
5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally matching the Russell 2000 size distribution
(currently $50 million to $800 million)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
</TABLE>
Comparative Index: Russell 2000 Index
Strategies: Value Stock Investing
- -----------------------------------------------------------------------------
Value Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with
reasonable risk, by investing in common stocks with
equity capitalizations usually greater than $300
million which are deemed by the Adviser to be
relatively undervalued, based on various measures such
as price/earnings ratios and price/book ratios. While
capital return will be emphasized somewhat more than
income return, the Portfolio's total return will
consist of both capital and income returns. It is
expected that income return will be higher than that
of the Equity Portfolio because stocks which are
deemed to be undervalued in the marketplace have,
under most market conditions, provided higher dividend
income returns than stocks which are deemed to have
long-term earnings growth potential which normally
sell at higher price/earnings ratios.
Approach: The Adviser selects common stocks which are deemed to
be undervalued relative to the stock market in general
as measured by the Standard & Poor's 500 Index, based
on the value measures such as price/earnings ratios
and price/book ratios, as well as fundamental
research.
Policies: Generally at least 65% invested in Equity Securities
deemed to be undervalued Up to 5% invested in Foreign
Equities (excluding ADRs) Derivatives may be used to
pursue portfolio strategy
Capitalization Range: Generally greater than $300 million
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
</TABLE>
Comparative Index: S&P 500 Index
Strategy: Value Stock Investing
25
<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 Zero Coupons
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: Cash Equivalents Repurchase Agreements U.S. Governments Floaters
Corporates Agencies Asset-Backeds Investment Companies
</TABLE>
Comparative Index: Lipper Money Market Index
Strategy: Money Market Investing
- -----------------------------------------------------------------------------
Domestic Fixed Income Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with
reasonable risk, by investing in a diversified
portfolio of U.S. Government securities, corporate
bonds rated A or higher, and other fixed-income
securities rated A or higher of domestic issuers. The
Portfolio's average weighted maturity will ordinarily
be greater than five years.
Approach: The Adviser actively manages the maturity and duration
structure of the portfolio in anticipation of
long-term trends in interest rates and inflation.
Investments are diversified among a wide variety of
U.S. Fixed-Income Securities (rated as A or higher at
the time of purchase) in all market sectors.
Policies: Generally at least 65% invested in Fixed-Income
Securities 100% invested in domestic issuers May
invest greater than 50% in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 100% of securities rated A or higher
Maturity and Duration: Average weighted maturity generally greater
than 5 years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
Mortgage Securities SMBS CMOs Asset-Backeds
When Issued Convertibles Floaters Inverse Floaters
Structured Notes Futures & Options Swaps Cash Equivalents
Repurchase Agreements Municipals Preferred Stock Investment Companies
</TABLE>
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
26
<PAGE>
Fixed Income Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with
reasonable risk, by investing in a diversified
portfolio of U.S. Government securities, corporate
bonds (including bonds rated below investment grade,
commonly referred to as junk bonds), foreign fixed-
income securities and mortgage-backed securities of
domestic issuers and other fixed-income securities.
The Portfolio's average weighted maturity will
ordinarily be greater than five years.
Approach: The Adviser actively manages the maturity and duration
structure of the Portfolio in anticipation of
long-term trends in interest rates and inflation.
Investments are diversified among a wide variety of
Fixed-Income Securities in all market sectors.
Policies: Generally at least 65% invested in Fixed-Income
Securities May invest greater than 50% in Mortgage
Securities Derivatives may be used to pursue portfolio
strategy
Quality Specifications: 80% Investment Grade Securities Up to 20% High Yield
Maturity and Duration: Average weighted maturity generally greater than
5 years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
High Yield Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Foreign Bonds
Brady Bonds Foreign Currency Forwards Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Municipals Preferred Stock
Investment Companies Loan Participations
</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
27
<PAGE>
Fixed Income Portfolio II
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with
reasonable risk, by investing in a diversified
portfolio of U.S. Government securities, investment
grade corporate bonds and other fixed-income
securities (rated A or higher). The Portfolio's
average weighted maturity will ordinarily be greater
than five years.
Approach: The Adviser actively manages the maturity and duration
structure of the portfolio in anticipation of
long-term trends in interest rates and inflation.
Investments are diversified among a wide variety of
Fixed-Income Securities (rated A or higher at the time
of purchase) 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: Individual securities rated A or higher
Maturity and Duration: Average weighted maturity generally greater than
5 years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable U.S. Governments Zero Coupons Agencies Corporates
Investments: Mortgage Securities SMBS CMOs Asset-Backeds
When Issued Convertibles Foreign Bonds Brady Bonds
Foreign Currency Forwards Floaters Inverse Floaters
Structured Notes Futures & Options Swaps Cash Equivalents
Repurchase Agreements Municipals Preferred Stock Investment Companies
</TABLE>
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Fixed Income Investing
Foreign Investing
28
<PAGE>
Global Fixed Income Portfolio - (a non-diversified portfolio)
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with
reasonable risk, by investing in high grade
fixed-income securities of United States and foreign
issuers. Total return is the combination of income and
changes in value. The Portfolio's average weighted
maturity will ordinarily be greater than five years.
Approach: The Adviser manages the duration, country, and
currency exposure of the Portfolio by combining
fundamental research on relative values with analyses
of economic, interest-rate, and exchange-rate trends.
MAS will invest in mortgage and corporate bonds when
it believes they offer the most value, although most
foreign currency denominated investments are in
government and supranational securities.
Policies: Generally at least 65% invested in Fixed-Income
Securities of issuers in at least 3 countries, one of
which may be the U.S.
Derivatives may be used to represent country
investments, and otherwise pursue portfolio strategy
Quality Specifications: 95% Investment Grade Securities
Maturity and Duration: Average weighted maturity generally greater than 5
years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Foreign Bonds Foreign Currency Forwards U.S. Governments
Investments: Zero Coupons Agencies Corporates Mortgage Securities
CMOs SMBS Asset-Backeds Floaters
Futures & Options Swaps Cash Equivalents Emerging Markets Issuers
Eastern European Issuers Convertibles When Issued Brady Bonds
Inverse Floaters Structured Notes Repurchase Agreements Municipals
Preferred Stock Investment Companies
</TABLE>
Comparative Index: Salomon World Government Bond Index
Strategies: Foreign Fixed Income Investing
Maturity and Duration Management
Value Investing
Foreign Investing
Non-Diversified Status
Emerging Markets Investing
Mortgage Investing
29
<PAGE>
High Yield Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with
reasonable risk, by investing in high yielding
corporate fixed-income securities (including bonds
rated below investment grade, commonly referred to as
junk bonds). The Portfolio may also invest in U.S.
Government securities, mortgage-backed securities,
investment grade corporate bonds and in short- term
fixed-income securities, such as certificates of
deposit, treasury bills, and commercial paper. The
Portfolio expects to achieve its objective through
maximizing current income, although the Portfolio may
seek capital growth opportunities when consistent with
its objective. The Portfolio's average weighted
maturity will ordinarily be greater than five years.
Approach: The Adviser uses equity and fixed-income valuation
techniques and analyses of economic and industry
trends to determine portfolio structure. Individual
securities are selected, and monitored, by fixed-
income portfolio managers who specialize in corporate
bonds and use in-depth financial analysis to uncover
opportunities in undervalued issues.
Policies: Generally at least 65% invested in High Yield
(including bonds rated below investment grade,
commonly referred to as junk bonds)
Derivatives may be used to pursue portfolio strategy
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5
years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable High Yield Corporates U.S. Governments Zero Coupons
Investments: Agencies Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Foreign Bonds
Brady Bonds Foreign Currency Forwards Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Municipals Preferred Stock
Investment Companies Loan Participations Eastern European Issuers Emerging Markets Issuers
Foreign Equities
</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
30
<PAGE>
Intermediate Duration Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with
reasonable risk, by investing in a diversified
portfolio of U.S. Government securities and investment
grade corporate, foreign and other investment grade
fixed-income securities. The Portfolio will maintain
an average duration of between two and five years.
Approach: The Adviser constructs a portfolio with a duration
between two and five years by actively managing the
maturity and duration structure of the portfolio in
anticipation of long-term trends in interest rates and
inflation. Investments are diversified among a wide
variety of investment grade Fixed-Income Securities in
all market sectors.
Policies: Generally at least 65% invested in Fixed-Income
Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 100% Investment Grade Securities
Maturity and Duration: Average duration between two and five years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable U.S. Governments Zero Coupons Agencies Corporates
Investments: Mortgage Securities SMBS CMOs Asset-Backeds
When Issued Convertibles Foreign Bonds Brady Bonds
Foreign Currency Forwards Floaters Inverse Floaters
Structured Notes Futures & Options Swaps Cash Equivalents
Repurchase Agreements Municipals Preferred Stock Investment Companies
</TABLE>
Comparative Index: Lehman Brothers Intermediate Government/Corporate Index
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Fixed Income Investing
Foreign Investing
31
<PAGE>
International Fixed Income Portfolio - (a non-diversified portfolio)
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with
reasonable risk, by investing primarily in high-grade
fixed-income securities of foreign issuers.
Approach: The Adviser manages the duration, country, and
currency exposure of the portfolio by combining
fundamental research on relative values with analyses
of economic, interest-rate, and exchange-rate trends.
MAS will invest in mortgage and corporate bonds when
it believes they offer the most value, although most
foreign currency denominated investments are in
government and supranational securities.
Policies: Generally at least 80% invested in Fixed-Income
Securities of issuers in at least 3 countries other
than the U.S.
Derivatives may be used to represent country
investments, and otherwise pursue portfolio strategy
Quality Specifications: 95% Investment Grade Securities
Maturity and Duration: Average weighted maturity generally greater than 5
years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Foreign Bonds Foreign Currency Forwards Floaters
Investments: Futures & Options Swaps Cash Equivalents U.S. Governments
Zero Coupons Agencies Corporates Mortgage Securities
CMOs SMBS Asset-Backeds Emerging Markets Issuers
Eastern European Issuers Convertibles When Issued Brady Bonds
Inverse Floaters Structured Notes Repurchase Agreements Municipals
Preferred Stock Investment Companies
</TABLE>
Comparative Index: Salomon World Government Bond Index Except U.S.
Strategies: Foreign Fixed Income Investing
Maturity and Duration Management
Value Investing
Foreign Investing
Non-Diversified Status
Emerging Markets Investing
Mortgage Investing
32
<PAGE>
Limited Duration Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with
reasonable risk, by investing in a diversified
portfolio of U.S. Government securities,
investment-grade corporate bonds and other
fixed-income securities. The portfolio will maintain
an average duration of between one and three years.
Duration is a measure of the life of the portfolio's
debt securities on a present-value basis and is
indicative of a security's price volatility relative
to interest rate changes.
Approach: The Adviser manages the duration of the overall
portfolio as a more effective way to control interest-
rate risk than limiting the maturity of individual
securities within the portfolio. In this way investors
can benefit from opportunities across the entire yield
curve as well as in various market sectors, and at the
same time limit the volatility of investment returns.
MAS establishes the duration target through the use of
its top-down view of the economy and analysis of the
current level of interest rates, and the shape of the
yield curve. MAS then strives to purchase the most
attractively priced portfolio that meets our duration
and investment objectives. When purchasing securities
other than U.S. Governments, MAS evaluates credit,
liquidity, and option risk. When MAS believes the
portfolio is compensated for these risks, it includes
agency, mortgage, and investment-grade corporate
securities which meet the Portfolio's quality
specifications.
Policies: Generally at least 65% invested in Fixed-Income
Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 100% Investment Grade Securities
Maturity and Duration: Average duration between 1 and 3 years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable U.S. Governments Zero Coupons Agencies Corporates
Investments: Mortgage Securities CMOs Asset-Backeds When Issued
Convertibles Floaters Structured Notes Futures & Options
Swaps Cash Equivalents Repurchase Agreements Investment Companies
</TABLE>
Comparative Index: Salomon 1-3 Year Index
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
33
<PAGE>
Mortgage-Backed Securities Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with
reasonable risk, by investing primarily (at least 65%
of its assets under normal circumstances) in
mortgage-backed securities. In addition, the portfolio
may also invest in U.S. government securities and in
short-term fixed-income securities such as
certificates of deposit, treasury bills, and
commercial paper. The portfolio's average weighted
maturity will ordinarily be greater than seven years.
