<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 30, 1996
File No. 2-89729
File No. 811-3980
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 41 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 44 [x]
MAS FUNDS
--------------------------
(Exact Name of Registrant)
c/o Miller Anderson & Sherrerd, LLP
One Tower Bridge
P.O. Box 868
West Conshohocken, PA 19428-068
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (610) 940-5065
Ms. Lorraine Truten
One Tower Bridge
West Conshohocken, PA 19428-068
---------------------------------------
(Name and Address of Agent for Service)
Copies to:
John H. Grady, Jr. Esquire
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
- -------------------------------------------------------------------------------
It is proposed that this filing will become effective (check appropriate box)
X Immediately upon filing pursuant to paragraph (b), or
On [date] pursuant to paragraph (b), or
60 days after filing pursuant to paragraph (a), or
On [date] pursuant to paragraph (a) of Rule 485, or
75 days after filing pursuant to paragraph (a) of Rule 485.
- -------------------------------------------------------------------------------
DECLARATION PURSUANT TO RULE 24f-2: Pursuant to Rule 24f-2 under the
Investment Company Act of 1940 the Registrant has elected to register an
indefinite amount of securities. Registrant filed a Rule 24f-2 Notice on
November 28, 1995 for the Registrant's fiscal year ending September 30, 1995.
<PAGE>
MAS FUNDS
POST-EFFECTIVE AMENDMENT NO. 41
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
==============================================================================
<S> <C> <C>
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Prospectus Summary
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Investment Limitations; Portfolio
Summaries; Equity Investments;
Fixed Income Investments;
Prospectus Glossary: Strategies and
Investments; Risk Factors; Fund
Expenses; General Information;
Other Information
Item 5. Management of the Fund Investment Advisor; Administrative
Services; Shareholder Services;
General Distribution Agent; Portfolio
Management; Trustees and Officers;
Other Information
Item 6. Capital Stock and Other Securities Dividends, Capital Gains,
Distributions and Taxes; Valuation of
Shares; Portfolio Transactions; Other
Information
Item 7. Purchase of Securities Being Offered Purchase of Shares; Redemption of
Shares
Item 8. Redemption or Repurchase Purchase of Shares; Redemption of
Shares
Item 9. Pending Legal Proceedings Litigation
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Business History
Item 13. Investment Objectives and Policies Investment Objectives and Policies;
Investment Limitations; Appendix:
Description of Securities and Ratings
-i-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
===============================================================================
<S> <C> <C>
Item 14. Management of the Registrant Management of the Fund
Item 15. Control Persons and Principal
Holders of Securities Management of the Fund
Item 16. Investment Advisory and Other
Services Investment Advisor; Shareholder
Services; Distributor For Fund;
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Securities General Information - Description of
Shares and Voting Rights
Item 19. Purchase, Redemption, and Pricing
of Securities Being Offered Purchase of Shares; Redemption of
Shares
Item 20. Tax Status Tax Considerations
Item 21. Underwriters Distributor for Funds
Item 22. Calculation of Yield Quotations Computation of Yield and Calculation
of Total Return; Performance
Information
Item 23. Financial Statements Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
-ii-
<PAGE>
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 Institutional Class Shares of the Fund. The Fund also offers
Adviser Class Shares and Investment 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 Prospectus: 3
- --------------------------
Portfolio Summaries:
- --------------------
Equity:
- -------
Emerging Markets 17
Equity 17
Growth 18
International Equity 18
Mid Cap Growth 19
Mid Cap Value 19
Small Cap Value 20
Value 20
Fixed Income:
- -------------
Cash Reserves 21
Domestic Fixed Income 22
Fixed Income 23
Fixed Income II 24
Global Fixed Income 25
High Yield 26
Intermediate Duration 27
International Fixed Income 28
Limited Duration 29
Mortgage-Backed Securities 30
Municipal 31
PA Municipal 32
Special Purpose Fixed Income 33
Balanced: 34
- ---------
Multi-Asset-Class: 35
- -----------------
Select Equity Portfolio: 6
- -----------------------
Prospectus Glossary:
- -------------------
Strategies 36
Investments 41
Other Information: 52
- ------------------
Table of Contents: Back Cover
- -----------------
This Prospectus, which should be retained for future reference, sets forth
concisely information that you should know before you invest. A Statement of
Additional Information containing additional information about the Fund has been
filed with the Securities and Exchange Commission. Such Statement is dated
January 30, 1996 as revised from time to time, and has been
incorporated by reference into this Prospectus. A copy of the Statement may be
obtained, without charge, by writing to the Fund or by calling the Client
Services Group at the telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
EXPENSE SUMMARY
- ---------------
INSTITUTIONAL 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 operations.
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses:
(as a percentage of average net assets after fee waivers)
12b-1 Fees None
<TABLE>
<CAPTION>
Investment Total
Advisory Other Operating
Portfolio Fees Expenses Expenses
<S> <C> <C> <C>
Emerging Markets 0.750%
Equity 0.500
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Growth
International Equity
Mid Cap Growth
Mid Cap Value
Small Cap Value
Value
Cash Reserves
Domestic Fixed Income
Fixed Income
Fixed Income II
Global Fixed Income
High Yield
Intermediate Duration
International Fixed Income
Limited Duration
Mortgage-Backed Securities
Municipal
PA Municipal
Special Purpose Fixed Income
Balanced
Multi-Asset-Class
Select Equity
</TABLE>
*After fee waivers and reimbursements.
Until further notice, the Adviser has voluntarily agreed to waive its advisory
fees and reimburse certain expenses to the extent necessary to keep Total
Operating Expenses for the Emerging Markets, Mid Cap Value, Cash Reserves,
Domestic Fixed Income, Global Fixed Income, High Yield, Intermediate Duration,
International Fixed Income, Limited Duration, Mortgage-Backed Securities,
Municipal, PA Municipal, Multi-Asset-Class and Select Equity Portfolios from
exceeding 1.18%, 0.88%, 0.32%, 0.50%, 0.58%, 0.525%, 0.52%, 0.60%, 0.42%, 0.50%,
0.50%, 0.50%, 0.58% and 0.61%, respectively. Absent fee waivers and
reimbursements by the Adviser, Total Operating Expenses would be _____%, _____%,
_____%, _____%, _____%, _____%, _____%, _____%, _____%, _____%, and _____% for
the Emerging Markets, Mid Cap Value, Cash Reserves, Domestic Fixed Income,
Intermediate Duration, International Fixed Income, Mortgage-Backed Securities,
Municipal, PA Municipal, Multi-Asset-Class and Select Equity Portfolios,
respectively.
3
<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.
<TABLE>
<CAPTION>
Portfolio
1 year 3 year 5 year 10 year
<S> <C> <C> <C> <C>
Emerging Markets $ $ $ $
Equity
Growth
International Equity
Mid Cap Growth
Mid Cap Value
Small Cap Value
Value
Cash Reserves
Domestic Fixed Income
Fixed Income
Fixed Income II
Global Fixed Income
High Yield
Intermediate Duration
International Fixed Income
Limited Duration
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Mortgage-Backed Securities
Municipal
PA Municipal
Special Purpose Fixed Income
Balanced
Multi-Asset-Class
Select Equity
</TABLE>
HOW TO USE THIS PROSPECTUS
A PROSPECTUS SUMMARY begins on page __;
FINANCIAL HIGHLIGHTS and a description of YIELD AND TOTAL RETURN begin
on page __;
GENERAL INFORMATION including INVESTMENT LIMITATIONS pertinent to all
portfolios begins on page __;
SUMMARY PAGES for each portfolio's Objective, Policies and Strategies begin on
page __;
The PROSPECTUS GLOSSARY which defines specific Allowable Investments, Policies
and Strategies printed in bold type throughout this Prospectus begins on page
__;
OTHER INFORMATION including SHAREHOLDER SERVICES begins on page __.
5
<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.
6
<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.
7
<PAGE>
Special Purpose Fixed Income - seeks to achieve above-average total return over
a market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of U.S. Governments, Corporates,
Mortgage Securities, Foreign Bonds and other Fixed-Income Securities and
Derivatives. The portfolio is structured to complement an investment in one or
more of the Fund's Equity Portfolios for investors seeking a balanced
investment. The portfolio's average weighted maturity
will ordinarily exceed five years.
BALANCED INVESTING
Balanced Portfolio - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing in a
diversified portfolio of Equity Securities, Fixed-Income Securities and
Derivatives. When the Adviser judges the relative outlook for the equity and
fixed-income markets to be neutral, the portfolio will be invested 60% in equity
securities and 40% in fixed-income securities. The asset mix is actively managed
by the Adviser, with equity securities ordinarily representing between 45% and
75% of the total investment. The average weighted maturity of the fixed-income
portion of the portfolio will ordinarily be greater than five years.
Multi-Asset-Class Portfolio - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of Equity Securities,
Fixed-Income Securities and High Yield Securities of United States and foreign
issuers and Derivatives. The asset mix is actively managed by the Adviser.
Balanced Investing and the Balanced Investment Program - MAS offers a balanced
investing option allowing clients to combine investments in two or more
portfolios of the Fund. Clients can authorize MAS to manage the mix of assets
among the portfolios according to their individual objectives and
specifications. If client objectives are consistent with active management of
investments in the Equity and Special Purpose Fixed Income Portfolios around a
60/40 asset mix, the account will be managed in the same manner as the Adviser's
fully-discretionary, Balanced Investment Program. When client objectives require
use of different portfolios, a different neutral asset mix or specific
limitations, a balanced program is managed according to those specifications.
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;
8
<PAGE>
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,
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 the other portfolios.
HOW TO INVEST: Institutional Class Shares of each portfolio are available to
clients of the Adviser with combined investments of at least $5,00,000 and
accounts managed by the Adviser and Shareholder Organizations who have a
contractual arrangement with the Fund, including institutions such as trusts,
foundations or broker-dealers purchasing for the accounts of others. Shares are
offered directly to investors without a sales commission at the net asset value
of the portfolio next determined after receipt of the order. Share purchases may
be made by sending investments directly to the Fund, subject to acceptance by
the Fund. The Fund also offers Investment and Adviser Class Shares which differ
from the Institutional Class Shares in expenses charged and purchase
requirements. Further information relating to the other classes may be obtained
by calling 800-354-8185.
HOW TO REDEEM: Shares of 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.
9
<PAGE>
Financial Highlights - Fiscal Years Ended September 30
Selected per share data and ratios
for a share outstanding throughout each period
The following information should be read in conjunction with the Fund's
financial statements which are included in the Annual Report to Shareholders
incorporated by reference in the Statement of Additional Information. The Fund's
financial statements for the year ended September 30, 1995 have been examined by
Price Waterhouse LLP whose opinion thereon (which was unqualified) is also
incorporated by reference in the Statement of Additional Information.
(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)
Emerging Markets Portfolio (Commencement of Operations 2/28/95)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.00 $0.10 $1.53 $1.63 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.63 16.30% $ 42,459 1.18%*++ 2.04%* 63%
Equity Portfolio (Commencement of Operations 11/14/84)
</TABLE>
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $21.05 $0.52 $4.55 $5.07 ($0.52) ($1.17) -- ($1.69)
1994 22.82 0.44 0.41 0.85 (0.41) (2.21) -- (2.62)
1993 22.04 0.41 1.95 2.36 (0.43) (1.15) -- (1.58)
1992 20.78 0.43 1.86 2.29 (0.42) (0.61) -- (1.03)
1991 15.86 0.44 5.64 6.08 (0.44) (0.72) -- (1.16)
1990 18.65 0.48 (2.57) (2.09) (0.54) (0.16) -- (0.70)
1989 14.48 0.51 4.15 4.66 (0.46) (0.03) -- (0.49)
1988 17.14 0.40 (1.93) (1.53) (0.32) (0.81) -- (1.13)
1987 14.09 0.43 3.67 4.10 (0.41) (0.64) -- (1.05)
1986 10.83 0.45 3.49 3.94 (0.49) (0.19) -- (0.68)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $24.43 26.15% $1,597,632 0.61% 2.39% 67%
1994 21.05 4.11 1,193,017 0.60 2.10 41
1993 22.82 11.05 1,098,003 0.59 1.86 51
1992 22.04 11.55 918,989 0.59 2.03 21
1991 20.78 40.18 675,487 0.60 2.36 33
1990 15.86 (11.67) 473,261 0.59 2.66 44
1989 18.65 32.95 602,261 0.59 3.29 29
1988 14.48 (8.41) 385,864 0.62 2.99 51
1987 17.14 30.89 322,803 0.66 2.88 66
1986 14.09 37.60 108,367 0.68 3.17 52
</TABLE>
<PAGE>
International Equity Portfolio (Commencement of Operations 11/25/88)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $14.52 $0.19 ($0.75) ($0.56) -- ($1.35) ($0.10)+ ($1.45)
1994 13.18 0.12 1.63 1.75 (0.16) (0.25) -- (0.41)
1993 11.03 0.21 2.14 2.35 (0.20) -- -- (0.20)
1992 11.56 0.36 (0.33) 0.03 (0.56) -- -- (0.56)
1991 9.83 0.22 1.83 2.05 (0.23) (0.09) -- (0.32)
1990 11.86 0.26 (1.90) (1.64) (0.31) (0.08) -- (0.39)
1989 10.00 0.26 1.75 2.01 (0.15) -- -- (0.15)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $12.51 (3.36%) $1,160,986 0.70% 1.90% 112%
1994 14.52 13.33 1,132,867 0.64 0.89 69
1993 13.18 21.64 891,675 0.66 1.23 43
1992 11.03 0.37 512,127 0.70 1.41 42
1991 11.56 21.22 274,295 0.67 2.08 51
1990 9.83 (14.38) 126,035 0.65 2.40 45
1989 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.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the 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 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 Equity and
International Equity Portfolios excludes the effect of expense offsets. If
expense offsets were included, the Ratio of Expenses to Average Net Assets
would be 0.60% and 0.66%, respectively.
<PAGE>
Mid Cap Growth Portfolio (Commencement of Operations 3/30/90)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $16.29 $0.03 $4.21 $4.24 ($0.03) ($1.90) -- ($1.93)
1994 18.56 0.02 (0.58) (0.56) (0.01) (1.70) -- (1.71)
1993 14.51 0.01 4.80 4.81 -- (0.76) -- (0.76)
1992 14.92 0.01 0.44 0.45 (0.03) (0.83) -- (0.86)
1991 9.00 0.04 5.91 5.95 (0.03) -- -- (0.03)
1990 10.00 0.02 (1.01) (0.99) (0.01) -- -- (0.01)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $18.60 30.56% $373,547 0.61% 0.21% 129%
1994 16.29 (3.28) 302,995 0.60 0.12 55
1993 18.56 33.92 309,459 0.59 0.07 69
1992 14.51 2.87 192,817 0.60 0.05 39
1991 14.92 66.26 171,163 0.60 0.29 46
1990 9.00 (9.98) 76,398 0.64* 0.34* 23
</TABLE>
Mid Cap Value Portfolio (Commencement of Operations 12/30/94)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.00 $0.55o $2.90 $3.45 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $13.45 34.50% $ 4,507 0.93%*++ 10.13%*o 639%o
</TABLE>
Small Cap Value Portfolio (Commencement of Operations 7/01/86)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $17.67 $0.19 $2.49 $2.68 ($0.14) ($1.93) -- ($2.07)
1994 17.55 0.16 1.14 1.30 (0.24) (0.94) -- (1.18)
1993 12.84 0.18 4.64 4.82 (0.11) -- -- (0.11)
1992 11.45 0.10 1.48 1.58 (0.19) -- -- (0.19)
1991 7.20 0.23 4.21 4.44 (0.19) -- -- (0.19)
1990 10.42 0.28 (3.05) (2.77) (0.45) -- -- (0.45)
1989 8.54 0.34 1.74 2.08 (0.20) -- -- (0.20)
1988 10.24 0.18 (1.42) (1.24) (0.14) (0.32) -- (0.46)
1987 9.35 0.13 0.84 0.97 (0.08) -- -- (0.08)
1986 10.00 0.08 (0.73) (0.65) -- -- -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $18.28 18.39% $430,368 0.87% 1.20% 119%
1994 17.67 8.04 308,156 0.88 0.91 162
1993 17.55 37.72 175,029 0.88 1.33 93
1992 12.84 14.12 105,886 0.86 1.06 50
1991 11.45 63.07 52,182 0.88 1.70 53
1990 7.20 (27.63) 100,848 0.85 1.77 59
1989 10.42 24.85 189,223 0.85 3.48 36
1988 8.54 (11.50) 202,500 0.86 2.32 41
1987 10.24 10.53 201,621 0.92 1.67 38
1986 9.35 (6.52) 87,755 0.902 2.274* 0
</TABLE>
Value Portfolio (Commencement of Operations 11/05/84)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $12.63 $0.31 $3.34 $3.65 ($0.31) ($1.08) -- ($1.39)
1994 12.76 0.30 0.59 0.89 (0.29) (0.73) -- (1.02)
1993 12.67 0.30 1.92 2.22 (0.31) (1.82) -- (2.13)
1992 12.92 0.35 1.05 1.40 (0.38) (1.27) -- (1.65)
1991 10.29 0.44 3.79 4.23 (0.44) (1.16) -- (1.60)
1990 14.56 0.52 (3.14) (2.62) (0.62) (1.03) -- (1.65)
1989 12.42 0.54 2.73 3.27 (0.47) (0.66) -- (1.13)
1988 15.81 0.48 (1.68) (1.20) (0.46) (1.73) -- (2.19)
1987 14.26 0.55 2.47 3.02 (0.53) (0.94) -- (1.47)
1986 10.78 0.57 3.89 4.46 (0.58) (0.40) -- (0.98)
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary in order to keep the total annual
operating expenses for the Mid Cap Value Portfolio from exceeding 0.88%.
Voluntarily waived and reimbursed expenses totalled 2.13%* for the period
ended September 30, 1995.
# 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.
o Net Investment Income, the Ratio of Net Investment Income to Average Net
Assets and the Portfolio Turnover Rate reflect activity relating to a
nonrecurring initiative to invest in higher-paying dividend income
producing securities.
<PAGE>
Value Portfolio (Commencement of Operations 11/05/84) (continued)
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $14.89 32.58% $1,271,586 0.60% 2.43% 56%
1994 12.63 7.45 981,337 0.61 2.40 54
1993 12.76 19.67 762,175 0.59 2.48 43
1992 12.67 12.83 448,329 0.60 2.87 55
1991 12.92 45.54 458,117 0.60 3.67 64
1990 10.29 (19.88) 369,044 0.59 3.87 51
1989 14.56 28.49 726,776 0.59 4.05 35
1988 12.42 (5.40) 619,287 0.59 3.96 47
1987 15.81 22.99 700,538 0.62 3.68 28
1986 14.26 43.65 636,805 0.66 4.26 33
</TABLE>
Cash Reserves Portfolio (Commencement of Operations 8/29/90)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.000 $.055 -- $.055 ($.055) -- -- ($.055)
1994 1.000 .034 -- .034 (.034) -- -- (.034)
1993 1.000 .028 -- .028 (.028) -- -- (.028)
1992 1.000 .038 -- .038 (.038) -- -- (.038)
1991 1.000 .064 -- .064 (.064) -- -- (.064)
1990 1.000 .007 -- .007 (.007) -- -- (.007)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $1.000 5.57% $44,624 0.33%++ 5.45% N/A
1994 1.000 3.40 37,933 0.32++ 3.70 N/A
1993 1.000 2.81 10,717 0.32++ 2.78 N/A
1992 1.000 3.89 12,935 0.32++ 3.95 N/A
1991 1.000 6.63 24,163 0.32++ 6.57 N/A
1990 1.000 0.74 23,285 0.48* 8.31* N/A
</TABLE>
Domestic Fixed Income Portfolio (Commencement of Operations 9/30/87)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)+ (1.83)
1993 11.80 0.84 0.66 1.50 (0.78) (0.53) -- (1.31)
1992 11.34 0.87 0.76 1.63 (1.00) (0.17) -- (1.17)
1991 10.26 0.92 1.10 2.02 (0.94) -- -- (0.94)
1990 10.90 0.87 (0.45) 0.42 (0.96) (0.10) -- (1.06)
1989 10.78 0.86 0.08 0.94 (0.78) (0.04) -- (0.82)
1988 9.99 0.73 0.52 1.25 (0.45) (0.01) -- (0.46)
1987 10.00 -- (0.01) (0.01) -- -- -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.03 14.33% $36,147 0.51%++ 6.80% 313%
1994 9.87 (2.87) 36,521 0.50++ 7.65 78
1993 11.99 14.08 90,350 0.50 7.15 96
1992 11.80 15.41 98,130 0.47 7.67 136
1991 11.34 20.99 83,200 0.48 8.18 131
1990 10.26 3.90 77,622 0.48 8.35 181
1989 10.90 9.14 68,855 0.49 8.24 219
1988 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.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the Cash Reserves 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.