Approach: The Adviser sets three portfolio targets: (1)
interest-rate sensitivity; (2) yield-curve
sensitivity; and (3) prepayment sensitivity. The
Adviser increases the sensitivity of the portfolio to
changes in interest rates when bonds offer greater
value on the basis of inflation-adjusted interest
rates. Similarly, the Adviser increases yield-curve
sensitivity when long-maturity interest rates offer
exceptional value relative to short-maturity interest
rates. Finally, the Adviser increases prepayment
exposure when mortgage yields, adjusted for probable
prepayments, indicate unusual value in mortgage-backed
securities.
Policies: Generally at least 65% invested in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: Securities not guaranteed by the U.S. Government or a
private organization will be rated Investment Grade
Securities
Maturity and Duration: Average weighted maturity generally greater than 7
years
Duration generally between 2 and 7 years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Mortgage Securities CMOs Asset-Backeds SMBS
Investments: U.S. Governments Zero Coupons Agencies When Issued
Floaters Inverse Floaters Structured Notes Futures & Options
Cash Equivalents Repurchase Agreements Municipals Investment Companies
Swaps
</TABLE>
Comparative Index: Lehman Mortgage Index
Strategies: Mortgage Investing
Maturity and Duration Management
Value Investing
34
<PAGE>
Municipal Portfolio
Objective: To realize above-average total return over a market
cycle of three to five years, consistent with the
conservation of capital and the realization of current
income which is exempt from federal income tax, by
investing in a diversified portfolio of investment
grade and short-term municipal debt securities, other
investment grade fixed-income securities and a limited
percentage of bonds rated below investment grade
(commonly referred to as junk bonds). The portfolio's
average weighted maturity will ordinarily be between
ten and thirty years.
Approach: The Adviser varies portfolio structure--the average
duration and maturity and the amount of the portfolio
invested in various types of bonds--according to its
outlook for interest rates and its analysis of the
risks and rewards offered by different classes of
bonds. The portfolio will invest in taxable bonds only
in cases where MAS believes they improve the
risk/reward profile of the portfolio on an after-tax
basis.
Policies: Generally at least 80% invested in Municipals
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 80% Investment Grade Securities
Up to 20% High Yield
Maturity and Duration: Average weighted maturity generally between 10 and 30
years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Municipals Taxable Investments U.S. Governments Agencies
Investments: Corporates Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Preferred Stock Investment Companies
High Yield Zero Coupons Foreign Bonds Forwards
Foreign Currency Brady Bonds Emerging Markets Issuers Eastern European Issuers
</TABLE>
Comparative Index: Lehman Long-Term Municipal Bond Index
Strategies: Municipals Management
Maturity and Duration Management
Value Investing
High Yield Investing
Mortgage Investing
35
<PAGE>
PA Municipal Portfolio
Objective: To realize above-average total return over a market
cycle of three to five years, consistent with the
conservation of capital and the realization of current
income which is exempt from federal income tax and
Pennsylvania personal income tax by investing in a
diversified portfolio of investment grade and
short-term municipal debt securities, other investment
grade fixed-income securities and a limited percentage
of bonds rated below investment grade (commonly
referred to as junk bonds). The Portfolio's average
weighted maturity will ordinarily be between ten and
thirty years.
Approach: The Adviser varies portfolio structure--the average
duration and maturity and the amount of the portfolio
invested in various types of bonds--according to its
outlook for interest rates and its analysis of the
risks and rewards offered by different classes of
bonds. The portfolio will invest in federally or
Pennsylvania State taxable bonds only in cases where
MAS believes they improve the risk/reward profile of
the portfolio on an after-tax basis for Pennsylvania
residents.
Policies: Generally at least 80% invested in Municipal
Securities
Generally at least 65% invested in PA Municipal
Securities
Derivatives may be used to pursue
portfolio strategy
Quality Specifications: 80% Investment Grade Securities Up to 20% High Yield
Maturity and Duration: Average weighted maturity generally between 10 and 30
years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable PA Municipals Municipals Taxable Investments U.S. Governments
Investments: Agencies Corporates Mortgage Securities SMBS
CMOs Asset-Backeds When Issued Convertibles
Floaters Inverse Floaters Structured Notes Futures & Options
Swaps Cash Equivalents Repurchase Agreements Preferred Stock
Investment Companies High Yield Foreign Bonds Forwards
Foreign Currency Zero Coupons Brady Bonds Emerging Markets Issuers
Eastern European Issuers
</TABLE>
Comparative Index: Lehman Long-Term Municipal Bond Index
Strategies: Municipals Management
Maturity and Duration Management
Value Investing
High Yield Investing
Mortgage Investing
36
<PAGE>
Special Purpose Fixed Income Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with
reasonable risk, by investing in a diversified
portfolio of U.S. Government securities, corporate
bonds (including bonds rated below investment grade,
commonly referred to as junk bonds), foreign
fixed-income securities and mortgage-backed securities
and other fixed-income securities. The portfolio is
structured to complement an investment in one or more
of the Fund's equity portfolios for investors seeking
a balanced investment.
Approach: The Adviser actively manages the maturity and duration
structure of the portfolio in anticipation of
long-term trends in interest rates and inflation.
Investments are diversified among a wide variety of
Fixed-Income Securities in all market sectors. Both
duration/maturity strategy and sector allocation 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>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable U.S. Governments Zero Coupons Agencies Corporates
Investments: High Yield Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Foreign Bonds
Brady Bonds Foreign Currency Forwards Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Municipals Preferred Stock
Investment Companies Loan Participations
</TABLE>
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Fixed Income Management and Asset Allocation
Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Fixed Income Investing
Foreign Investing
37
<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 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>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Common Stock Preferred Stock U.S. Governments Zero Coupons
Investments: 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
38
<PAGE>
Multi-Asset-Class Portfolio
Objective: To achieve above average total return over a market
cycle of three to five years, consistent with
reasonable risk, by investing in a diversified
portfolio of common stocks and fixed-income securities
of United States and Foreign issuers.
Approach: The Adviser determines the mix of investments in
domestic and foreign equity and fixed-income and high
yield securities expected to maximize available total
return. Strategic judgments on the asset mix are based
on valuation disciplines and tools for analysis which
have been developed by the Adviser to compare the
relative potential returns and risks of global stock
and bond markets.
Policies: Generally at least 65% invested in issuers located in
at least 3 countries, including the U.S.
Derivatives may be used to pursue portfolio strategy
Domestic Equity
Capitalization: Generally greater than $1 billion
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5
years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Common Stock U.S. Governments Mortgage Securities Cash Equivalents
Investments: Corporates Foreign Currency When Issued ADRs
Foreign Equities Investment Funds Structured Notes
Eastern European Issuers Asset-Backeds Forwards
SMBS Inverse Floaters Preferred Stock
Floaters Swaps Investment Companies
Futures & Options Convertibles Structured Investments
Repurchase Agreements Warrants Foreign Bonds
Municipals Emerging Markets Issuers CMOs
Rights Agencies Brady Bonds
Loan Participations High Yield Zero Coupons
</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
39
<PAGE>
PROSPECTUS GLOSSARY
CHARACTERISTICS AND RISKS OF STRATEGIES AND INVESTMENTS
STRATEGIES
Asset Allocation Management: The Adviser's approach to asset allocation
management is to determine investment strategies for each asset class in a
portfolio separately, and then determine the mix of those strategies expected
to maximize the return available from each market. Strategic judgments on the
mix among asset classes are based on valuation disciplines and tools for
analysis which have been developed over the Adviser's twenty-five year
history of managing balanced accounts.
Tactical asset-allocation shifts are based on comparisons of prospective
risks, returns, and the likely risk-reducing benefits derived from combining
different asset classes into a single portfolio. Experienced teams of equity,
fixed-income, and international investment professionals manage the
investments in each asset class.
Core Equity Investing: The Adviser's "core" or primary equity strategy
emphasizes common stocks of large companies, with targeted investments in
small company stocks that promise special growth opportunities. Depending on
MAS's outlook for the economy and different market sectors, the mix between
value stocks and growth stocks will change.
Emerging Markets Investing: The Adviser's approach to emerging markets
investing is based on the Adviser's evaluation of both short-term and
long-term international economic trends and the relative attractiveness of
emerging markets and individual emerging market securities.
As used in this Prospectus, emerging markets describes any country which is
generally considered to be an emerging or developing country by the
international financial community such as the International Bank for
Reconstruction and Development (more commonly known as the World Bank) and
the International Finance Corporation. There are currently over 130 countries
which are generally considered to be emerging or developing countries by the
international financial community, approximately 40 of which currently have
stock markets. Emerging markets can include every nation in the world except
the United States, Canada, Japan, Australia, New Zealand and most nations
located in Western Europe.
Currently, investing in many emerging markets is either not feasible or very
costly, or may involve unacceptable political risks. Other special risks
include the possible increased likelihood of expropriation or the return to
power of a communist regime which would institute policies to expropriate,
nationalize or otherwise confiscate investments. A portfolio will focus its
investments on those emerging market countries in which the Adviser believes
the potential for market appreciation outweighs these risks and/or the cost
of investment. Investing in emerging markets also involves an extra degree of
custodial and/or market risk, especially where the securities purchased are
not traded on an official exchange or where ownership records regarding the
securities are maintained by an unregulated entity (or even the issuer
itself).
Fixed Income Management and Asset Allocation: Within 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 dura-
40
<PAGE>
tion assets to the same extent, the fixed-income portion of a balanced
investment may invest a percentage of its assets in long duration bonds on
the basis of their valuation relative to equity securities.
Foreign Fixed Income Investing: 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 securities
issued by foreign companies or governments involves certain special
considerations which are not typically associated with investing in U.S.
companies.
As non-U.S. companies are not generally subject to uniform accounting,
auditing and financial reporting standards and practices comparable to those
applicable to U.S. companies, there may be less publicly available
information about certain foreign companies than about U.S. companies.
Securities of some non-U.S. companies may be less liquid and more volatile
than securities of comparable U.S. companies. There is generally less
government supervision and regulation of stock exchanges, brokers and listed
companies than in the U.S. With respect to certain foreign countries, there
is the possibility of expropriation or confiscatory taxation, political or
social instability, or diplomatic developments which could affect U.S.
investments in those countries. Additionally, there may be difficulty in
obtaining and enforcing judgments against foreign issuers.
Since the securities of foreign issuers may be denominated in foreign
currencies, and since a portfolio may temporarily hold uninvested reserves in
bank deposits of foreign currencies prior to reinvestment or conversion to
U.S. dollars, a portfolio may be affected favorably or unfavorably by changes
in currency rates and in exchange control regulations, and may incur costs in
connection with conversions between various currencies.
Although a portfolio will endeavor to achieve the most favorable execution
costs in its portfolio transactions in foreign securities, fixed commissions
on many foreign stock exchanges are generally higher than negotiated
commissions on U.S. exchanges. In addition, it is expected that the expenses
for custodial arrangements of a portfolio's foreign securities will be
greater than the expenses for the custodial arrangements for handling U.S.
securities of equal value. Certain foreign governments levy withholding taxes
against dividend and interest income. Although in some countries a portion of
these taxes is recoverable, the non-recovered portion of foreign withholding
taxes will reduce the income a portfolio receives from the companies
comprising the portfolio's investments.
Growth Stock Investing: Seeks to invest in Common Stocks generally
characterized by higher growth rates, betas, and price/earnings ratios, and
lower yields than the stock market in general as measured by the S&P 500
Index.
High Yield Investing: Involves investing in high yield securities based on
the Adviser's analysis of economic and industry trends and individual
security characteristics. The Adviser conducts credit analysis for each
security considered for investment to evaluate its attractiveness relative to
its risk. A high level of diversification is also maintained to limit credit
exposure to individual issuers.