<PAGE>
Fixed Income Portfolio (Commencement of Operations 11/14/84)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.93 $0.80 $0.69 $1.49 ($0.60) -- -- ($0.60)
1994 12.86 0.77 (1.28) (0.51) (0.82) ($0.47) ($0.13)+ (1.42)
1993 12.67 0.88 0.75 1.63 (0.83) (0.61) -- (1.44)
1992 12.20 0.90 0.74 1.64 (1.02) (0.15) -- (1.17)
1991 10.94 0.94 1.25 2.19 (0.93) -- -- (0.93)
1990 11.64 0.92 (0.49) 0.43 (1.03) (0.10) -- (1.13)
1989 11.40 0.90 0.11 1.01 (0.76) (0.01) -- (0.77)
1988 10.86 0.97 0.43 1.40 (0.86) -- -- (0.86)
1987 11.95 0.93 (0.61) 0.32 (0.91) (0.50) -- (1.41)
1986 10.92 0.99 1.20 2.19 (1.02) (0.14) -- (1.16)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.82 14.19% $1,487,409 0.49% 7.28% 140%
1994 10.93 (4.43) 1,194,957 0.49 6.79 100
1993 12.86 14.26 909,738 0.47 7.06 144
1992 12.67 14.35 859,712 0.47 7.50 137
1991 12.20 21.12 831,547 0.47 8.25 143
1990 10.94 3.79 666,736 0.46 8.43 209
1989 11.64 9.25 559,995 0.47 8.36 100
1988 11.40 13.43 405,385 0.49 8.91 168
1987 10.86 2.55 290,824 0.52 8.54 202
1986 11.95 21.27 95,898 0.55 8.39 169
</TABLE>
Fixed Income Portfolio II (Commencement of Operations 8/31/90)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.42 $0.71 $0.71 $1.42 ($0.51) -- -- ($0.51)
1994 11.97 0.63 (1.16) (0.53) (0.67) ($0.21) ($0.14)+ (1.02)
1993 11.67 0.69 0.77 1.46 (0.61) (0.55) -- (1.16)
1992 11.34 0.77 0.61 1.38 (0.81) (0.24) -- (1.05)
1991 10.09 0.81 1.10 1.91 (0.66) -- -- (0.66)
1990 10.00 0.04 0.05 0.09 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.33 14.13% $176,945 0.51% 6.75% 153%
1994 10.42 (4.76) 129,902 0.51 6.07 137
1993 11.97 13.53 94,836 0.51 6.17 101
1992 11.67 13.02 78,302 0.49 7.05 182
1991 11.34 19.59 42,881 0.49 7.76 190
1990 10.09 0.88 20,729 0.52* 8.00* 7
</TABLE>
<PAGE>
Global Fixed Income Portfolio (Commencement of Operations 4/30/93)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.20 $0.71 $0.81 $1.52 ($0.67) -- -- ($0.67)
1994 10.67 0.58 (0.61) (0.03) (0.41) (0.03) -- (0.44)
1993 10.00 0.13 0.61 0.74 (0.07) -- -- (0.07)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.05 15.54% $55,147 0.58% 6.34% 118%
1994 10.20 (0.29) 43,066 0.57 5.48 117
1993 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.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the 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.
<PAGE>
High Yield Portfolio (Commencement of Operations 2/28/89)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $8.97 $0.90 $0.19 $1.09 ($0.85) ($0.08) ($0.05)+ ($0.98)
1994 9.49 0.75 (0.42) 0.33 (0.69) (0.16) -- (0.85)
1993 8.58 0.73 0.90 1.63 (0.72) -- -- (0.72)
1992 7.80 0.74 0.89 1.63 (0.85) -- -- (0.85)
1991 7.07 1.42 0.82 2.24 (1.51) -- -- (1.51)
1990 9.98 1.36 (2.82) (1.46) (1.42) (0.03) -- (1.45)
1989 10.00 0.55 (0.44) 0.11 (0.13) -- -- (0.13)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $9.08 13.58% $220,785 0.50% 10.68% 96%
1994 8.97 3.57 182,969 0.50 9.01 112
1993 9.49 20.12 50,396 0.53++ 8.94 99
1992 8.58 22.49 20,491 0.53++ 9.74 148
1991 7.80 36.70 6,453 0.76 19.45 106
1990 7.07 (16.26) 4,820 0.82 16.93 65
1989 9.98 0.91 3,479 0.73* 11.66* 17
</TABLE>
Intermediate Duration Portfolio (Commencement of Operations 10/3/94)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.00 $0.69 $0.42 $1.11 ($0.43) -- -- ($0.43)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $10.68 11.39% $ 19,237 0.52%*++ 6.56%* 168%
</TABLE>
International Fixed Income Portfolio (Commencement of Operations 4/29/94)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.05 $0.67 $0.92 $1.59 ($0.63) -- -- ($0.63)
1994 10.00 0.21 (0.11) 0.10 (0.05) -- -- (0.05)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.01 16.36% $127,882 0.54% 6.35%* 140%
1994 10.05 1.01 66,879 0.60*++ 5.83* 31
</TABLE>
<PAGE>
Limited Duration Portfolio (Commencement of Operations 3/31/92)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.19 $0.56 $0.22 $0.78 ($0.55) -- ($0.01)+ ($0.56)
1994 10.72 0.56 (0.52) 0.04 (0.51) (0.04) ($0.02)+ (0.57)
1993 10.58 0.32 0.22 0.54 (0.32) (0.08) -- (0.40)
1992 10.00 0.19 0.49 0.68 (0.10) -- -- (0.10)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $10.41 7.95% $100,186 0.43%++ 5.96% 119%
1994 10.19 0.40 62,775 0.41 4.16 192
1993 10.72 5.33 128,991 0.42++ 3.92 217
1992 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.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the High Yield, 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.
<PAGE>
Mortgage-Backed Securities Portfolio (Commencement of Operations 1/31/92)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 9.95 $0.72 $0.47 $1.19 ($0.65) -- -- ($0.65)
1994 10.95 0.52 (0.83) (0.31) (0.45) ($0.21) ($0.03)+ (0.69)
1993 10.44 0.63 0.48 1.11 (0.60) -- -- (0.60)
1992 10.00 0.29 0.28 0.57 (0.13) -- -- (0.13)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $10.49 12.52% $ 49,766 0.50%++ 6.35% 107%
1994 9.95 (2.95) 119,518 0.50++ 5.30 220
1993 10.95 11.03 50,249 0.50++ 6.92 93
1992 10.44 5.75 13,601 0.50*++ 8.11* 133
</TABLE>
Municipal Portfolio (Commencement of Operations 10/01/92)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.04 $0.59 $0.71 $1.30 ($0.59) -- -- ($0.59)
1994 11.15 0.51 (1.01) (0.50) (0.54) -- ($0.07)+ (0.61)
1993 10.00 0.37 1.04 1.41 (0.26) -- -- (0.26)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $10.75 13.37% $36,040 0.50%++ 5.64% 58%
1994 10.04 (4.64) 38,549 0.50++ 4.98 34
1993 11.15 14.20 26,914 0.50*++ 4.65* 66
</TABLE>
PA Municipal Portfolio (Commencement of Operations 10/01/92)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.13 $0.58 $0.77 $1.35 ($0.57) -- -- ($0.57)
1994 11.26 0.56 (1.00) (0.44) (0.64) ($0.05) -- (0.69)
1993 10.00 0.39 1.17 1.56 (0.30) -- -- (0.30)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $10.91 13.74% $15,734 0.50%++ 5.56% 57%
1994 10.13 (4.08) 23,515 0.50++ 5.39 69
1993 11.26 15.81 15,633 0.50*++ 4.74* 94
</TABLE>
<PAGE>
Special Purpose Fixed Income Portfolio (Commencement of Operations 3/31/92)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995o $11.52 $0.91 $0.75 $1.66 ($0.65) -- -- ($0.65)
1994 13.40 0.80 (1.28) (0.48) (0.78) ($0.53) ($0.09)+ (1.40)
1993 12.72 0.88 0.92 1.80 (0.82) (0.30) -- (1.12)
1992 11.80 0.39 0.72 1.11 (0.19) -- -- (0.19)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $12.53 14.97% $390,258 0.49% 7.33% 143%
1994 11.52 (4.00) 384,731 0.50 6.66 100
1993 13.40 15.19 300,185 0.48 6.84 124
1992 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.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the Mortgage-Backed Securities, Municipal and PA
Municipal Portfolios from exceeding 0.50%, 0.50% and 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%.
<PAGE>
Balanced Portfolio (Commencement of Operations 12/31/92)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $11.28 $0.54 $1.78 $2.32 ($0.47) ($0.07) -- ($0.54)
1994 11.84 0.47 (0.45) 0.02 (0.43) (0.15) -- (0.58)
1993 11.06 0.25 0.66 0.91 (0.13) -- -- (0.13)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $13.06 21.37% $334,630 0.58% 4.55% 95%
1994 11.28 0.19 309,596 0.58 4.06 75
1993 11.84 8.31 291,762 0.58* 3.99* 62
</TABLE>
Multi-Asset-Class Portfolio (Commencement of Operations 7/29/94)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 9.97 $0.44 $1.33 $1.77 ($0.40) -- -- ($0.40)
1994 10.00 0.07 (0.10) (0.03) -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.34 18.28% $96,839 0.58%++ 4.56% 112%
1994 9.97 (0.30) 51,877 0.58*++ 4.39* 20
</TABLE>
Select Equity Portfolio (Commencement of Operations 2/26/88)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $17.29 $0.27 $2.07 $2.34 ($0.30) ($7.53) -- ($7.83)
1994 18.41 0.71 0.06 0.77 (0.70) (1.19) -- (1.89)
1993 17.65 0.31 1.49 1.80 (0.32) (0.72) -- (1.04)
1992 16.09 0.32 1.76 2.08 (0.31) (0.21) -- (0.52)
1991 11.86 0.34 4.26 4.60 (0.33) (0.04) -- (0.37)
1990 13.69 0.30 (1.63) (1.33) (0.34) (0.16) -- (0.50)
1989 10.90 0.38 2.82 3.20 (0.34) (0.07) -- (0.41)
1988 10.00 0.19 0.82 1.01 (0.11) -- -- (0.11)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.80 26.22% $29,581 0.62%++ 2.48% 73%
1994 17.29 4.50 29,155 0.62++ 1.75 27
1993 18.41 10.46 295,050 0.60 1.78 33
1992 17.65 13.26 205,264 0.60 1.89 19
1991 16.09 39.48 118,557 0.60 2.41 29
1990 11.86 (10.07) 71,481 0.61 2.75 39
1989 13.69 30.20 34,415 0.64 3.29 35
1988 10.90 10.13 20,541 0.70* 3.13* 16
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the Multi-Asset-Class 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.