To the extent a portfolio invests in high yield securities it will be exposed
to a substantial degree of credit risk. Lower-rated bonds are considered
speculative by traditional investment standards. High yield securities may be
issued as a consequence of corporate restructuring or similar events. Also,
high yield securities are often issued by smaller, less credit worthy
companies, or by highly leveraged (indebted) firms, which are generally less
able than more established or less leveraged firms to make scheduled payments
of interest and principal. The risks posed by securities issued under such
circumstances are substantial.
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.
41
<PAGE>
This lower liquidity might have an effect on a portfolio's ability to value
or dispose of such securities. Also, there may be significant disparities in
the prices quoted for high yield securities by various dealers. Under such
conditions, a portfolio may find it difficult to value its securities
accurately. A portfolio may also be forced to sell securities at a
significant loss in order to meet shareholder redemptions. These factors add
to the risks associated with investing in high yield securities.
High yield bonds may also present risks based on payment expectations. For
example, high yield bonds may contain redemption or call provisions. If an
issuer exercises these provisions in a declining interest rate market, a
portfolio would have to replace the security with a lower yielding security,
resulting in a decreased return for investors. Conversely, a high yield
bond's value will decrease in a rising interest rate market.
Certain types of high yield bonds are non-income paying securities. For
example, zero coupon bonds pay interest only at maturity and payment-in-kind
bonds pay interest in the form of additional securities. Payment in the form
of additional securities, or interest income recognized through discount
accretion, will, however, be treated as ordinary income which will be
distributed to shareholders even though the portfolio does not receive
periodic cash flow from these investments.
The table below 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 (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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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 Available 8.24% Not Available 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 Available 2.34% Not Available 0.98%
TOTAL 100.00% TOTAL 44.92%
Multi-Asset Class Portfolio Emerging Markets Portfolio
QUALITY QUALITY
TSY, AGY, AAA 26.50% TSY, AGY, AAA 0.83%
AA 1.98% AA 0.00%
A 1.97% A 0.00%
BAA 1.35% BAA 1.39%
BA 3.73% BA 1.43%
B 4.13% B 3.47%
CAA 0.46% CAA 0.00%
CA OR BELOW 0.00% CA OR BELOW 0.00%
Not Available 0.72% Not Available 2.69%
TOTAL 40.84% TOTAL 9.80%
</TABLE>
42
<PAGE>
International Equity Investing: The Adviser's approach to international
equity investing is based on its evaluation of both short-term and long-term
international economic trends and the relative attractiveness of non-U.S.
equity markets and individual securities.
MAS considers fundamental investment characteristics, the principles of
valuation and diversification, and a relatively long-term investment time
horizon. Since liquidity will also be a consideration, emphasis will likely
be influenced by the relative market capitalizations of different non-U.S.
stock markets and individual securities. Portfolios seek to diversify
investments broadly among both developed and newly industrializing foreign
countries. Where appropriate, a portfolio may also invest in regulated
Investment Companies or Investment Funds which invest in such countries to
the extent allowed by applicable law.
Maturity and Duration Management: One of two primary components of the
Adviser's fixed-income investment strategy is maturity and duration
management. The maturity and duration structure of a portfolio investing in
Fixed-Income Securities is actively managed in anticipation of cyclical
interest rate changes. Adjustments are not made in an effort to capture
short-term, day-to-day movements in the market, but instead are implemented
in anticipation of longer term shifts in the levels of interest rates.
Adjustments made to shorten portfolio maturity and duration are made to limit
capital losses during periods when interest rates are expected to rise.
Conversely, adjustments made to lengthen maturity are intended to produce
capital appreciation in periods when interest rates are expected to fall. The
foundation for maturity and duration strategy lies in analysis of the U.S.
and global economies, focusing on levels of real interest rates, monetary and
fiscal policy actions, and cyclical indicators. See Value Investing for a
description of the second primary component of 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-
43
<PAGE>
term, or, for investors seeking to combine a long-term investment program in
other portfolios of the Fund with an investment in money market instruments.
However, because the Cash Reserves Portfolio invests in the money market
obligations of private financial and non-financial corporations in addition
to those of the U.S. Government or its agencies and instrumentalities, it
offers higher credit risk and yield potential relative to money market funds
which invest exclusively in U.S. Government securities. The Cash Reserves
Portfolio seeks to maintain, but does not guarantee, a constant net asset
value of $1.00 per share.
Mortgage Investing: At times it is anticipated that greater than 50% of a
fixed-income portfolio's assets may be invested in mortgage-related
securities. These include mortgage-backed securities which represent
interests in pools of mortgage loans made by lenders such as commercial
banks, savings and loan associations, mortgage bankers and others. The pools
are assembled by various organizations, including the Government National
Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC),
Federal National Mortgage Association (FNMA), other government agencies, and
private issuers. It is expected that a portfolio's primary emphasis will be
on mortgage-backed securities issued by the various Government-related
organizations. However, a portfolio may invest, without limit, in
mortgage-backed securities issued by private issuers when the Adviser deems
that the quality of the investment, the quality of the issuer, and market
conditions warrant such investments. Securities issued by private issuers
will be rated investment grade by Moody's or Standard & Poor's or be deemed
by the Adviser to be of comparable investment quality.
Municipals Management: MAS manages municipal portfolios in a total return
context. This means that taxable investments will regularly be included in a
portfolio when they have an attractive prospective after-tax total return,
regardless of the taxable nature of income on the security.
MAS Municipals Management emphasizes a diversified portfolio of high grade
municipal debt securities. Under normal circumstances, a portfolio will
invest at least 80% of net assets in municipal securities including AMT Bonds
and at least 80% will be Investment Grade Securities.
Under normal conditions, a portfolio may hold up to 20% of net assets in U.S.
Governments, Agencies, Corporates, Cash Equivalents, Preferred Stocks,
Mortgage Securities, Asset-Backeds, Floaters, and Inverse Floaters and other
Fixed Income Securities (collectively "Taxable Investments").
Non-Diversified Status: A portfolio may be classified as a non-diversified
investment company under the Investment Company Act of 1940, as amended.
Non-diversified portfolios may invest more than 25% of assets in securities
of individual issuers representing greater than 5% each of a portfolio's
total assets, whereas diversified investment companies may only invest up to
25% of assets in positions of greater than 5%. Both diversified and non-
diversified portfolios are subject to diversification specifications under
the Internal Revenue Code of 1986, as amended, which require that, as of the
close of each fiscal quarter, (i) no more than 25% of a portfolio's total
assets may be invested in the securities of a single issuer (except for U.S.
Government securities) and (ii) with respect to 50% of its total assets, no
more than 5% of such assets may be invested in the securities of a single
issuer (except for U.S. Government securities) or invested in more than 10%
of the outstanding voting securities of a single issuer. Because of its
non-diversified status, a portfolio may be subject to greater credit and
other risks than a diversified investment company.
Value Investing: One of two primary components of the Adviser's fixed-income
strategy is value investing, whereby MAS seeks to identify undervalued
sectors and securities through analysis of credit quality, option
characteristics and liquidity. Quantitative models are used in conjunction
with judgment and experience to evaluate and select securities with embedded
put or call options which are attractive on a risk- and option-adjusted
basis. Successful value investing will permit a portfolio to benefit from the
price appreciation of individual securities during periods when interest
rates are unchanged. See Maturity and Duration Management for a description
of the other key component of MAS's fixed-income investment strategy.
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Value Stock Investing: Emphasizes Common Stocks which are deemed by the
Adviser to be undervalued relative to the stock market in general as measured
by the appropriate market index, based on value measures such as
price/earnings ratios and price/book ratios. Value stocks are generally
dividend paying common stocks. However, non-dividend paying stocks may also
be selected for their value characteristics.
INVESTMENTS
Each Portfolio may invest in the securities defined below in accordance with
their listing of Allowable Investments and any quality or policy constraints.
ADRs--American Depository Receipts: are dollar-denominated securities which
are listed and traded in the United States, but which represent claims to
shares of foreign stocks. ADRs may be either sponsored or unsponsored.
Unsponsored ADR facilities typically provide less information to ADR holders.
Agencies: are securities which are not guaranteed by the U.S. Government, but
which are issued, sponsored or guaranteed by a federal agency or federally
sponsored agency such as the Student Loan Marketing Association, Resolution
Funding Corporation, or any of several other agencies.
Asset-Backeds: are securities collateralized by shorter term loans such as
automobile loans, home equity loans, computer leases, or credit card
receivables. The payments from the collateral are passed through to the
security holder. The collateral behind asset-backed securities tends to have
prepayment rates that do not vary with interest rates. In addition the
short-term nature of the loans reduces the impact of any change in prepayment
level. Due to amortization, the average life for these securities is also the
conventional proxy for maturity.
Possible Risks: Due to the possibility that prepayments (on automobile loans
and other collateral) will alter the cash flow on asset-backed securities, it
is not possible to determine in advance the actual final maturity date or
average life. Faster prepayment will shorten the average life and slower
prepayments will lengthen it. However, it is possible to determine what the
range of that movement could be and to calculate the effect that it will have
on the price of the security. In selecting these securities, the Adviser will
look for those securities that offer a higher yield to compensate for any
variation in average maturity.
Brady Bonds: are debt obligations which are created through the exchange of
existing commercial bank loans to foreign entities for new obligations in
connection with debt restructuring under a plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the Brady Plan). Brady Bonds
have been issued only recently, and, accordingly, do not have a long payment
history. They may be collateralized or uncollateralized and issued in various
currencies (although most are dollar-denominated) and they are actively
traded in the over-the-counter secondary market. For further information on
these securities, see the Statement of Additional Information. Portfolios
will only invest in Brady Bonds consistent with quality specifications.
Cash Equivalents: are short-term fixed-income instruments comprising:
(1) Time deposits, certificates of deposit (including marketable variable
rate certificates of deposit) and bankers' acceptances issued by a commercial
bank or savings and loan association. Time deposits are non-negotiable
deposits maintained in a banking institution for a specified period of time
at a stated interest rate. Certificates of deposit are negotiable short-term
obligations issued by commercial banks or savings and loan associations
against funds deposited in the issuing institution. Variable rate
certificates of deposit are certificates of deposit on which the interest
rate is periodically adjusted prior to their stated maturity based upon a
specified market rate. A bankers' acceptance is a time draft drawn on a
commercial bank by a borrower usually in connection with an international
commercial transaction (to finance the import, export, transfer or storage of
goods).
A portfolio may invest in obligations of U.S. banks, foreign branches of U.S.
banks (Eurodollars), and U.S. branches of foreign banks (Yankee dollars).
Euro and Yankee dollar investments will involve some of the same risks of
investing in international securities that are discussed in the Foreign
Investing section of this Prospectus.
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Portfolios will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion, or the equivalent in
other currencies, or, in the case of domestic banks which do not have total
assets of at least $1 billion, the aggregate investment made in any one such
bank is limited to $100,000 and the principal amount of such investment is
insured in full by the Federal Deposit Insurance Corporation, (ii) in the
case of U.S. banks, it is a member of the Federal Deposit Insurance
Corporation, and (iii) in the case of foreign branches of U.S. banks, the
security is deemed by the Adviser to be of an investment quality comparable
with other debt securities which may be purchased by the portfolio.