<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 or 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
10
<PAGE>
by the investment during that week is assumed to be generated each week over a
52-week period and is shown as a percentage of the investment. The effective
yield is calculated similarly, but the income earned over the seven day period
by an investment in the portfolio is assumed to be reinvested when the return is
annualized. The "effective yield" will be higher than the yield because of the
compounding effect of this assumed reinvestment.
The performance of a portfolio may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported in
financial and industry publications, returns of other investment advisers and
mutual funds, and various indices as further described in the Statement of
Additional Information.
The performance of Institutional Class Shares, Investment Class Shares and
Adviser Class Shares differ because of any class specific expenses paid by each
class and the shareholder servicing fees charged to Investment Class Shares and
distribution fees charged to Adviser Class Shares.
The Annual Report to Shareholders of the Fund for the Fund's most recent fiscal
year-end contains additional performance information that includes comparisons
with appropriate indices. The Annual Report is available without charge upon
request by writing to the Fund or calling the Client Services Group at the
telephone number shown on the front cover of this Prospectus.
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.
11
<PAGE>
Securities Lending: Each portfolio may lend its securities to qualified brokers,
dealers, banks and other financial institutions for the purpose of realizing
additional income. Loans of securities will be collateralized by cash, letters
of credit, or securities issued or guaranteed by the U.S. Government or its
agencies. The collateral will equal at least 100% of the current market value of
the loaned securities. In addition, a portfolio will not loan its portfolio
securities to the extent that greater than one-third of its total assets, at
fair market value, would be committed to loans at that time.
Illiquid Securities/Restricted Securities: Each of the portfolios may invest
up to 15% of its net assets (except the Cash Reserves Portfolio, which may
invest up to 10% of its net assets) in securities that are illiquid by virtue of
the absence of a readily available market, or because of legal or contractual
restrictions on resale. This policy does not limit the acquisition of (i)
restricted securities eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933 or (ii) commercial paper
issued pursuant to Section 4(2) under the Securities Act of 1933, that are
determined to be liquid in accordance with guidelines established by the Fund's
Board of Trustees.
Turnover: The Adviser manages the portfolios generally without regard to
restrictions on portfolio Turnover, except those imposed by provisions of the
federal tax laws regarding short-term trading. In general, the portfolios will
not trade for short-term profits, but when circumstances warrant, investments
may be sold without regard to the length of time held.
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%.
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.
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.
12
<PAGE>
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;
(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.
13
<PAGE>
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.
<TABLE>
<CAPTION>
Emerging Markets Portfolio - (a non-diversified portfolio)
<S> <C>
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
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
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
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Capitalization Range: Generally greater than $1 billion
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
Comparative Index: S&P 500 Index
Strategies: Core Equity Investing
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
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
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
Allowable Foreign Equities ADRs Emerging Markets Issuers Eastern European Issuers
Investments: 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>
15
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Comparative
Index: MSCI World Ex-U.S. Index
Strategies: International Equity Investing
Emerging Markets Investing
Foreign Investing
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
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
Comparative Index: S&P MidCap 400 Index
Strategies: Growth Stock Investing
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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)
Allowable Common Stock Preferred Stock Convertibles ADRs
Investments: 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
Comparative
Index: S&P MidCap 400 Index
Strategies: Value Stock Investing
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)
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>
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
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
Comparative Index: S&P 500 Index
Strategy: Value Stock Investing
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
Allowable Investments: Cash Equivalents Repurchase Agreements U.S. Governments Zero Coupons
Corporates Agencies Asset-Backeds Floaters
Investment Companies
Comparative Index: Lipper Money Market Index
Strategy: Money Market Investing
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
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
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
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
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
</TABLE>
20
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<TABLE>
<CAPTION>
<S> <C>
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
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
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
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Fixed Income Investing
Foreign Investing
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
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
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
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
</TABLE>
22
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<TABLE>
<S> <C>
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
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
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
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
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
May invest greater than 50% in Mortgage Securities
Quality Specifications: 100% Investment Grade Securities
Maturity and Duration: Average duration between two and five years
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
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
Comparative Index: Lehman Brothers Intermediate Government/Corporate Index
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Fixed Income Investing
Foreign Investing
</TABLE>
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<TABLE>
<S> <C>
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
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
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
</TABLE>
25
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<TABLE>
<CAPTION>
<S> <C>
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
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
Mortgage Securities CMOs Asset-Backeds When Issued
Convertibles Floaters Structured Notes Futures & Options
Swaps Cash Equivalents Repurchase Agreements Investment Companies
Comparative Index: Salomon 1-3 Year Index
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
</TABLE>
26
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<TABLE>
<CAPTION>
<S> <C>
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
Allowable Investments: Mortgage Securities CMOs Asset-Backeds SMBS
U.S. Governments Zero Coupons Agencies When Issued
Floaters Inverse Floaters Structured Notes Futures & Options
Cash Equivalents Repurchase Agreements Municipals Investment Companies
Swaps
Comparative Index: Lehman Mortgage Index
Strategies: Mortgage Investing
Maturity and Duration Management
Value Investing
</TABLE>
27
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<TABLE>
<CAPTION>
<S> <C>
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
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
Comparative
Index: Lehman Long-Term Municipal Bond Index
Strategies: Municipals Management
Maturity and Duration Management
Value Investing
High Yield Investing
Mortgage Investing
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
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
Allowable Investments: PA Municipals Municipals Taxable Investments U.S. Governments
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
Comparative Index: Lehman Long-Term Municipal Bond Index
Strategies: Municipals Management
Maturity and Duration Management
Value Investing
High Yield Investing
Mortgage Investing
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
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
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
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
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
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
Allowable Investments: Common Stock Preferred Stock U.S. Governments Zero Coupons
Corporates High Yield Foreign Bonds Mortgage Securities
CMOs Asset-Backeds SMBS When Issued
Brady Bonds Floaters Inverse Floaters Structured Notes
Agencies Convertibles Futures & Options Swaps
Foreign Currency Forwards Cash Equivalents Repurchase Agreements
Eastern European Issuers Investment Funds Municipals Investment Companies
ADRs Foreign Equities Rights Warrants
Loan Participations
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
</TABLE>
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Multi-Asset-Class Portfolio
<TABLE>
<CAPTION>
<S> <C>
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
Allowable Investments: Common Stock U.S. Governments Agencies
Corporates High Yield Foreign Bonds
Foreign Equities Foreign Currency
Eastern European Issuers Investment Funds Mortgage Securities CMOs
SMBS Asset-Backeds When Issued Brady Bonds
Floaters Inverse Floaters Structured Notes Zero Coupons
Futures & Options Swaps Forwards Cash Equivalents
Repurchase Agreements Convertibles Preferred Stock
Municipals Investment Companies ADRs
Rights Warrants
Loan Participations Emerging Markets Issuers Structured Investments
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
</TABLE>
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PROSPECTUS GLOSSARY
CHARACTERISTICS AND RISKS OF STRATEGIES AND INVESTMENTS
STRATEGIES
Asset Allocation Management: The Adviser's approach to asset allocation
management is to determine investment strategies for each asset class in 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.
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Consequently, while a portfolio investing only in fixed-income securities may
not emphasize long duration assets to the same extent, the fixed-income portion
of a balanced investment may invest a percentage of its assets in long duration
bonds on the basis of their valuation relative to equity securities.
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
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principal. The risks posed by securities issued under such circumstances are
substantial.
The market for high yield securities is still relatively new. Because of this, a
long-term track record for bond default rates does not exist. In addition, the
secondary market for high yield securities is generally less liquid than that
for investment grade corporate securities. In periods of reduced market
liquidity, high yield bond prices may become more volatile, and both the high
yield market and a portfolio may experience sudden and substantial price
declines. This lower liquidity might have an effect on a portfolio's ability to
value or dispose of such securities. Also, there may be significant disparities
in the prices quoted for high yield securities by various dealers. Under such
conditions, a portfolio may find it difficult to value its securities
accurately. A portfolio may also be forced to sell securities at a significant
loss in order to meet shareholder redemptions. These factors add to the risks
associated with investing in high yield securities.
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.
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%
<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
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provisions, the market values of debt obligations may respond differently to
changes in the level and structure of interest rates. Traditionally, a debt
security's term-to-maturity has been used as a proxy for the sensitivity of
the security's price to changes in interest rates (which is the interest rate
risk or volatility of the security). However, term-to-maturity measures only the
time until a debt security provides its final payment, taking no account of the
pattern of the security's payments prior to maturity.
Duration is a measure of the expected life of a fixed-income security that was
developed as a more precise alternative to the concept of term-to-maturity.
Duration incorporates a bond's yield, coupon interest payments, final maturity
and call features into one measure. Duration is one of the fundamental tools
used by the Adviser in the selection of fixed-income securities. Duration is a
measure of the expected life of a fixed-income security on a present value
basis. Duration takes the length of the time intervals between the present time
and the time that the interest and principal payments are scheduled or, in the
case of a callable bond, expected to be received, and weights them by the
present values of the cash to be received at each future point in time. For any
fixed-income security with interest payments occurring prior to the payment of
principal, duration is always less than maturity. In general, all other factors
being the same, the lower the stated or coupon rate of interest of a
fixed-income security, the longer the duration of the security; conversely, the
higher the stated or coupon rate of interest of a fixed-income security, the
shorter the duration of the security.
There are some situations where even the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure. In
these and other similar situations, the Adviser will use sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
Money Market Investing: A money market fund like the Cash Reserves Portfolio
invests in securities which present minimal credit risk and may not yield as
high a level of current income as securities of lower quality or longer
maturities which generally have less liquidity, greater market risk and more
price fluctuation. A money market portfolio is designed to provide maximum
principal stability for investors seeking to invest funds for the short-term,
or, for investors seeking to combine a long-term investment program in other
portfolios of the Fund with an investment in money market instruments. However,
because the Cash Reserves Portfolio invests in the money market obligations of
private financial and non-financial corporations in addition to those of the
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
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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.
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.
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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
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in international securities that are discussed in the Foreign Investing section
of this Prospectus.
Portfolios will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion, or the equivalent in other
currencies, or, in the case of domestic banks which do not have total assets of
at least $1 billion, the aggregate investment made in any one such bank is
limited to $100,000 and the principal amount of such investment is insured in
full by the Federal Deposit Insurance Corporation, (ii) in the case of U.S.
banks, it is a member of the Federal Deposit Insurance Corporation, and (iii) in
the case of foreign branches of U.S. banks, the security is deemed by the
Adviser to be of an investment quality comparable with other debt securities
which may be purchased by the portfolio.
(2) Each portfolio (except Cash Reserves) may invest in commercial paper rated
at time of purchase by one or more NRSRO in one of their two highest categories,
(e.g., A-l or A-2 by Standard & Poor's or Prime 1 or Prime 2 by Moody's), or, if
not rated, issued by a corporation having an outstanding unsecured debt issue
rated high-grade by a NRSRO (e.g. A or better by Moody's, Standard & Poor's or
Fitch). The Cash Reserves Portfolio invests only in commercial paper rated in
the highest category;
(3) Short-term corporate obligations rated high-grade at the time of purchase by
a NRSRO (e.g. A or better by Moody's, Standard & Poor's or Fitch);
(4) U.S. Government obligations including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of the U.S.
Government and differ mainly in interest rates, maturities and dates of issue;
(5) Securities issued or guaranteed by U.S. Government sponsored
instrumentalities and Federal agencies. These include securities issued by the
Federal Home Loan Banks, Federal Land Bank, Farmers Home Administration, Farm
Credit Banks, Federal Intermediate Credit Bank, Federal National Mortgage
Association, Federal Financing Bank, the Tennessee Valley Authority, and others;
(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,
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additional mortgage prepayments must be reinvested at lower interest rates. In
part to compensate for these risks, mortgages will generally offer higher yields
than comparable bonds.
Common Stocks: are Equity Securities which represent an ownership interest in a
corporation, entitling the shareholder to voting rights and receipt of dividends
paid based on proportionate ownership.
Convertibles: are convertible bonds or shares of convertible Preferred Stock
which may be exchanged for a fixed number of shares of Common Stock at the
purchaser's option.
Corporates--corporate bonds: are debt instruments issued by private
corporations. Bondholders, as creditors, have a prior legal claim over common
and preferred stockholders of the corporation as to both income and assets for
the principal and interest due to the bondholder. A portfolio will buy
Corporates subject to any quality constraints. If a security held by a portfolio
is down-graded, the portfolio may retain the security.
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.
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See each individual portfolio listing of Allowable Investments to determine
which of the above the portfolio can hold. Preferred Stock is contained in both
the definition of Equity Securities and Fixed-Income Securities since it
exhibits characteristics commonly associated with each type.
Fixed-Income Securities: Commonly include but are not limited to U.S.
Governments, Zero Coupons, Agencies, Corporates, High Yield, Mortgage
Securities, SMBS, CMOs, Asset-Backeds, Convertibles, Brady Bonds, Floaters,
Inverse Floaters, Cash Equivalents, Repurchase Agreements, Preferred Stock, and
Foreign Bonds. See each individual portfolio listing of Allowable Investments to
determine which securities a portfolio may hold. Preferred Stock is contained in
both the definition of Equity Securities and Fixed-Income Securities since it
exhibits characteristics commonly associated with each type of security.
Floaters--Floating and Variable Rate Obligations: are debt obligations with a
floating or variable rate of interest, i.e. the rate of interest varies with
changes in specified market rates or indices, such as the prime rate, or at
specified intervals. Certain floating or variable rate obligations may carry a
demand feature that permits the holder to tender them back to the issuer of the
underlying instrument, or to a third party, at par value prior to maturity. When
the demand feature of certain floating or variable rate obligations represents
an obligation of a foreign entity, the demand feature will be subject to certain
risks discussed under Foreign Investing.
Foreign Currency: Portfolios investing in foreign securities will regularly
transact security purchases and sales in foreign currencies. These portfolios
may hold foreign currency or purchase or sell currencies on a forward basis (see
Forwards).
Foreign Equities: are Common Stock, Preferred Stock, Rights and Warrants of
foreign issuers. 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
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generally require the portfolio to hold high-grade, liquid securities or cash
equal to the portfolio's obligations in a segregated account throughout the
duration of the contract.
A portfolio may also combine forward contracts with investments in securities
denominated in other currencies in order to achieve desired credit and currency
exposures. Such combinations are generally referred to as synthetic securities.
For example, in lieu of purchasing a foreign bond, a portfolio may purchase a
U.S. dollar-denominated security and at the same time enter into a forward
contract to exchange U.S. dollars for the contract's underlying currency at a
future date. By matching the amount of U.S. dollars to be exchanged with the
anticipated value of the U.S. dollar-denominated security, a portfolio may be
able to lock in the foreign currency value of the security and adopt a synthetic
investment position reflecting the credit quality of the U.S. dollar-denominated
security.
There is a risk in adopting a synthetic investment position to the extent that
the value of a security denominated in the U.S. dollar or other foreign currency
is not exactly matched with a portfolio's obligation under the forward contract.
On the date of maturity, a portfolio may be exposed to some risk of loss from
fluctuations in that currency. Although the Adviser will attempt to hold such
mismatching to a minimum, there can be no assurance that the Adviser will be
able to do so. When a portfolio enters into a forward contract for purposes of
creating a synthetic security, it will generally be required to hold high-grade,
liquid securities or cash in a segregated account with a daily value at least
equal to its obligation under the forward contract.
Futures & Options--Futures Contracts, Options on Futures Contracts and Options:
are Derivatives. Futures contracts provide for the sale by one party and
purchase by another party of a specified amount of a specific security, at a
specified future time and price. An option is a legal contract that gives the
holder the right to buy or sell a specified amount of the underlying security or
futures contract at a fixed or determinable price upon the exercise of the
option. A call option conveys the right to buy and a put option conveys the
right to sell a specified quantity of the underlying security.
A portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts in
combination with its outstanding obligations with respect to options
transactions would exceed 50% of its total assets. It will maintain assets
sufficient to meet its obligations under such contracts in a segregated account
with the custodian bank or will otherwise comply with the SEC's position on
asset coverage.
Possible Risks: The primary risks associated with the use of futures and options
are (i) imperfect correlation between the change in market value of the
securities held by a portfolio and the prices of futures and options relating to
the stocks, bonds or futures contracts purchased or sold by a portfolio; and
(ii) possible lack of a liquid secondary market for a futures contract and the
resulting inability to close a futures position which could have an adverse
impact on a portfolio's ability to execute futures and options strategies.
Additional risks associated with options transactions are (i) the risk that an
option will expire worthless; (ii) the risk that the issuer of an
over-the-counter option will be unable to fulfill its obligation to the
portfolio due to 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:
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Moody's: Ba-rated bonds have "speculative elements" so their future "cannot
be considered assured," and protection of principal and interest is
"moderate" and "not well safeguarded during both good and bad times in the
future." B-rated bonds "lack characteristics of a desirable investment" and
the assurance of interest or principal payments "may be small." Caa-rated
bonds are "of poor standing" and "may be in default" or may have "elements
of danger with respect to principal or interest." Ca-rated bonds represent
obligations which are speculative in a high degree. Such issues are often
in default or have other marked shortcomings. C-rated bonds are the "lowest
rated" class of bonds, and issues so rated can be regarded as having
"extremely poor prospects" of ever attaining any real investment standing.
Standard & Poor's: BB-rated bonds have "less near-term vulnerability to
default" than B- or CCC-rated securities but face "major ongoing
uncertainties . . . which may lead to inadequate capacity" to pay interest
or principal. B-rated bonds have a "greater vulnerability to default than
BB-rated bonds and the ability to pay interest or principal will likely be
impaired by adverse business conditions." CCC-rated bonds have a currently
identifiable "vulnerability to default" and, without favorable business
conditions, will be "unable to repay interest and principal." C The rating
C is reserved for income bonds on which "no interest is being paid." D -
Debt rated D is in "default", and "payment of interest and/or repayment of
principal is in arrears."
While these securities offer high yields, they also normally carry with them a
greater degree of risk than securities with higher ratings. Lower-rated bonds
are considered speculative by traditional investment standards. High yield
securities may be issued as a consequence of corporate restructuring or similar
events. Also, high yield securities are often issued by smaller, less credit
worthy companies, or by highly leveraged (indebted) firms, which are generally
less able than more established or less leveraged firms to make scheduled
payments of interest and principal. The price movement of these securities is
influenced less by changes in interest rates and more by the financial and
business position of the issuing corporation when compared to investment grade
bonds.
The risks posed by securities issued under such circumstances are substantial.
If a security held by a portfolio is down-graded, the portfolio may retain the
security.
Inverse Floaters--Inverse Floating Rate Obligations: are Fixed-Income
Securities, which have coupon rates that vary inversely at a multiple of a
designated floating rate, such as LIBOR (London Inter-Bank Offered Rate). Any
rise in the reference rate of an inverse floater (as a consequence of an
increase in interest rates) causes a drop in the coupon rate while any drop in
the reference rate of an inverse floater causes an increase in the coupon rate.
Inverse floaters may exhibit substantially greater price volatility than fixed
rate obligations having similar credit quality, redemption provisions and
maturity, and inverse floater CMOs exhibit greater price volatility than the
majority of mortgage pass-through securities or CMOs. In addition, some inverse
floater CMOs exhibit extreme sensitivity to changes in prepayments. As a result,
the yield to maturity of an inverse floater CMO is sensitive not only to changes
in interest rates but also to changes in prepayment rates on the related
underlying mortgage assets.
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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.
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.
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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 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.
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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.
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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.
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.
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SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of mortgage assets. 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 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.
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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 opportunity to earn higher
yields than those available on ordinary interest-paying obligations of similar
credit quality and maturity. However, zero coupon obligation prices may also
exhibit greater price volatility than ordinary fixed-income securities because
of the manner in which their principal and interest are returned to the
investor.
GENERAL SHAREHOLDER INFORMATION
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PURCHASE OF SHARES
Institutional Class Shares are available to clients of the Adviser and accounts
managed by the Adviser and Shareholder Organizations who have a contractual
arrangement with the Fund, including institutions such as trusts, foundations or
broker-dealers purchasing for the accounts of others.
Institutional Class Shares of 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. Institutional Class
Shares of the Cash Reserves Portfolio may be purchased at the net asset value
next determined after an order is received by the portfolio and Federal Funds
are received by the Custodian. The Cash Reserves Portfolio determines net asset
value as of 12:00 noon (Eastern Time) each day that the portfolios are open for
business. See Other Information-Closed Holidays and Valuation of Shares.
Initial Purchase by Mail: Subject to acceptance by the Fund, an account may be
opened by contacting the Client Service Group at One Tower Bridge, Suite 1150,
P.O. Box 868, West Conshohocken, Pennsylvania 19428-0868.