(2) Each portfolio (except Cash Reserves) may invest in commercial paper
rated at time of purchase by one or more NRSRO in one of their two highest
categories, (e.g., A-l or A-2 by Standard & Poor's or Prime 1 or Prime 2 by
Moody's), or, if not rated, issued by a corporation having an outstanding
unsecured debt issue rated high-grade by a NRSRO (e.g. A or better by
Moody's, Standard & Poor's or Fitch). The Cash Reserves Portfolio invests
only in commercial paper rated in the highest category;
(3) Short-term corporate obligations rated high-grade at the time of purchase
by a NRSRO (e.g. A or better by Moody's, Standard & Poor' s or Fitch);
(4) U.S. Government obligations including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of the
U.S. Government and differ mainly in interest rates, maturities and dates of
issue;
(5) Securities issued or guaranteed by U.S. Government sponsored
instrumentalities and Federal agencies. These include securities issued by
the Federal Home Loan Banks, Federal Land Bank, Farmers Home Administration,
Farm Credit Banks, Federal Intermediate Credit Bank, Federal National
Mortgage Association, Federal Financing Bank, the Tennessee Valley Authority,
and others;
(6) Repurchase agreements collateralized by securities listed above; and
(7) Investments by the Cash Reserve Portfolio in Cash Equivalents are limited
by the quality, maturity and diversification requirements adopted under Rule
2a-7 of the 1940 Act.
CMOs--Collateralized Mortgage Obligations: are Derivatives which are
collateralized by mortgage pass-through securities. Cash flows from the
mortgage pass-through securities are allocated to various tranches (a
"tranche" is essentially a separate security) in a predetermined, specified
order. Each tranche has a stated maturity - the latest date by which the
tranche can be completely repaid, assuming no prepayments and has an average
life - the average of the time to receipt of a principal payment weighted by
the size of the principal payment. The average life is typically used as a
proxy for maturity because the debt is amortized (repaid a portion at a
time), rather than being paid off entirely at maturity, as would be the case
in a straight debt instrument.
Possible Risks: Due to the possibility that prepayments (on home mortgages
and other collateral) will alter the cash flow on CMOs, it is not possible to
determine in advance the actual final maturity date or average life. Faster
prepayment will shorten the average life and slower prepayments will lengthen
it. However, it is possible to determine what the range of that movement
could be and to calculate the effect that it will have on the price of the
security. In selecting these securities, the Adviser will look for those
securities that offer a higher yield to compensate for any variation in
average maturity.
Prepayment risk has two important effects. First, like bonds in general,
mortgage-backed securities will generally decline in price when interest
rates rise. However, when interest rates fall, mortgages may not enjoy as
large a gain in market value due to prepayment risk. Second, when interest
rates fall, additional mortgage prepayments must be reinvested at lower
interest rates. In part to compensate for these risks, mortgages will
generally offer higher yields than comparable bonds.
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.
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Convertibles: are convertible bonds or shares of convertible Preferred Stock
which may be exchanged for a fixed number of shares of Common Stock at the
purchaser's option.
Corporates--Corporate bonds: are debt instruments issued by private
corporations. Bondholders, as creditors, have a prior legal claim over common
and preferred stockholders of the corporation as to both income and assets
for the principal and interest due to the bondholder. A portfolio will buy
Corporates subject to any quality constraints. If a security held by a
portfolio is down-graded, the portfolio may retain the security.
Derivatives: A financial instrument whose value and performance are based on
the value and performance of another security or financial instrument. The
Adviser will use derivatives only in circumstances where they offer the most
economic means of improving the risk/reward profile of the portfolio. The
Adviser will not use derivatives to increase portfolio risk above the level
that could be achieved in the portfolio using only traditional investment
securities. In addition, the Adviser will not use derivatives to acquire
exposure to changes in the value of assets or indexes 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 the MAS Funds, except the Cash Reserves Portfolio, may
enter into over-the-counter Derivatives transactions with counterparties
approved by MAS in accordance with guidelines established by the Board of
Trustees. These guidelines provide for a minimum credit rating for each
counterparty and various credit enhancement techniques (for example,
collateralization of amounts due from counterparties) to limit exposure to
counterparties with ratings below AA. 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.
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.
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Floaters--Floating and Variable Rate Obligations: are debt obligations with a
floating or variable rate of interest, i.e. the rate of interest varies with
changes in specified market rates or indices, such as the prime rate, or at
specified intervals. Certain floating or variable rate obligations may carry
a demand feature that permits the holder to tender them back to the issuer of
the underlying instrument, or to a third party, at par value prior to
maturity. When the demand feature of certain floating or variable rate
obligations represents an obligation of a foreign entity, the demand feature
will be subject to certain risks discussed under Foreign Investing.
Foreign Currency: Portfolios investing in foreign securities will regularly
transact security purchases and sales in foreign currencies. These portfolios
may hold foreign currency or purchase or sell currencies on a forward basis
(see Forwards).
Foreign Equities: are Common Stock, Preferred Stock, Rights and Warrants of
foreign issuers. Investing in foreign companies involves certain special
considerations which are not typically associated with investing in U.S.
companies (see Foreign Investing).
Foreign Bonds: are Fixed-Income Securities denominated in foreign currency
including: (1) obligations issued or guaranteed by foreign national
governments, their agencies, instrumentalities, or political subdivisions;
(2) debt securities issued, guaranteed or sponsored by supranational
organizations established or supported by several national governments,
including the World Bank, the European Community, the Asian Development Bank
and others; (3) non-government foreign corporate debt securities; and (4)
foreign Mortgage Securities and various other mortgage and asset-backed
securities denominated in foreign currency.
Forwards--Forward Foreign Currency Exchange Contracts: are Derivatives which
are used to protect against uncertainty in the level of future foreign
exchange rates. A forward foreign currency exchange contract is an obligation
to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. Such contracts, which
protect the value of a portfolio's investment securities against a decline in
the value of a currency, do not eliminate fluctuations caused by changes in
the local currency prices of the securities, but rather, they simply
establish an exchange rate at a future date. Also, although such contracts
minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time they limit any potential gain that might be
realized.
A portfolio may use currency exchange contracts in the normal course of
business to lock in an exchange rate in connection with purchases and sales
of securities denominated in foreign currencies (transaction hedge) or to
lock in the U.S. dollar value of portfolio positions (position hedge). In
addition the portfolios may cross-hedge currencies by entering into a
transaction to purchase or sell one or more currencies that are expected to
decline in value relative to other currencies to which a portfolio has or
expects to have portfolio exposure. Portfolios may also engage in proxy
hedging which is defined as entering into positions in one currency to hedge
investments denominated in another currency, where the two currencies are
economically linked. A portfolio's entry into forward contracts, as well as
any use of Cross or Proxy hedging techniques will generally require the
portfolio to hold high-grade, liquid securities or cash equal to the
portfolio's obligations in a segregated account throughout the duration of
the contract.
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
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the Adviser will be able to do so. When a portfolio enters into a forward
contract for purposes of creating a synthetic security, it will generally be
required to hold high-grade, liquid securities or cash in a segregated
account with a daily value at least equal to its obligation under the forward
contract.
Futures & Options--Futures Contracts, Options on Futures Contracts and
Options: are Derivatives. Futures contracts provide for the sale by one party
and purchase by another party of a specified amount of a specific security,
at a specified future time and price. An option is a legal contract that
gives the holder the right to buy or sell a specified amount of the
underlying security or futures contract at a fixed or determinable price upon
the exercise of the option. A call option conveys the right to buy and a put
option conveys the right to sell a specified quantity of the underlying
security.
A portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts in
combination with its outstanding obligations with respect to options
transactions would exceed 50% of its total assets. It will maintain assets
sufficient to meet its obligations under such contracts in a segregated
account with the custodian bank or will otherwise comply with the SEC's
position on asset coverage.
Possible Risks: The primary risks associated with the use of futures and
options are (i) imperfect correlation between the change in market value of
the securities held by a portfolio and the prices of futures and options
relating to the stocks, bonds or futures contracts purchased or sold by a
portfolio; and (ii) possible lack of a liquid secondary market for a futures
contract and the resulting inability to close a futures position which could
have an adverse impact on a portfolio's ability to execute futures and
options strategies. Additional risks associated with options transactions are
(i) the risk that an option will expire worthless; (ii) the risk that the
issuer of an over-the-counter option will be unable to fulfill its
obligation to the portfolio due to bankruptcy or related circumstances; (iii)
the risk that options may exhibit greater short-term price volatility than
the underlying security; and (iv) the risk that a portfolio may be forced to
forego participation in the appreciation of the value of underlying
securities, futures contracts or currency due to the writing of a call
option.
High Yield: High yield securities are generally considered to be corporate
bonds, preferred stocks, and convertible securities rated Ba through C by
Moody's or BB through D by Standard & Poor's, and unrated securities
considered to be of equivalent quality. Securities rated less than Baa by
Moody's or BBB by Standard & Poor's are classified as non-investment grade
securities and are commonly referred to as junk bonds or high yield, high
risk securities. Such securities carry a high degree of risk and are
considered speculative by the major credit rating agencies. The following are
excerpts from the Moody's and Standard & Poor's definitions for
speculative-grade debt obligations:
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
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securities may be issued as a consequence of corporate restructuring or
similar events. Also, high yield securities are often issued by smaller, less
credit worthy companies, or by highly leveraged (indebted) firms, which are
generally less able than more established or less leveraged firms to make
scheduled payments of interest and principal. The price movement of these
securities is influenced less by changes in interest rates and more by the
financial and business position of the issuing corporation when compared to
investment grade bonds.
The risks posed by securities issued under such circumstances are
substantial. If a security held by a portfolio is down-graded, the portfolio
may retain the security.
Inverse Floaters--Inverse Floating Rate Obligations: are Fixed-Income
Securities, which have coupon rates that vary inversely at a multiple of a
designated floating rate, such as LIBOR (London Inter-Bank Offered Rate). Any
rise in the reference rate of an inverse floater (as a consequence of an
increase in interest rates) causes a drop in the coupon rate while any drop
in the reference rate of an inverse floater causes an increase in the coupon
rate. Inverse floaters may exhibit substantially greater price volatility
than fixed rate obligations having similar credit quality, redemption
provisions and maturity, and inverse floater CMOs exhibit greater price
volatility than the majority of mortgage pass-through securities or CMOs. In
addition, some inverse floater CMOs exhibit extreme sensitivity to changes in
prepayments. As a result, the yield to maturity of an inverse floater CMO is
sensitive not only to changes in interest rates but also to changes in
prepayment rates on the related underlying mortgage assets.
Investment Companies: The portfolios are permitted to invest in shares of
other open-end or closed-end investment companies. The Investment Company Act
of 1940, as amended, generally prohibits the portfolios from acquiring more
than 3% of the outstanding voting shares of an investment company and limits
such investments to no more than 5% of the portfolio's total assets in any
one investment company and no more than 10% in any combination of investment
companies. The 1940 Act also prohibits the portfolios from acquiring in the
aggregate more than 10% of the outstanding voting shares of any registered
close-end investment company.
To the extent a portfolio invests a portion of its assets in Investment
Companies, those assets will be subject to the expenses of the purchased
investment company as well as to the expenses of the portfolio itself. The
portfolios may not purchase shares of any affiliated investment company
except as permitted by SEC Rule or Order.
Investment Funds: Some emerging market countries have laws and regulations
that currently preclude direct foreign investment in the securities of their
companies. However, indirect foreign investment in the securities of
companies listed and traded on the stock exchanges in these countries is
permitted by certain emerging market countries through investment funds. The
International Equity and Emerging Markets portfolios may invest in these
investment funds subject to applicable law as discussed under Investment
Restrictions. The International Equity and Emerging Markets portfolios will
invest in such investment funds only where appropriate given that the
portfolio's shareholders will bear indirectly the layer of expenses of the
underlying investment funds in addition to their proportionate share of the
expenses of the portfolio. Under certain circumstances, an investment in an
investment fund will be subject to the additional limitations that apply to
investments in Investment Companies.
Investment Grade Securities: are those rated by one or more nationally
recognized statistical rating organization (NRSRO) in one of the four highest
rating categories at the time of purchase (e.g. AAA, AA, A or BBB by Standard
& Poor's Corporation (Standard & Poor's) or Fitch Investors Service, Inc.,
(Fitch) or Aaa, Aa, A or Baa by Moody's Investors Service, Inc. (Moody's).
Securities rated BBB or Baa represent the lowest of four levels of investment
grade securities and are regarded as borderline between definitely sound
obligations and those in which the speculative element begins to predominate.