Subject to acceptance by the Fund, payment for the purchase of shares received
by mail will be credited at the net asset value per share of the portfolio next
determined after receipt. Such payment need not be converted into Federal Funds
(monies credited to the Fund's Custodian Bank by a Federal Reserve Bank) before
acceptance by the Fund, except for the Cash Reserves Portfolio. Purchases made
by check in the Cash Reserves Portfolio are ordinarily credited at the net asset
value per share determined two business days after receipt of the check by the
Fund. Please note that purchases made by check in any portfolio are not
permitted to be redeemed until payment of the purchase has been collected, which
may take up to eight business days after purchase.
Shareholders can avoid this delay by utilizing the wire purchase option.
Initial Purchase by Wire: Subject to acceptance by the Fund, Institutional Class
Shares of each portfolio may also be purchased by wiring Federal Funds to the
Fund's Custodian Bank, The Chase Manhattan Bank, N.A. (see instructions below).
A completed Account Registration Form should be forwarded to 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 Institutional Class
Shares at net asset value may be made at any time (minimum investment $1,000) by
mailing a check (payable to MAS Funds) to the Client Services Group at the
address noted under Initial Investments 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 Institutional 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 Institutional Class Shares will be made in full and
fractional shares of the portfolio calculated to three decimal places. In the
interest of economy and convenience, certificates for shares will not be issued
except at the written request of the shareholder. Certificates for fractional
shares, however, will not be issued.
Institutional Class Shares of the Fund's portfolios are also sold to
corporations or other institutions such as trusts, foundations or broker-dealers
purchasing for the accounts of others (Shareholder Organizations). Investors
purchasing and redeeming shares of the portfolios through a Shareholder
Organization may be charged a transaction-based fee or other fee for the
services of such organization. Each Shareholder Organization is responsible for
transmitting to its customers a schedule of any such fees and information
regarding any additional or different conditions regarding purchases and
redemptions. Customers of Shareholder Organizations should read this Prospectus
in light of the terms governing accounts with their organization. The Fund does
not pay compensation to or receive compensation from Shareholder Organizations
for the sale of Fund Institutional Class Shares.
REDEMPTION OF SHARES
Institutional Class Shares of each portfolio may be redeemed by mail, or, if
authorized, by telephone. No charge is made for redemptions. The value of
Institutional Class Shares redeemed may be more or less than the purchase price,
depending on the net asset value at the time of redemption which is based on the
market value of the investment securities held by the portfolio.
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By Mail: Each portfolio will redeem Institutional Class Shares at the net asset
value next determined after the request is received in good order. , Requests
should be addressed to MAS Funds: c/o the Client Services Group, One Tower
Bridge, Suite 1150, P.O. Box 868, West Conshohocken, PA 19428-0868.
To be in good order, redemption requests must include the following
documentation:
(a) The share certificates, if issued;
(b) A letter of instruction, if required, or a stock assignment specifying the
number of shares or dollar amount to be redeemed, signed by all registered
owners of the shares in the exact names in which the shares are registered;
(c) Any required signature guarantees (see Signature Guarantees); and
(d) Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit sharing
plans and other organizations.
Signature Guarantees: To protect your account, the Fund and the Administrator
from fraud, signature guarantees are required to enable the Fund to verify the
identity of the person who has authorized a redemption from an account.
Signature guarantees are required for (1) redemptions where the proceeds are to
be sent to someone other than the registered shareholder(s) and the registered
address, and (2) share transfer requests. Please contact 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.
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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 Institutional Class Shares may be exchanged
for shares of the Fund's other portfolios (except the Select Equity and Small
Cap Value Portfolios which are currently not accepting new investors) based on
the respective net asset values of the shares involved. The exchange privilege
is only available, however, with respect to portfolios that are registered for
sale in a shareholder's state of residence. There are no exchange fees. Exchange
requests should be sent to MAS Funds, c/o Client Services Group, One Tower
Bridge, Suite 1150, P.O. Box 868, West Conshohocken, PA 19428-0868.
Because an exchange of shares amounts to a redemption from one portfolio and
purchase of shares of another portfolio, the above information regarding
purchase and redemption of shares applies to exchanges. Shareholders should note
that an exchange between portfolios is considered a sale and purchase of shares
for tax purposes.
The officers of the Fund reserve the right not to accept any request for an
exchange when, in their opinion, the exchange privilege is being used as a tool
for market timing. The Fund reserves the right to change the terms or conditions
of the exchange privilege discussed herein upon sixty days' notice.
Transfer of Registration: The registration of Fund shares may be transferred by
writing to MAS Funds: c/o 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
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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 ___ 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.
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.
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dollar-denominated securities which are determined by the Trustees to present
minimal credit risks and which are of eligible quality as determined under the
rule.
The Trustees have also agreed to establish procedures reasonably designed,
taking into account current market conditions and the portfolio's investment
objective, to stabilize the net asset value per share as computed for the
purposes of sales and redemptions at $1.00. These procedures include periodic
review, as the Trustees deem appropriate and at such intervals as are reasonable
in light of current market conditions, of the relationship between the amortized
cost value per share and a net asset value per share based upon available
indications of market value. In such a review, investments for which market
quotations are readily available are valued at the most recent bid price or
quoted yield equivalent for such securities or for securities of comparable
maturity, quality and type as obtained from one or more of the major market
makers for the securities to be valued. Other investments and assets are valued
at fair value, as determined in good faith by the Trustees.
In the event of a deviation of over 1/2 of 1% between a portfolio's net asset
value based upon available market quotations or market equivalents and $1.00 per
share based on amortized cost, the Trustees will promptly consider what action,
if any, should be taken. The Trustees will also take such action as they deem
appropriate to eliminate or to reduce to the extent reasonably practicable any
material dilution or other unfair results which might arise from differences
between the two. Such action may include redeeming shares in kind, selling
instruments prior to maturity to realize capital gains or losses or to shorten
average maturity, withholding dividends, paying distributions from capital or
capital gains, or utilizing a net asset value per share not equal to $1.00 based
upon available market quotations.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES: Dividends and Capital Gains
Distributions: The Fund maintains different dividend and capital gain
distribution policies for each portfolio. These are:
o The Equity, Value, 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.
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In all portfolios except the Cash Reserves Portfolio, undistributed net
investment income is included in the portfolio's net assets for the purpose of
calculating net asset value per share. Therefore, on the ex-dividend date, the
net asset value per share excludes the dividend (i.e., is reduced by the per
share amount of the dividend). Dividends paid shortly after the purchase of
shares by an investor, although in effect a return of capital, are taxable as
ordinary income.
Certain Mortgage Securities may provide for periodic or unscheduled payments of
principal and interest as the mortgages underlying the securities are paid or
prepaid. However, such principal payments (not otherwise characterized as
ordinary discount income or bond premium expense) will not normally be
considered as income to the portfolio and therefore will not be distributed as
dividends. Rather, these payments on mortgage-backed securities will be
reinvested on behalf of the shareholders by the portfolio in accordance with its
investment objectives and policies.
Special Considerations for the Cash Reserves Portfolio: Net investment income is
computed and dividends declared as of 12:00 noon (Eastern Time), on each day.
Such dividends are payable to Cash Reserves Portfolio shareholders of record as
of 12:00 noon (Eastern Time) on that day, if the portfolio is open for business.
Shareholders who redeem prior to 12:00 noon (Eastern Time) are not entitled to
dividends for that day. Dividends declared for Saturdays, Sundays and holidays
are payable to shareholders of record as of 12:00 noon (Eastern Time) on the
preceding business day on which the portfolio was open for business.
For the purpose of calculating dividends, net income shall consist of interest
earned, including any discount or premium ratably amortized to the date of
maturity, minus estimated expenses of the portfolio.
Net realized short-term capital gains, if any, of the Cash Reserves Portfolio
will be distributed whenever the Trustees determine that such distributions
would be in the best interest of shareholders, but at least once a year. The
portfolio does not expect to realize any long-term capital gains. Should any
such gains be realized, they will be distributed annually.
Federal Taxes: Each portfolio of the Fund intends to qualify for taxation as a
regulated investment company under the Code so that each portfolio will not be
subject to Federal income tax to the extent it distributes its income to its
shareholders. Dividends, either in cash or reinvested in shares, paid by a
portfolio from net investment income will be taxable to shareholders as ordinary
income, 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, Select Equity, and Select Value Portfolios,
such dividends will generally qualify in part for the dividends received
deduction for corporations, but the portion of the dividends so qualified
depends on the aggregate taxable qualifying dividend income received by each
portfolio from domestic (U.S.) sources. The Fund will send each shareholder a
statement each year indicating the amount of the dividend income which qualifies
for such treatment.
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
56
<PAGE>
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
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.
57
<PAGE>
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 &
Sherrerd, LLP (the "Adviser") in a transaction in which Morgan Stanley Asset
Management Holdings Inc., an indirect wholly owned subsidiary of Morgan Stanley
Group Inc., became the sole general partner of the Adviser. Morgan Stanley Asset
Management Holdings Inc. and two other wholly owned subsidiaries of Morgan
Stanley Group Inc. became the limited partners of the Adviser. In connection
with this transaction, the Adviser entered into a new Investment Management
Agreement ("Agreement") with MAS Funds dated as of January 3, 1996, which
Agreement was approved by the shareholders of each Portfolio at a special
meeting held on October 6, 1995. The Adviser will retain its name and remain at
its current location, One Tower Bridge, West Conshohocken, PA 19428. The Adviser
will continue to provide investment counseling services to employee benefit
plans, endowments, foundations, and other institutional investors.
58
<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.
Until further notice, the Adviser has voluntarily agreed to waive its advisory
fees and reimburse certain expenses to the extent necessary to keep Total
Operating Expenses for the Emerging Markets, Mid Cap Value, Cash Reserves,
Domestic Fixed Income, Global Fixed Income, High Yield, Intermediate Duration,
International Fixed Income, Limited Duration, Mortgage-Backed Securities,
Municipal, PA Municipal, Multi-Asset-Class and Select Equity Portfolios from
exceeding 1.18%, 0.88%, 0.32%, 0.50%, 0.58%, 0.525%, 0.52%, 0.60%, 0.42%, 0.50%,
0.50%, 0.50%, 0.58% and 0.61%, respectively.
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%
PORTFOLIO MANAGEMENT
59
<PAGE>
MAS Portfolio Management
Manager
Portfolio Since
Portfolio Manager (Year)
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
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:
- --------------------------------------------------------------------------------
<PAGE>
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)
- --------------------------------------------------------------------------------
Horacio A. Valeiras International
(1992)
Emerging Markets
(1995)
- --------------------------------------------------------------------------------
Global Fixed Income J. David Germany 1993
and International
Fixed Income
Portfolios:
- --------------------------------------------------------------------------------
Richard B. Worley 1993
- --------------------------------------------------------------------------------
60
<PAGE>
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 Eqity 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 1985, 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.