Mortgage-backed securities, including mortgage pass-throughs and
collateralized mortgage obligations (CMOs), deemed investment grade by the
Adviser, will either carry a guarantee from an agency of the U.S. Government
or a private issuer of the timely payment of principal and interest (such
guarantees do not extend to the market value of such securities or the net
asset value per share of the portfolio) or, in the case of unrated
securities, be sufficiently seasoned that they are considered by the Adviser
to be investment grade quality. The Adviser may retain securities if their
ratings falls below investment grade if it deems retention of the security to
be in the best interests of the portfolio. Any Portfolio permitted to hold
Investment Grade Securities may hold unrated securities if the Adviser
considers the risks involved in owning that security to be equivalent to the
risks involved in holding an Investment Grade Security.
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Loan Participations: are loans or other direct debt instruments which are
interests in amounts owed by a corporate, governmental or other borrower to
another party. They may represent amounts owed to lenders or lending
syndicates, to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments involve the risk
of loss in case of default or insolvency of the borrower. Direct debt
instruments may offer less legal protection to the portfolio in the event of
fraud or misrepresentation. In addition, loan participations involve a risk
of insolvency of the lending bank or other financial intermediary. Direct
debt instruments may also include standby financing commitments that obligate
the investing portfolio to supply additional cash to the borrower on demand.
Loan participations involving Emerging Market Issuers may relate to loans as
to which there has been or currently exists an event of default or other
failure to make payment when due, and may represent amounts owed to financial
institutions that are themselves subject to political and economic risks,
including the risk of currency devaluation, expropriation, or failure. Such
loan participations present additional risks of default or loss.
Mortgage Securities--Mortgage-backed securities represent an ownership
interest in a pool of residential and commercial mortgage loans. Generally,
these securities are designed to provide monthly payments of interest and
principal to the investor. The mortgagee's monthly payments to his/her
lending institution are passed through to investors such as the portfolio.
Most issuers or poolers provide guarantees of payments, regardless of whether
the mortgagor actually makes the payment. The guarantees made by issuers or
poolers are supported by various forms of credit, collateral, guarantees or
insurance, including individual loan, title, pool and hazard insurance
purchased by the issuer. The pools are assembled by various Governmental,
Government-related and private organizations. Portfolios may invest in
securities issued or guaranteed by the Government National Mortgage
Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal
National Mortgage Association (FNMA), private issuers and other government
agencies. There can be no assurance that the private insurers can meet their
obligations under the policies. Mortgage-backed securities issued by
non-agency issuers, whether or not such securities are subject to guarantees,
may entail greater risk. If there is no guarantee provided by the issuer,
mortgage-backed securities purchased by the portfolio will be those which at
time of purchase are rated investment grade by one or more NRSRO, or, if
unrated, are deemed by the Adviser to be of investment grade quality.
Due to the possibility that prepayments on home mortgages will alter cash
flow on mortgage securities, it is not possible to determine in advance the
actual final maturity date or average life. Faster prepayment will shorten
the average life and slower prepayments will lengthen it. However, it is
possible to determine what the range of that movement could be and to
calculate the effect that it will have on the price of the security. In
selecting these securities, the Adviser will look for those securities that
offer a higher yield to compensate for any variation in average maturity.
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
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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.
PA Municipals: are obligations of the Pennsylvania state government, state
agencies and various local governments, including counties, cities,
townships, special districts and authorities. In general, the credit quality
and credit risk of any issuer's debt is contingent upon the state and local
economy, the health of the issuer's finances, the amount of the issuer's
debt, the quality of management and the strength of legal provisions in the
debt document that protect debt holders. Credit risk is usually lower
wherever the economy is strong, growing and diversified, where financial
operations are sound and the debt burden is reasonable.
Concentration of investment in the securities of one state exposes a
portfolio to greater credit risks than would be present in a nationally
diversified portfolio of municipal securities. The risks associated with
investment in the securities of a single state include possible tax changes
or a deterioration in economic conditions and differing levels of supply and
demand for the municipal obligations of that state.
Debt of Government Agencies, Authorities and Commissions: Certain
state-created agencies have statutory authorization to incur debt for which
legislation providing for state appropriations to pay debt service thereon is
not required. The debt of these agencies is supported by assets of, or
revenues derived from, the various projects financed; it is not an obligation
of the Commonwealth. Some of these agencies, however, such as the Delaware
River Joint Toll Bridge Commission, are indirectly dependent on Commonwealth
funds through various state-assisted programs.
Preferred Stock: are non-voting ownership shares in a corporation which pay a
fixed or variable stream of dividends.
Repurchase Agreements: are transactions by which a portfolio purchases a
security and simultaneously commits to resell that security to the seller (a
bank or securities dealer) at an agreed upon price on an agreed upon date
(usually within seven days of purchase). The resale price reflects the
purchase price plus an agreed upon market rate of interest which is unrelated
to the coupon rate or date of maturity of the purchased security. Such
agreements permit the portfolio to keep all its assets at work while
retaining overnight flexibility in pursuit of investments of a longer term
nature. The Adviser will continually monitor the value of the underlying
collateral to ensure that its value, including accrued interest, always
equals or exceeds the repurchase price.
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Pursuant to an order issued by the Securities and Exchange Commission, the
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
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
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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.
Taxable Investments: comprise Fixed-Income Securities and other instruments
which pay income that is not exempt from taxation. Investors may be liable
for tax on the income distributed as a result of the portfolio holding
taxable investments. In this event, shareholders will receive an IRS form
1099 disclosing the taxable income paid for a calendar year.
U.S. Governments--U.S. Treasury securities: are Fixed-Income Securities which
are backed by the full faith and credit of the U.S. Government as to the
payment of both principal and interest.
Warrants: are options issued by a corporation which give the holder the
option to purchase stock.
When-Issued Securities: are securities purchased at a certain price even
though the securities may not be delivered for up to 90 days. No payment or
delivery is made by a portfolio in a when-issued transaction until the
portfolio receives payment or delivery from the other party to the
transaction. Although a portfolio receives no income from the above described
securities prior to delivery, the market value of such securities is still
subject to change. As a consequence, it is possible that the market price of
the securities at the time of delivery may be higher or lower than the
purchase price. A portfolio will maintain with the custodian a separate
account with a segregated portfolio of liquid, high-grade debt securities or
cash in an amount at least equal to these commitments.
Zero Coupons--Zero Coupon Obligations: are Fixed-Income Securities that do
not make regular interest payments. Instead, zero coupon obligations are sold
at substantial discounts from their face value. The difference between a zero
coupon obligation's issue or purchase price and its face value represents the
imputed interest an investor will earn if the obligation is held until
maturity. Zero coupon obligations may offer investors the opportu-
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nity to earn higher yields than those available on ordinary interest-paying
obligations of similar credit quality and maturity. However, zero coupon
obligation prices may also exhibit greater price volatility than ordinary
fixed-income securities because of the manner in which their principal and
interest are returned to the investor.
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GENERAL SHAREHOLDER INFORMATION
PURCHASE OF SHARES
Investment Class Shares of each portfolio are offered directly to
investors without a sales commission or may be made through Shareholder
Organizations who have a contractural agreement with the Fund's distributor,
including institutions such as trusts, foundations or broker-dealers
purchasing for the accounts of others.
Investment Class Shares of each portfolio except for the Cash Reserves
Portfolio may be purchased at the net asset value per share next determined
after receipt of the purchase order. Such portfolios determine net asset
value at the normal close of trading of the New York Stock Exchange
(NYSE)(currently 4:00 P.M. Eastern Time) each day that the portfolios are
open for business. 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 wire. Investment Class Shares of the Cash Reserves Portfolio
may be purchased at the net asset value next determined after an order is
received by the portfolio and Federal Funds are received by the Custodian.
The Cash Reserves Portfolio determines net asset value as of 12:00 noon
(Eastern Time) each day that the portfolios are open for business. See Other
Information-Closed Holidays and Valuation of Shares.
Investors who purchase Investment Class Shares through Shareholder
Orgnaizations should contact that organization for information about how to
purchase, redeem and exchange shares.
Initial Purchase by Mail: Subject to acceptance by the Fund, an account
may be opened by completing and signing an Account Registration Form
(provided at the end of the Prospectus), and mailing it to the Client
Services Group at the address noted below, together with a check ($1,000,000
minimum) payable to MAS Funds: MAS Funds c/o the Distributor, One Tower
Bridge, Suite 1150, P.O. Box 868, West Conshohocken, Pennsylvania 19428-
0868.
The portfolio(s) to be purchased should be designated on the Account
Registration Form. Subject to acceptance by the Fund, payment for the
purchase of shares received by mail will be credited at the net asset value
per share of the portfolio next determined after receipt. Such payment need
not be converted into Federal Funds (monies credited to the Fund's Custodian
Bank by a Federal Reserve Bank) before acceptance by the Fund, except for the
Cash Reserves Portfolio. Purchases made by check in the Cash Reserves
Portfolio are ordinarily credited at the net asset value per share determined
two business days after receipt of the check by the Fund. Please note that
purchases made by check in any portfolio are not permitted to be redeemed
until payment of the purchase has been collected, which may take up to eight
business days after purchase. Shareholders can avoid this delay by utilizing
the wire purchase option.
Initial Purchase by Wire: Subject to acceptance by the Fund, Investment
Class Shares of each portfolio may also be purchased by wiring Federal Funds
($1,000,000 minimum) to the Fund's Custodian Bank, The Chase Manhattan Bank,
N.A. (see instructions below). A completed Account Registration Form should
be forwarded to the Client Services Group at Miller Anderson & Sherrerd, LLP
in advance of the wire. For all portfolios (except the Cash Reserves
Portfolio), notification must be given to the Client Services Group at Miller
Anderson & Sherrerd, LLP at 1-800-354-8185 prior to 4:00 p.m. (Eastern Time)
of the wire date. (Prior notification must also be received from investors
with existing accounts.) Instruct your bank to send a Federal Funds wire in a
specified amount to the Fund's Custodian Bank using the following wiring
instructions:
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The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York, NY 10081
ABA #021000021
DDA #910-2-734143
Attn: MAS Funds
Ref: (Portfolio Name, Account Number, Account Name)
Purchases in the Cash Reserves Portfolio may be made by Federal Funds wire to
the Fund's Custodian. If the portfolio receives notification of an order
prior to 12:00 noon (Eastern Time) and funds are received by the Custodian
the same day, purchases of portfolio shares will become effective and begin
to earn income on that business day. Orders received after 12:00 noon
(Eastern Time) will be effective on the next business day upon receipt of
funds. Federal Funds purchases will be accepted only on a day on which the
portfolio is open for business. See Other Information-Closed Holidays.
Additional Investments: Additional investments of 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 the Client Services Group at the
address noted under Initial Purchase by Mail or by wiring monies to the
Custodian Bank as outlined above. For all portfolios except the Cash Reserves
Portfolio, notification must be given to the Client Services Group at Miller
Anderson & Sherrerd, LLP at 1-800-354-8185 prior to 4:00 p.m. (Eastern Time)
of the wire date. For the Cash Reserves Portfolio, notification of a Federal
Funds wire must be received by 12:00 noon (Eastern Time). Purchases made by
check in the Cash Reserves Portfolio are ordinarily credited at the net asset
value per share determined two business days after receipt of the check by
the Fund.
Other Purchase Information: The Fund reserves the right, in its sole
discretion, to suspend the offering of 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 may be sold to corporations
or other institutions such as trusts, foundations or broker-dealers
purchasing for the accounts of others (Shareholder Organizations). Investors
purchasing and redeeming shares of the portfolios through a Shareholder
Organization may be charged a transaction-based fee or other fee for the
services of such organization. Each Shareholder Organization is responsible
for transmitting to its customers a schedule of any such fees and information
regarding any additional or different conditions regarding purchases and
redemptions. Customers of Shareholder Organizations should read this
Prospectus in light of the terms governing accounts with their organization.
The Fund does not pay compensation to or receive compensation from
Shareholder Organizations for the sale of Investment Class Shares though
Shareholder Organization may receive a fee for providing shareholder services
to their clients who hold Investment 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
Investment Class Shares redeemed may be more or less than the purchase price,
depending on the net asset value at the time of redemption which is based on
the market value of the investment securities held by the portfolio.
By Mail: Each portfolio will redeem 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 Distributor, One Tower
Bridge, Suite 1150, P.O. Box 868, West Conshohocken, PA 19428-0868.
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To be in good order, redemption requests must include the following:
(a) The share certificates, if issued;
(b) A letter of instruction, if required, or a stock assignment specifying
the number of shares or dollar amount to be redeemed, signed by all
registered owners of the shares in the exact names in which the shares are
registered;
(c) Any required signature guarantees (see Signature Guarantees); and
(d) Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
Signature Guarantees: To protect your account, the Fund and the
Administrator from fraud, signature guarantees are required to enable the
Fund to verify the identity of the person who has authorized a redemption
from an account. Signature guarantees are required for (1) redemptions where
the proceeds are to be sent to someone other than the registered
shareholder(s) and the registered address, and (2) share transfer requests.
Please contact the Client Services Group at Miller Anderson & Sherrerd, LLP
for further details.
By Telephone: Provided the Telephone Redemption Option has been authorized
by the shareholder on the Account Registration Form, a redemption of shares
may be requested by calling the Client Services Group at Miller Anderson &
Sherrerd, LLP and requesting that the redemption proceeds be mailed to the
primary registration address or wired per the authorized instructions. Shares
cannot be redeemed by telephone if share certificates are held for those
shares.
By Facsimile: Written requests in good order (see above) for redemptions,
exchanges, and transfers may be forwarded to the Fund via facsimile. All
requests sent to the Fund via facsimile must be followed by a telephone call
to the Client Services group at Miller Anderson & Sherrerd, LLP to ensure
that the instructions have been properly received by the Fund. The original
request must be promptly mailed to MAS Funds, c/o Miller Anderson & Sherrerd,
LLP, One Tower Bridge, Suite 1150, P. O. Box 868, West Conshohocken, PA
19428-0868.
Neither the Distributor nor the Fund will be responsible for any loss,
liability, cost, or expense for acting upon facsimile instructions or upon
telephone instructions that they reasonably believe to be genuine. In order
to confirm that telephone instructions in connection with redemptions are
genuine, the Fund and Distributor will provide written confirmation of
transactions initiated by telephone.
Payment of the redemption proceeds will ordinarily be made within three
business days after receipt of an order for a redemption. The Fund may
suspend the right of redemption or postpone the date of redemption at times
when the NYSE, the Custodian, or the Fund is closed or under any emergency
circumstances as determined by the Securities and Exchange Commission.
If the Board of Trustees determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment
wholly or partly in cash, the Fund may pay the redemption proceeds in whole
or in part by a distribution in-kind of readily marketable securities held by
a portfolio in lieu of cash in conformity with applicable rules of the
Securities and Exchange Commission. Investors may incur brokerage charges on
the sale of portfolio securities received in such payments of redemptions.
SHAREHOLDER SERVICES
Exchange Privilege: Each portfolio's Investment Class Shares may be
exchanged for Investment Class Shares of the Fund's other portfolios that
have Investment Class Shares issued and outstanding 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
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should be sent to MAS Funds, c/o Miller Anderson & Sherrerd, LLP, One Tower
Bridge, Suite 1150, P.O. Box 868, West Conshohocken, PA 19428-0868. Because
an exchange of shares amounts to a redemption from one portfolio and purchase
of shares of another portfolio, the above information regarding purchase and
redemption of shares applies to exchanges. Shareholders should note that an
exchange between portfolios is considered a sale and purchase of shares for
tax purposes.
The officers of the Fund reserve the right not to accept any request for
an exchange when, in their opinion, the exchange privilege is being used as a
tool for market timing. The Fund reserves the right to change the terms or
conditions of the exchange privilege discussed herein upon sixty days'
notice.
Transfer of Registration: The registration of Fund shares may be
transferred by writing to MAS Funds: c/o Miller Anderson & Sherrerd, LLP, One
Tower Bridge, Suite 1150, P.O. Box 868, West Conshohocken, PA 19428-0868. As
in the case of redemptions, the written request must be received in good
order as defined above.
VALUATION OF SHARES
Equity, Select Equity, Value, Small Cap Value, Mid Cap Value, Growth, Mid
Cap Growth, Balanced, Multi-Asset-Class, International Equity and Emerging
Markets Portfolios:
Net asset value per share of each class is determined by dividing the
total market value of each portfolio's investments and other assets, less any
liabilities, by the total outstanding shares of that portfolio. Net asset
value per share is determined as of the normal close of the NYSE (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.
Domestic Fixed Income, Fixed Income, Fixed Income Portfolio II, Special
Purpose Fixed Income, High Yield, Limited Duration, Intermediate Duration,
Mortgage-Backed Securities, Balanced, Multi-Asset-Class, Global Fixed Income,
International Fixed Income, Municipal and PA Municipal Portfolios:
Net asset value per share is computed by dividing the total value of the
investments and other assets of the portfolio, less any liabilities, by the
total outstanding shares of the portfolio. The net asset value per share is
determined as of the normal close of the bond markets (normally 4:00 p.m.
Eastern Time) on each day the portfolio is open for business (See Other
Information-Closed Holidays). 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 the bond markets on each day the portfolios are open for
business. 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.
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However, bonds and other Fixed-Income Securities may be valued on the
basis of prices provided by a pricing service when such prices are believed
to reflect the fair market value of such securities. The prices provided by a
pricing service are determined without regard to bid or last sale prices but
take into account institutional size trading in similar groups of securities
and any developments related to specific securities. Bonds and other Fixed-
Income Securities not priced in this manner are valued at the most recent
quoted bid price, or when stock exchange valuations are used, at the latest
quoted sale price on the day of valuation. If there is no such reported sale,
the latest quoted bid price will be used. Securities purchased with remaining
maturities of 60 days or less are valued at amortized cost when the Board of
Trustees determines that amortized cost reflects fair value. In the event
that amortized cost does not approximate market, market prices as determined
above will be used. Other assets and securities, for which no quotations are
readily available (including restricted securities), will be valued in good
faith at fair value using methods approved by the Board of Trustees.
Cash Reserves Portfolio: The net asset value per share of the Cash
Reserves Portfolio is calculated daily as of 12:00 noon (Eastern Time) on
each day that the portfolio is open for business (See Other
Information-Closed Holidays). The portfolio determines its net asset value
per share by subtracting the portfolio's liabilities (including accrued
expenses and dividends payable) from the total value of the portfolio's
investments and other assets and dividing the result by the total outstanding
shares of the portfolio.
For the purpose of calculating the portfolio's net asset value per share,
securities are valued by the amortized cost method of valuation, which does
not take into account unrealized gains or losses. This involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method
provides certainty in valuation, it may result in periods during which value
based on amortized cost is higher or lower than the price the portfolio would
receive if it sold the instrument.
The use of amortized cost and the maintenance of the portfolio's per share
net asset value at $1.00 is based on its election to operate under the
provisions of Rule 2a-7 under the Investment Company Act of 1940, as amended.
As conditions of operating under Rule 2a-7, the portfolio must maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of thirteen months or less and invest
only in U.S. dollar-denominated securities which are determined by the
Trustees to present minimal credit risks and which are of eligible quality as
determined under the rule.
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:
60
<PAGE>
o The Equity, Value, Growth, Fixed Income, Fixed Income Portfolio II,
Special Purpose Fixed Income, High Yield, Limited Duration,
Intermediate Duration, Mortgage-Backed Securities, Balanced,
Multi-Asset-Class, Global Fixed Income, International Fixed Income,
Select Equity and Domestic Fixed Income Portfolios normally distribute
substantially all of their net investment income to shareholders in the
form of quarterly dividends.
o The International Equity, Small Cap Value, Mid Cap Value, Mid Cap
Growth and Emerging Markets Portfolios normally distribute
substantially all of their net investment income in the form of annual
dividends.
o The Municipal and the PA Municipal Portfolios normally distribute
substantially all of their net investment income in the form of monthly
dividends.
o The Cash Reserves Portfolio declares dividends daily and normally
distributes substantially all of its investment income in the form of
monthly dividends.
If any portfolio does not have income available to distribute, as
determined in compliance with the appropriate tax laws, no distribution will
be made.
If any net capital gains are realized from the sale of underlying
securities, the portfolios normally distribute such gains with the last
dividend for the calendar year.
All dividends and capital gains distributions are automatically paid in
additional shares of the portfolio unless the shareholder elects otherwise.
Such election must be made in writing to the Fund and may be made on the
Account Registration Form.
In all portfolios except the Cash Reserves Portfolio, undistributed net
investment income is included in the portfolio's net assets for the purpose
of calculating net asset value per share. Therefore, on the ex-dividend date,
the net asset value per share excludes the dividend (i.e., is reduced by the
per share amount of the dividend). Dividends paid shortly after the purchase
of shares by an investor, although in effect a return of capital, are taxable
as ordinary income.
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.
61
<PAGE>
Federal Taxes: Each portfolio of the Fund intends to qualify for taxation
as a regulated investment company under the Code so that each portfolio will
not be subject to Federal income tax to the extent it distributes its income
to its shareholders. Dividends, either in cash or reinvested in shares, paid
by a portfolio from net investment income will be taxable to shareholders as
ordinary income, except for the Municipal and PA Municipal Portfolios (see
Special Tax Considerations for the Municipal and PA Municipal Portfolios). In
the case of the Equity, Value, Small Cap Value, Mid Cap Growth, Growth,
Balanced, Multi-Asset-Class, Mid Cap Value and Select Equity Portfolios, such
dividends will generally qualify in part for the dividends received deduction
for corporations, but the portion of the dividends so qualified depends on
the aggregate taxable qualifying dividend income received by each portfolio
from domestic (U.S.) sources. The Fund will send each shareholder a statement
each year indicating the amount of the dividend income which qualifies for
such treatment.
Whether paid in cash or additional shares of a portfolio, and regardless
of the length of time the shares in such portfolio have been owned by the
shareholder, distributions from long-term capital gains are taxable to
shareholders as such, but are not eligible for the dividends received
deduction for corporations. Shareholders are notified annually by the Fund as
to Federal tax status of dividends and distributions paid by a portfolio.
Such dividends and distributions may also be subject to state and local
taxes.
Exchanges and redemptions of shares in a portfolio are taxable events for
Federal income tax purposes. Individual shareholders may also be subject to
state and municipal taxes on such exchanges and redemptions.
Each portfolio intends to declare and pay dividends and capital gain
distributions so as to avoid imposition of the Federal excise tax. To do so,
each portfolio expects to distribute an amount at least equal to (i) 98% of
its calendar year ordinary income, (ii) 98% of its capital gains net income
(the excess of short and long-term capital gain over short and long-term
capital loss) for the one-year period ending October 31st, and (iii) 100% of
any undistributed ordinary and capital gain net income from the prior year.
Dividends declared in December by a portfolio will be deemed to have been
paid by such portfolio and received by shareholders on the record date
provided that the dividends are paid before February 1 of the following year.
The Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gains distributions, and redemptions)
paid to shareholders who have not complied with IRS regulations. In order to
avoid this withholding requirement, you must certify on the Account
Registration Form that your Social Security or Taxpayer Identification Number
provided is correct and that you are not currently subject to back-up
withholding, or that you are exempt from back-up withholding.
Special Considerations. Under the Code if more than 50% of a portfolio's
securities is owned by five or fewer persons, the portfolio may be a
"personal holding company" and subject to Federal income tax.
Foreign Income Taxes: Investment income received by the portfolios from
sources within foreign countries may be subject to foreign income taxes
withheld at the source. The U.S. has entered into Tax Treaties with many
foreign countries which entitle these portfolios to a reduced rate of tax or
exemption from tax on such income. It is impossible to determine the
effective rate of foreign tax in advance since the amount of the portfolios'
assets to be invested within various countries is not known. The portfolios
intend to operate so as to qualify for treaty reduced rates of tax where
applicable.