Nicholas J. Kovich, Portfolio Manager, joined MAS in 1988. He assumed
responsibility for the Equity and Select Equity Portfolios in 1994.
61
<PAGE>
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.
62
<PAGE>
PORTFOLIO TRANSACTIONS: The investment advisory agreement authorizes the Adviser
to select the brokers or dealers that will execute the purchases and sales of
investment securities for each of the Fund's portfolios and directs 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, 1988, AT&T Savings Plans Group Trust II (Berkley 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 as required by the 1940 Act.
63
<PAGE>
Transfer and Dividend Disbursing Agent: Chase Global Funds Services Company, a
subsidiary of The Chase Manhattan Bank, N.A., 73 Tremont Street, Boston, MA
02108-3913.
Reports: Shareholders receive semiannual and annual financial statements. Annual
financial statements are audited by Price Waterhouse LLP, independent
accountants.
Litigation: The Fund is not involved in any litigation.
Closed Holidays: Currently, the weekdays on which the Fund is closed for
business are: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. In addition,
the Fixed Income, Special Purpose Fixed Income, 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, 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; [ ], 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.
64
<PAGE>
January 30, 1996
Investment Adviser and Administrator: Transfer Agent:
Miller Anderson & Sherrerd, LLP Chase Global Funds Services
Company
One Tower Bridge 73 Tremont Street
West Conshohocken, Boston, Massachusetts 02108-0913
Pennsylvania 19428-2899
General Distribution Agent:
MAS Fund Distribution, Inc.
One Tower Bridge
P.O. Box 868
West Conshohocken,
Pennsylvania 19428-0868
Table of Contents
Page
Page
Fund Expenses 2 General Information
Prospectus Summary 4 Other Information 52
Financial Highlights 8 Purchase of Shares 52
Yield and Total Return 14 Redemption of Shares 53
Investment Suitability 15 Shareholder Services 54
Investment Limitations 15 Valuation of Shares 54
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 36 Administrative Services 61
Investments 41 General Distribution Agent 62
Portfolio Transactions 62
Trustees and Officers 64
65
<PAGE>
ACCOUNT REGISTRATION FORM
MAS Fund Distribution, Inc.
General Distribution Agent
REGISTRATION/PRIMARY MAILING ADDRESS
City State Zip
Telephone No.
Type of Account: o Defined Benefit Plan o Defined Contribution Plan
o Profit Sharing/Thrift Plan o Other Employee Benefit Plan
o Endowment o Foundation o Taxable o Other (Specify)
o United States Citizen o Resident Alien
o Non-Resident Alien, Indicate Country of Residence
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City State Zip
Telephone No.
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City State Zip
Telephone No.
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City State Zip
Telephone No.
INVESTMENT
For Purchase of:
o Equity Portfolio
o Value Portfolio
o Growth Portfolio
o Mid Cap Growth Portfolio
o Balanced Portfolio
o Multi-Asset-Class Portfolio
o Balanced Investing--Indicate Portfolios
o Fixed Income Portfolio
o Fixed Income Portfolio II
o Special Purpose Fixed Income Portfolio
o High Yield Portfolio
o Limited Duration Fixed Income Portfolio
o Intermediate Duration Portfolio
o Mortgage-Backed Securities Portfolio
o Cash Reserves Portfolio
o International Equity Portfolio
o Emerging Markets Portfolio
o International Fixed Income Portfolio
o Global Fixed Income Portfolio
o Municipal Portfolio
o PA Municipal Portfolio
o Mid Cap Value Portfolio
o Domestic Fixed Income Portfolio
66
<PAGE>
TAXPAYER IDENTIFICATION NUMBER
Part 1.
Social Security Number
- -
or
Employer Identification Number
-
Part 2. BACKUP WITHHOLDING
o 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 payee) are required by law to provide us (as payer) with your current
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 distributions as well as redemptions.
Backup withholding isnot an additional tax; the tax liability of persons 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.
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)
o Mailing of Redemption proceeds to the name and address in Section 1
above.
o Wire of Redemption proceeds 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
67
<PAGE>
DISTRIBUTION OPTION
o Income dividends and capital gains distributions to be reinvested in
additional shares.
o Income dividends and capital gains distributions to be paid in cash.
o Income dividends in cash and capital gains distributions in additional
shares.
If cash option is chosen, please indicate instructions below:
o Mail distribution check to the name and address in which account is
registered.
o Wire distributions to the same Commercial Bank indicated in Section 5 above.
o 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
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
Prospectus of the MAS Funds 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)
(X)
Signature Date
(X)
Signature Date
FOR INTERNAL USE ONLY (X)
Signature Date
O* F OR S
68
<PAGE>
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
<TABLE>
<S> <C> <C> <C> <C> <C>
How to Use This Prospectus: 3 Fixed Income: Balanced: 34
-------------------------- ------------ --------
Cash Reserves 21 Multi-Asset-Class: 35
-----------------
Portfolio Summaries: Domestic Fixed Income 22
-------------------
Equity: Fixed Income 23 Select Equity Portfolio: 6
------ -----------------------
Emerging Markets 17 Fixed Income II 24
Equity 17 Global Fixed Income 25 Prospectus Glossary:
-------------------
Growth 18 High Yield 26 Strategies 36
International Equity 18 Intermediate Duration 27 Investments 41
Mid Cap Growth 19 International Fixed Income 28
Mid Cap Value 19 Limited Duration 29 Other Information: 52
-----------------
Small Cap Value 20 Mortgage-Backed Securities 30 Table of Contents: Back Cover
-----------------
Value 20 Municipal 31
PA Municipal 32
Special Purpose Fixed Income 33
</TABLE>
This Prospectus, which should be retained for future reference, sets forth
concisely information that you should know before you invest. A Statement of
Additional Information containing additional information about the Fund has been
filed with the Securities and Exchange Commission. Such Statement is dated
January 30, 1996 as revised from time to time, and has been
incorporated by reference into this Prospectus. A copy of the Statement may be
obtained, without charge, by writing to the Fund or by calling the Client
Services Group at the telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<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 operations.
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 ____%
<TABLE>
<CAPTION>
Investment Total
Advisory Other Operating
Portfolio Fees Expenses Expenses
<S> <C> <C> <C>
Emerging Markets 0.750%*
Equity 0.500
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Growth
International Equity
Mid Cap Growth
Mid Cap Value *
Small Cap Value
Value
Cash Reserves *
Domestic Fixed Income *
Fixed Income
Fixed Income II
Global Fixed Income *
High Yield *
Intermediate Duration *
International Fixed Income *
Limited Duration *
Mortgage-Backed Securities *
Municipal *
PA Municipal *
Special Purpose Fixed Income
Balanced
Multi-Asset-Class *
Select Equity *
</TABLE>
*After fee waivers and reimbursements.
*Until further notice, the Adviser has voluntarily agreed to waive its advisory
fees and reimburse certain expenses to the extent necessary to keep Total
Operating Expenses for the Emerging Markets, Mid Cap Value, Cash Reserves,
Domestic Fixed Income, Global Fixed Income, High Yield, Intermediate Duration,
International Fixed Income, Limited Duration, Mortgage-Backed Securities,
Municipal, PA Municipal, Multi-Asset-Class and Select Equity Portfolios from
exceeding 1.18%, 0.88%, 0.32%, 0.50%, 0.58%, 0.525%, 0.52%, 0.60%, 0.42%, 0.50%,
0.50%, 0.50%, 0.58% and 0.61%, respectively. Absent fee waivers and
reimbursements by the Adviser, Total Operating Expenses would be _____%, _____%,
_____%, _____%, _____%, _____%, _____%, _____%, _____%, _____%, and _____% for
the Emerging Markets, Mid Cap Value, Cash Reserves, Domestic Fixed Income,
Intermediate Duration, International Fixed Income, Mortgage-Backed Securities,
Municipal, PA Municipal, Multi-Asset-Class and Select Equity Portfolios,
respectively.
3
<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 $ $ $ $
Equity
Growth
International Equity
Mid Cap Growth
Mid Cap Value
Small Cap Value
Value
Cash Reserves
Domestic Fixed Income
Fixed Income
Fixed Income II
Global Fixed Income
High Yield
Intermediate Duration
International Fixed Income
4
<PAGE>
Limited Duration
Mortgage-Backed Securities
Municipal
PA Municipal
Special Purpose Fixed Income
Balanced
Multi-Asset-Class
Select Equity
HOW TO USE THIS PROSPECTUS
A PROSPECTUS SUMMARY begins on page __;
FINANCIAL HIGHLIGHTS and a description of YIELD AND TOTAL RETURN begin on page
__;
GENERAL INFORMATION including INVESTMENT LIMITATIONS pertinent to all portfolios
begins on page __;
SUMMARY PAGES for each portfolio's Objective, Policies and Strategies begin on
page __;
The PROSPECTUS GLOSSARY which defines specific Allowable Investments, Policies
and Strategies printed in bold type throughout this Prospectus begins on page
__;
OTHER INFORMATION including SHAREHOLDER SERVICES begins on page __.
5
<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.
6
<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.
7
<PAGE>
Special Purpose Fixed Income - seeks to achieve above-average total return over
a market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of U.S. Governments, Corporates,
Mortgage Securities, Foreign Bonds and other Fixed-Income Securities and
Derivatives. The portfolio is structured to complement an investment in one or
more of the Fund's Equity Portfolios for investors seeking a balanced
investment. The portfolio's average weighted maturity will ordinarily exceed
five years.
BALANCED INVESTING
Balanced Portfolio - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing in a
diversified portfolio of Equity Securities, Fixed-Income Securities and
Derivatives. When the Adviser judges the relative outlook for the equity and
fixed-income markets to be neutral, the portfolio will be invested 60% in equity
securities and 40% in fixed-income securities. The asset mix is actively managed
by the Adviser, with equity securities ordinarily representing between 45% and
75% of the total investment. The average weighted maturity of the fixed-income
portion of the portfolio will ordinarily be greater than five years.
Multi-Asset-Class Portfolio - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of Equity Securities,
Fixed-Income Securities and High Yield Securities of United States and foreign
issuers and Derivatives. The asset mix is actively managed by the Adviser.
Balanced Investing and the Balanced Investment Program - MAS offers a balanced
investing option allowing clients to combine investments in two or more
portfolios of the Fund. Clients can authorize MAS to manage the mix of assets
among the portfolios according to their individual objectives and
specifications. If client objectives are consistent with active management of
investments in the Equity and Special Purpose Fixed Income Portfolios around a
60/40 asset mix, the account will be managed in the same manner as the Adviser's
fully-discretionary, Balanced Investment Program. When client objectives require
use of different portfolios, a different neutral asset mix or specific
limitations, a balanced program is managed according to those
specifications.