The International Equity, Emerging Markets, Global Fixed Income and
International Fixed Income Portfolios may file an election with the Internal
Revenue Service to pass through to the portfolio's shareholders the amount of
foreign income taxes paid by the portfolio, but may do so only if more than
50% of the value of the total assets of the portfolio at the end of the
fiscal year is represented by foreign securities. These portfolios will make
such an election only if they deem it to be in the best interests of their
shareholders.
If this election is made, shareholders of the portfolio will be required
to: (i) include in gross income, even though not actually received, their
respective pro rata share of foreign taxes paid by the portfolio; (ii) treat
their pro rata
62
<PAGE>
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.
Special Tax Considerations for the Municipal and PA Municipal Portfolios:
These portfolios intend to invest a sufficient portion of their assets in
municipal bonds and notes so that each will qualify to pay exempt-interest
dividends to shareholders. Such exempt-interest dividends are excluded from a
shareholder's gross income for Federal personal income tax purposes.
Tax-exempt dividends received from the Municipal and PA Municipal Portfolios
may be subject to state and local taxes. However, some states allow
shareholders to exclude that portion of a portfolio's tax-exempt income which
is attributable to municipal securities issued within the shareholder's state
of residence. Furthermore, the PA Municipal Portfolio invests at least 65% of
its assets in PA Municipals. As a result, the income of the portfolio that is
derived from PA Municipals and U.S. Governments will not be subject to the
Pennsylvania personal income tax or to the Philadelphia School District
investment net income tax. Distributions by the PA Municipal Portfolio to a
Pennsylvania resident that are attributable to most other sources may be
subject to the Pennsylvania personal income tax and (for residents of
Philadelphia) to the Philadelphia School District investment net income tax.
To the extent, if any, that dividends paid to shareholders of the Municipal
and PA Municipal Portfolios are derived from taxable interest or long-term or
short-term capital gains, such dividends will be subject to Federal personal
income tax (whether such dividends are paid in cash or in additional shares)
and may also be subject to state and local taxes. In addition, the Municipal
and PA Municipal Portfolios may invest in private activity municipal
securities, the interest on which is subject to the Federal alternative
minimum tax for individuals (AMT bonds). To the extent that the portfolios
invest in AMT bonds, individuals who are subject to the AMT will be required
to report a portion of dividends as a tax preference item in determining
their federal taxes. A shareholder may lose the tax exempt status of the
accrual income of these portfolios if they redeem their shares before a
dividend has been declared.
TRUSTEES OF THE TRUST: The management and affairs of the Trust are
supervised by the Trustees under the laws governing business trusts in the
Commonwealth of Pennsylvania. The Trustees have approved contracts under
which, as described above, certain companies provide essential management,
administrative and shareholder services to the Trust.
INVESTMENT ADVISER: The Investment Adviser to the Fund, Miller Anderson &
Sherrerd, LLP (the Adviser), is a Pennsylvania limited liability partnership
founded in 1969 and is located at One Tower Bridge, West Conshohocken, PA
19428. Miller Anderson & Sherrerd, LLP is an Equal Opportunity/Affirmative
Action Employer. The Adviser provides investment services to employee benefit
plans, endowment funds, foundations and other institutional investors and as
of the date of this prospectus had in excess of $35 billion in assets under
management. On January 3, 1996, Morgan Stanley Group Inc. acquired Miller
Anderson & Sherrers, LLP (the "Adviser") in a transaction in which Morgan
Stanley Asset Management Holdings Inc., an indirect wholly owned subsidiary
of Morgan Stanley Group Inc., became the sole general partner of the Adviser.
Morgan Stanley Asset Management Holdings Inc. and two other wholly owned
subsidiaries of Morgan Stanley Group Inc. became the limited partners of the
Adviser. In connection with this transaction, the Adviser entered into a new
Investment Management Agreement ("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, and other
institutional investors.
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<PAGE>
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
-------
Emerging Markets Portfolio* .750%
Equity Portfolio .500
Growth Portfolio .500
International Equity Portfolio .500
Mid Cap Growth Portfolio .500
Mid Cap Value Portfolio* .750
Small Cap Value Portfolio* .750
Value Portfolio .500
Cash Reserves Portfolio .250
Domestic Fixed Income Portfolio .375
Fixed Income Portfolio .375
Fixed Income Portfolio II .375
Global Fixed Income Portfolio .375
High Yield Portfolio .375
Intermediate Duration Portfolio .375
International Fixed Income Portfolio .375
Limited Duration Portfolio .300
Mortgage-Backed Securities Portfolio .375
Municipal Portfolio .375
PA Municipal Portfolio .375
Special Purpose Fixed Income Portfolio .375
Balanced Portfolio .450
Multi-Asset-Class Portfolio .450
Select Equity Portfolio .500
* Advisory fees in excess of 0.750% of average net assets are considered
higher than normal for most investment companies, but are not unusual for
portfolios that invest primarily in small capitalization stocks or in
countries with emerging market economies.
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<PAGE>
For the fiscal year ended September 30, 1995, the Adviser received the
following as compensation for its services:
Rate
-------
Emerging Markets Portfolio .470%
Equity Portfolio .500%
International Equity Portfolio .500%
Mid Cap Growth Portfolio .500%
Mid Cap Value Portfolio .000%
Small Cap Value Portfolio .750%
Value Portfolio .500%
Cash Reserves Portfolio .141%
Domestic Fixed Income Portfolio .285%
Fixed Income Portfolio .375%
Fixed Income Portfolio II .375%
Global Fixed Income Portfolio .375%
High Yield Portfolio .375%
Intermediate Duration Portfolio .290%
International Fixed Income Portfolio .375%
Limited Duration Portfolio .285%
Mortgage-Backed Securities Portfolio .370%
Municipal Portfolio .281%
PA Municipal Portfolio .190%
Special Purpose Fixed Income Portfolio .375%
Balanced Portfolio .450%
Multi-Asset-Class Portfolio .309%
Select Equity Portfolio .367%
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<PAGE>
SERVICE PLAN.
The Board of Trustees of the Fund has approved a Service Plan (the "Service
Plan"). Under the Plan, Service Providers are paid for certain shareholder
support service on behalf of Investment Class Shares of each Portfolio
wherein the Fund has retained the Distributor to compensate organizations for
providing shareholder support services to clients who purchase Investment
Class Shares. For this service, such Service Providers are compensated at an
annual rate of .15% of the average net assets of the Investment Class Shares
of each Portfolio. Fees paid pursuant to the Service Plan are separate fees
of the Investment Class Shares of each Portfolio and will reduce the net
investment income and total return of the Investment Class Shares of these
Portfolios.
MAS PORTFOLIO MANAGEMENT
<TABLE>
<CAPTION>
Manager
Portfolio Since
Portfolio Manager (Year)
------------------------- --------------------------- -----------------------
<S> <C> <C>
Equity and Select Arden C. Armstrong 1994
Equity Portfolios:
------------------------- --------------------------- -----------------------
John D. Connolly 1990
------------------------- --------------------------- -----------------------
Timothy G. Connors 1994
------------------------- --------------------------- -----------------------
Nicholas J. Kovich 1994
------------------------- --------------------------- -----------------------
Robert J. Marcin 1994
------------------------- --------------------------- -----------------------
Gary G. Schlarbaum Equity (1987)
Select Equity
(1988)
------------------------- --------------------------- -----------------------
A. Morris Williams, Jr. Equity (1984)
Select Equity
(1988)
------------------------- --------------------------- -----------------------
Value Portfolio: Robert J. Marcin 1990
------------------------- --------------------------- -----------------------
A. Morris Williams, Jr 1984
------------------------- --------------------------- -----------------------
Small Cap Value and Gary G. Schlarbaum Small Cap (1987)
Mid Cap Value Mid Cap (1994)
Portfolios:
------------------------- --------------------------- -----------------------
Gary D. Haubold Small Cap (1993)
Mid Cap (1994)
------------------------- --------------------------- -----------------------
Bradley S. Daniels Small Cap (1986)
Mid Cap (1994)
------------------------- --------------------------- -----------------------
Mid Cap Growth Arden C. Armstrong 1990
Portfolio:
------------------------- --------------------------- -----------------------
John D. Connolly 1990
------------------------- --------------------------- -----------------------
Growth Portfolio: Arden C. Armstrong 1993
------------------------- --------------------------- -----------------------
John D. Connolly 1993
------------------------- --------------------------- -----------------------
Timothy G. Connors 1994
------------------------- --------------------------- -----------------------
Fixed Income, Thomas L. Bennett Fixed Income (1984)
Domestic Fixed Domestic (1987)
Income, Special Special Purpose
Purpose Fixed (1992)
Income, and Fixed Fixed Income II
Income II Portfolios: (1990)
------------------------- --------------------------- -----------------------
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<PAGE>
Manager
Portfolio Since
Portfolio Manager (Year)
------------------------- --------------------------- -----------------------
Kenneth B. Dunn Fixed Income and
Domestic (1987)
Special Purpose
(1992)
Fixed Income II
(1990)
------------------------- --------------------------- -----------------------
Richard B. Worley Fixed Income (1984)
Domestic (1987)
Special Purpose
(1992)
Fixed Income II
(1990)
------------------------- --------------------------- -----------------------
Mortgage-Backed Kenneth B. Dunn 1992
Securities
Portfolio:
------------------------- --------------------------- -----------------------
Scott F. Richard 1992
------------------------- --------------------------- -----------------------
High Yield Stephen F. Esser 1989
Portfolio:
------------------------- --------------------------- -----------------------
Thomas L. Bennett 1989
------------------------- --------------------------- -----------------------
Cash Reserves Ellen D. Harvey 1990
Portfolio:
------------------------- --------------------------- -----------------------
Limited Duration Ellen D. Harvey Limited (1992)
and Intermediate Intermediate (1994)
Duration
Portfolios:
------------------------- --------------------------- -----------------------
Scott F. Richard Intermediate and
Limited (1994)
------------------------- --------------------------- -----------------------
Christian G. Roth Intermediate and
Limited (1994)
------------------------- --------------------------- -----------------------
Municipal and PA Kenneth B. Dunn 1994
Municipal Portfolios:
------------------------- --------------------------- -----------------------
Steven K. Kreider 1992
------------------------- --------------------------- -----------------------
Scott F. Richard 1994
------------------------- --------------------------- -----------------------
Balanced Portfolio: John D. Connolly 1992
------------------------- --------------------------- -----------------------
Gary G. Schlarbaum 1992
------------------------- --------------------------- -----------------------
Thomas L. Bennett 1992
------------------------- --------------------------- -----------------------
Richard B. Worley 1992
------------------------- --------------------------- -----------------------
Multi-Asset-Class John D. Connolly 1994
Portfolio:
------------------------- --------------------------- -----------------------
Gary G. Schlarbaum 1994
------------------------- --------------------------- -----------------------
Thomas L. Bennett 1994
------------------------- --------------------------- -----------------------
J. David Germany 1994
------------------------- --------------------------- -----------------------
Horacio A. Valeiras 1994
------------------------- --------------------------- -----------------------
Dean Williams 1994
------------------------- --------------------------- -----------------------
Richard B. Worley 1994
------------------------- --------------------------- -----------------------
International Dean Williams International
Equity and Emerging (1988)
Markets Portfolios: Emerging Markets
(1994)
------------------------- --------------------------- -----------------------
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<PAGE>
Manager
Portfolio Since
Portfolio Manager (Year)
------------------------- --------------------------- -----------------------
Horacio A. Valeiras International
(1992)
Emerging Markets
(1993)
------------------------- --------------------------- -----------------------
Global Fixed Income J. David Germany 1993
and International
Fixed Income
Portfolios:
------------------------- --------------------------- -----------------------
Richard B. Worley 1993
------------------------- --------------------------- -----------------------
</TABLE>
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 Mid Cap Growth Portfolio in 1990, the Growth Portfolio
in 1993 and the Equity and Select Equity Portfolios in 1994.
Thomas L. Bennett, Portfolio Manager, joined MAS in 1984. He assumed
responsibility for the Fixed Income Portfolio in 1984, the Domestic Fixed
Income Portfolio 1987, the High Yield Portfolio in 1989, the Fixed Income
Portfolio II in 1990, the Special Purpose Fixed Income and Balanced
Portfolios in 1992 and the Multi-Asset-Class Portfolio in 1994.
Timothy G. Connors, Portfolio Manager, joined MAS in 1994. Mr. Connors served
as Vice President and Managing Director of CoreStates Investment Advisers
from 1986 to 1994. He assumed responsibility for the Equity, Select Equity
and Growth Portfolios in 1994.
John D. Connolly, Portfolio Manager, joined MAS in 1990. Mr. Connolly served
as Senior Vice President and Chief Investment Strategist at Dean Witter
Reynolds from 1984 to 1990. He assumed responsibility for the Equity, Select
Equity and Mid Cap Growth Portfolios in 1990, the Balanced Portfolio in 1992,
the Growth Portfolio in 1993 and the Multi-Asset-Class Portfolio in 1994.
Bradley S. Daniels, Portfolio Manager, joined MAS in 1985. He assumed
responsibility for the Small Cap Value Portfolio in 1986 and the Mid Cap
Value Portfolio in 1994.
Kenneth B. Dunn, Portfolio Manager, joined MAS in 1987. He assumed
responsibility for the Fixed Income and the Domestic Fixed Income Portfolios
in 1987, the Fixed Income II Portfolio in 1990, the Mortgage-Backed
Securities and Special Purpose Fixed Income Portfolios in 1992, and the
Municipal and PA Municipal Portfolios in 1994.
Stephen F. Esser, 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 Global Fixed Income and International Fixed
Income Portfolios in 1993 and 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, the Limited Duration
Portfolio in 1992 and the Intermediate Duration Portfolio in 1994.
Gary D. Haubold, Portfolio Manager, joined MAS in 1993. Mr. Haubold served as
Senior Vice President at Wood, Struthers & Winthrop in 1993. He assumed
responsibility for the Small Cap Value Portfolio in 1993 and the Mid Cap
Value Portfolio in 1994.
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<PAGE>
Nicholas J. Kovich, Portfolio Manager, joined MAS in 1988. He assumed
responsibility for the Equity and Select Equity Portfolios in 1994.
Steven K. Kreider, Portfolio Manager, joined MAS in 1988. He assumed
responsibility for the Municipal and the PA Municipal Portfolios in 1992.
Robert J. Marcin, Portfolio Manager, joined MAS in 1988. He assumed
responsibility for the Value Portfolio in 1990 and the Equity and Select
Equity Portfolios in 1994.
Scott F. Richard, Portfolio Manager, joined MAS in 1992. He served as Vice
President, Head of Fixed Income Research & Model Development for Goldman,
Sachs & Co. from 1987 to 1991 and as Head of Mortgage Research in 1992. He
assumed responsibility for the Mortgage-Backed Securities Portfolio in 1992
and the Limited Duration, Intermediate Duration, Municipal and PA Municipal
Portfolios in 1994.
Christian G. Roth, Portfolio Manager, joined MAS in 1991. He served as Senior
Associate, Dean Witter Capital Corporation from 1987 to 1991. He assumed
responsibility for the Limited Duration and Intermediate Duration Portfolios
in 1994.
Gary G. Schlarbaum, Portfolio Manager, joined MAS in 1987. He assumed
responsibility for the Equity and Small Cap Value Portfolios in 1987, the
Select Equity Portfolio in 1988, the Balanced Portfolio in 1992 and the
Multi-Asset-Class 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, the Emerging Markets Portfolio in
1993 and the Multi-Asset-Class Portfolio in 1994.
A. Morris Williams, Jr., Portfolio Manager, joined MAS in 1973. He assumed
responsibility for the Equity Portfolio in 1984, the Select Equity Portfolio
in 1988 and the Value Portfolio in 1984.
Dean Williams, Portfolio Manager, joined MAS in 1988. He assumed
responsibility for the International Equity Portfolio in 1988 and the
Emerging Markets and Multi-Asset-Class Portfolios in 1994.
Richard B. Worley, Portfolio Manager, joined MAS in 1978. He assumed
responsibility for the Fixed Income Portfolio in 1984, the Domestic Fixed
Income Portfolio in 1987, the Fixed Income Portfolio II in 1990, the Balanced
and Special Purpose Fixed Income Portfolios in 1992, the Global Fixed Income
and International Fixed Income Portfolios in 1993 and the Multi-Asset-Class
Portfolio in 1994.
ADMINISTRATIVE SERVICES: MAS serves as Administrator to the Fund pursuant to
an Administration Agreement dated as of November 18, 1993. Administrative
services provided by MAS include shareholder communication services,
regulatory reporting, office space and personnel. 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
69
<PAGE>
and directs the Adviser to use its best efforts to obtain the best execution
with respect to all transactions for the portfolios. In doing so, a portfolio
may pay higher commission rates than the lowest available when the Adviser
believes it is reasonable to do so in light of the value of the research,
statistical, and pricing services provided by the broker effecting the
transaction.
It is not the Fund's practice to allocate brokerage or principal business on
the basis of sales of shares which may be made through intermediary brokers
or dealers. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Fund's Portfolios or who act as agents in
the purchase of shares of the portfolios for their clients.
Some securities considered for investment by each of the Fund's portfolios
may also be appropriate for other clients served by the Adviser. If purchase
or sale of securities consistent with the investment policies of a portfolio
and one or more of these other clients served by the Adviser is considered at
or about the same time, transactions in such securities will be allocated
among the portfolio and clients in a manner deemed fair and reasonable by the
Adviser. Although there is no specified formula for allocating such
transactions, the various allocation methods used by the Adviser, and the
results of such allocations, are subject to periodic review by the Fund's
Trustees. 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, AT&T Savings Plans Group Trust II (Berkeley Heights,
NJ) owned controlling interests (as that term is defined in the Investment
Company Act of 1940, as amended) of the Select Equity Portfolio; Forbes
Health System (Philadelphia, PA) owned a controlling interest of the Domestic
Fixed Income Portfolio; Sun Company, Inc. (Philadelphia, PA) owned a
controlling interest of the Cash Reserves Portfolio; Inglis House Foundation
(Philadelphia, PA) and Northwestern University (Evanston, IL) owned
controlling interests of the Mortgage Backed Securities Portfolio; Ministers
& Missionaries Benefit Board (New York, NY) owned a controlling interest of
the Emerging Markets Portfolio and R.& S. Roberts (Philadelphia, PA) owned a
controlling interest of the Pennsylvania Municipal 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 of the Fund as required by
the 1940 Act.
Transfer and Dividend Disbursing Agent: Chase Global Funds Services Company,
a subsidiary of The Chase Manhattan Bank, N.A., 73 Tremont Street, Boston, MA
02108-3913. Reports: Shareholders receive semiannual and annual financial
statements. Annual financial statements are audited by Price Waterhouse LLP,
independent accountants.
70
<PAGE>
Reports: Shareholders receive semiannual and annual financial statements.
Annual financial statements are audited by Price Waterhouse LLP, independent
accountants.
Litigation: The Fund is not involved in any litigation.
Closed Holidays: Currently, the weekdays on which the Fund is closed for
business are: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. In addition,
the Fixed Income, Special Purpose Fixed Income, Fixed Income Portfolio II,
Limited Duration, Cash Reserves, High Yield, Mortgage-Backed Securities,
Intermediate Duration, International Fixed Income, Global Fixed Income,
Domestic Fixed Income, Municipal, and PA Municipal Portfolios will be closed
on Martin Luther King Day, Columbus Day, and Veteran's Day.
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 and
Member of the Executive Committee 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 of the Fund since July 1995; Partner, Morgan,
Lewis & Bockius, LLP; formerly Attorney, Ropes & Gray.
71
<PAGE>
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72
<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 $------
[ ] Value Portfolio $------
[ ] Growth Portfolio $------
[ ] Mid Cap Growth Portfolio $------
[ ] Balanced Portfolio $------
[ ] Multi-Asset-Class Portfolio $------
[ ] Fixed Income Portfolio $------
[ ] Fixed Income Portfolio II $------
[ ] Special Purpose Fixed Income Portfolio $------
[ ] High Yield Portfolio $------
[ ] Limited Duration Fixed Income Portfolio $------
[ ] Intermediate Duration Portfolio $------
[ ] Mortgage-Backed Securities Portfolio $------
[ ] Cash Reserves Portfolio $------
[ ] International Equity Portfolio $------
[ ] Emerging Markets Portfolio $------
[ ] International Fixed Income Portfolio $------
[ ] Global Fixed Income Portfolio
[ ] Municipal Portfolio $------
[ ] PA Municipal Portfolio $------
[ ] Mid Cap Value Portfolio $------
[ ] Domestic Fixed Income Portfolio $------
<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
The Fund is hereby authorized to honor any telephone or telegraphic requests
believed to be authentic for the following:
(check one or both)
[ ] Mailing of Redemption proceeds to the name and address in Section 1
above.
[ ] Wire of Redemption proceeds to:
--------------------------------------------- -------------------------
Name of Commercial Bank (Net Savings Bank) Bank Account Number
------------------------------------------------------------------------
Name(s) in which your Bank Account is Established
------------------------------------------------------------------------
Bank's Street Address
------------------------------------------------------------------------
City State Zip Routing/ABA Number
===============================================================================
/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 (Not Savings Bank) Bank Account No.
--------------------------------------------------------------------------
Name(s) in which your Bank Account is Established
--------------------------------------------------------------------------
Bank's Street Address
-------------------------------------------- ----------------------------
City State Zip Routing/ABA Number
===============================================================================
/7/ DISTRIBUTION OPTION
/ / Income dividends and capital gains distributions to be reinvested in
additional shares.
/ / Income dividends and capital gains distributions to be paid in cash.
/ / Income dividends in cash and capital gains distributions in
additional shares.
If cash option is chosen, please indicate instructions below:
/ / Mail distribution check to the name and address in which account is
registered.
/ / Wire distributions to the same Commercial Bank indicated in Section 5
above.
/ / Wire distributions to:
------------------------------------------------- ------------------------
Name of Commercial Bank (Not Savings Bank) Bank Account Number
- ------------------------------------------------------------------------------
Name(s) in which your Bank Account is Established
- ------------------------------------------------------------------------------
Bank's Street Address
- -------------------------------------------------- ------------------------
City State Zip Routing/ABA Number
===============================================================================
<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>
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<PAGE>
MAS INVESTMENT CLASS PROSPECTUS
- ---------
MAS FUNDS
January 30, 1996
As Revised September 16, 1996
Investment Adviser and Administrator: Transfer Agent:
Miller Anderson & Sherrerd, LLP Chase Global Funds Services Company
One Tower Bridge 73 Tremont Street
West Conshohocken, Boston, Massachusetts 02108-0913
Pennsylvania 19428-2899
General Distribution Agent:
MAS Fund Distribution, Inc.
One Tower Bridge
P.O. Box 868
West Conshohocken,
Pennsylvania 19428-0868
- --------------------------------------------------------------------------------
Table of Contents
Page Page
Fund Expenses 2 General Information
Prospectus Summary 4 Other Information 56
Financial Highlights 9 Purchase of Shares 56
Yield and Total Return 18 Redemption of Shares 57
Investment Suitability 15 Shareholder Services 58
Investment Limitations 15 Valuation of Shares 59
Portfolio Summaries 17 Dividends, Capital Gains Distributions
Equity Investments 17 and Taxes 56
Fixed-Income Investments 21 Investment Adviser 58
Prospectus Glossary: Portfolio Management 59
Strategies 40 Administrative Services 61
Investments 45 General Distribution Agent 62
Portfolio Transactions 62
Trustees and Officers 64
MILLER
ANDERSON
& SHERRERD, LLP
ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428 o 800-354-8185
- -------------------------------------------------------------------------------