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:
_ 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;
_ Each portfolio may participate in a Securities Lending program which
entails a risk of loss should a borrower fail financially;
_ 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;
8
<PAGE>
_ 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.
_ Securities purchased on a When-Issued basis may decline or appreciate in
market value prior to their actual delivery to the portfolio;
_ 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;
_ 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);
_ 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;
_ 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;
_ 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,
_ 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.
9
<PAGE>
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.
Conshohocken, PA 19428. The Adviser will continue to provide investment
counseling services t employee benefit plans, endowments, voted to approve a new
agreement, effective as of the transaction date. See Investment Adviser.
THE FUND'S DISTRIBUTOR: MAS Fund Distribution, Inc. (the "Distributor") provides
distribution services to the Fund.
ADMINISTRATIVE SERVICES: The Adviser provides the Fund directly, or through
third parties, with fund administration services. Chase Global Funds Services
Company, a subsidiary of The Chase Manhattan Bank, N.A., serves as Transfer
Agent to the Fund. See Administrative Services.
<PAGE>
Financial Highlights - Fiscal Years Ended September 30
Selected per share data and ratios
for a share of the Institutional Class of each
Portfolio outstanding throughout each period
The following information should be read in conjunction with the Fund's
financial statements which are included in the Annual Report to Shareholders 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)
Emerging Markets Portfolio (Commencement of Operations 2/28/95)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.00 $0.10 $1.53 $1.63 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.63 16.30% $ 42,459 1.18%*++ 2.04%* 63%
Equity Portfolio (Commencement of Operations 11/14/84)
</TABLE>
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $21.05 $0.52 $4.55 $5.07 ($0.52) ($1.17) -- ($1.69)
1994 22.82 0.44 0.41 0.85 (0.41) (2.21) -- (2.62)
1993 22.04 0.41 1.95 2.36 (0.43) (1.15) -- (1.58)
1992 20.78 0.43 1.86 2.29 (0.42) (0.61) -- (1.03)
1991 15.86 0.44 5.64 6.08 (0.44) (0.72) -- (1.16)
1990 18.65 0.48 (2.57) (2.09) (0.54) (0.16) -- (0.70)
1989 14.48 0.51 4.15 4.66 (0.46) (0.03) -- (0.49)
1988 17.14 0.40 (1.93) (1.53) (0.32) (0.81) -- (1.13)
1987 14.09 0.43 3.67 4.10 (0.41) (0.64) -- (1.05)
1986 10.83 0.45 3.49 3.94 (0.49) (0.19) -- (0.68)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $24.43 26.15% $1,597,632 0.61% 2.39%* 67%
1994 21.05 4.11 1,193,017 0.60 2.10 41
1993 22.82 11.05 1,098,003 0.59 1.86 51
1992 22.04 11.55 918,989 0.59 2.03 21
1991 20.78 40.18 675,487 0.60 2.36 33
1990 15.86 (11.67) 473,261 0.59 2.66 44
1989 18.65 32.95 602,261 0.59 3.29 29
1988 14.48 (8.41) 385,864 0.62 2.99 51
1987 17.14 30.89 322,803 0.66 2.88 66
1986 14.09 37.60 108,367 0.68 3.17 52
</TABLE>
<PAGE>
International Equity Portfolio (Commencement of Operations 11/25/88)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $14.52 $0.19 ($0.75) ($0.56) -- ($1.35) ($0.10)+ ($1.45)
1994 13.18 0.12 1.63 1.75 (0.16) (0.25) -- (0.41)
1993 11.03 0.21 2.14 2.35 (0.20) -- -- (0.20)
1992 11.56 0.36 (0.33) 0.03 (0.56) -- -- (0.56)
1991 9.83 0.22 1.83 2.05 (0.23) (0.09) -- (0.32)
1990 11.86 0.26 (1.90) (1.64) (0.31) (0.08) -- (0.39)
1989 10.00 0.26 1.75 2.01 (0.15) -- -- (0.15)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $12.51 (3.36%) $1,160,986 0.70% 1.90% 112%
1994 14.52 13.33 1,132,867 0.64 0.89 69
1993 13.18 21.64 891,675 0.66 1.23 43
1992 11.03 0.37 512,127 0.70 1.41 42
1991 11.56 21.22 274,295 0.67 2.08 51
1990 9.83 (14.38) 126,035 0.65 2.40 45
1989 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.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the 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 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 Equity and
International Equity Portfolios excludes the effect of expense offsets. If
expense offsets were included, the Ratio of Expenses to Average Net Assets
would be 0.60% and 0.66%, respectively.
<PAGE>
Mid Cap Growth Portfolio (Commencement of Operations 3/30/90)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $16.29 $0.03 $4.21 $4.24 ($0.03) ($1.90) -- ($1.93)
1994 18.56 0.02 (0.58) (0.56) (0.01) (1.70) -- (1.71)
1993 14.51 0.01 4.80 4.81 -- (0.76) -- (0.76)
1992 14.92 0.01 0.44 0.45 (0.03) (0.83) -- (0.86)
1991 9.00 0.04 5.91 5.95 (0.03) -- -- (0.03)
1990 10.00 0.02 (1.01) (0.99) (0.01) -- -- (0.01)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $18.60 30.56% $373,547 0.61% 0.21 129%
1994 16.29 (3.28) 302,995 0.60 0.12 55
1993 18.56 33.92 309,459 0.59 0.07 69
1992 14.51 2.87 192,817 0.60 0.05 39
1991 14.92 66.26 171,163 0.60 0.29 46
1990 9.00 (9.98) 76,398 0.64* 0.34* 23
</TABLE>
Mid Cap Value Portfolio (Commencement of Operations 12/30/94)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.00 $0.55o $2.90 $3.45 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $13.45 34.50% $ 4,507 0.93%*++ 10.13%*o 639%o
</TABLE>
Small Cap Value Portfolio (Commencement of Operations 7/01/86)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $17.67 $0.19 $2.49 $2.68 ($0.14) ($1.93) -- ($2.07)
1994 17.55 0.16 1.14 1.30 (0.24) (0.94) -- (1.18)
1993 12.84 0.18 4.64 4.82 (0.11) -- -- (0.11)
1992 11.45 0.10 1.48 1.58 (0.19) -- -- (0.19)
1991 7.20 0.23 4.21 4.44 (0.19) -- -- (0.19)
1990 10.42 0.28 (3.05) (2.77) (0.45) -- -- (0.45)
1989 8.54 0.34 1.74 2.08 (0.20) -- -- (0.20)
1988 10.24 0.18 (1.42) (1.24) (0.14) (0.32) -- (0.46)
1987 9.35 0.13 0.84 0.97 (0.08) -- -- (0.08)
1986 10.00 0.08 (0.73) (0.65) -- -- -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $18.28 18.39% $430,368 0.87% 1.20% 119%
1994 17.67 8.04 308,156 0.88 0.91 162
1993 17.55 37.72 175,029 0.88 1.33 93
1992 12.84 14.12 105,886 0.86 1.06 50
1991 11.45 63.07 52,182 0.88 1.70 53
1990 7.20 (27.63) 100,848 0.85 1.77 59
1989 10.42 24.85 189,223 0.85 3.48 36
1988 8.54 (11.50) 202,500 0.86 2.32 41
1987 10.24 10.53 201,621 0.92 1.67 38
1986 9.35 (6.52) 87,755 0.902 2.274* 0
</TABLE>
Value Portfolio (Commencement of Operations 11/05/84)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $12.63 $0.31 $3.34 $3.65 ($0.31) ($1.08) -- ($1.39)
1994 12.76 0.30 0.59 0.89 (0.29) (0.73) -- (1.02)
1993 12.67 0.30 1.92 2.22 (0.31) (1.82) -- (2.13)
1992 12.92 0.35 1.05 1.40 (0.38) (1.27) -- (1.65)
1991 10.29 0.44 3.79 4.23 (0.44) (1.16) -- (1.60)
1990 14.56 0.52 (3.14) (2.62) (0.62) (1.03) -- (1.65)
1989 12.42 0.54 2.73 3.27 (0.47) (0.66) -- (1.13)
1988 15.81 0.48 (1.68) (1.20) (0.46) (1.73) -- (2.19)
1987 14.26 0.55 2.47 3.02 (0.53) (0.94) -- (1.47)
1986 10.78 0.57 3.89 4.46 (0.58) (0.40) -- (0.98)
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary in order to keep the total annual
operating expenses for the Mid Cap Value Portfolio from exceeding 0.88%.
Voluntarily waived and reimbursed expenses totalled 2.13%* for the period
ended September 30, 1995.
# 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.
o Net Investment Income, the Ratio of Net Investment Income to Average Net
Assets and the Portfolio Turnover Rate reflect activity relating to
a nonrecurring initiative to invest in higher-paying dividend income
producing securities.
<PAGE>
Value Portfolio (Commencement of Operations 11/05/84) (continued)
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $14.89 32.58% $1,271,586 0.60% 2.43% 56%
1994 12.63 7.45 981,337 0.61 2.40 54
1993 12.76 19.67 762,175 0.59 2.48 43
1992 12.67 12.83 448,329 0.60 2.87 55
1991 12.92 45.54 458,117 0.60 3.67 64
1990 10.29 (19.88) 369,044 0.59 3.87 51
1989 14.56 28.49 726,776 0.59 4.05 35
1988 12.42 (5.40) 619,287 0.59 3.96 47
1987 15.81 22.99 700,538 0.62 3.68 28
1986 14.26 43.65 636,805 0.66 4.26 33
</TABLE>
Cash Reserves Portfolio (Commencement of Operations 8/29/90)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.000 $.055 -- $.055 ($.055) -- -- ($.055)
1994 1.000 .034 -- .034 (.034) -- -- (.034)
1993 1.000 .028 -- .028 (.028) -- -- (.028)
1992 1.000 .038 -- .038 (.038) -- -- (.038)
1991 1.000 .064 -- .064 (.064) -- -- (.064)
1990 1.000 .007 -- .007 (.007) -- -- (.007)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $1.000 5.57% $44,624 0.33%++ 5.45% N/A
1994 1.000 3.40 37,933 0.32++ 3.70 N/A
1993 1.000 2.81 10,717 0.32++ 2.78 N/A
1992 1.000 3.89 12,935 0.32++ 3.95 N/A
1991 1.000 6.63 24,163 0.32++ 6.57 N/A
1990 1.000 0.74 23,285 0.48* 8.31* N/A
</TABLE>
Domestic Fixed Income Portfolio (Commencement of Operations 9/30/87)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)+ (1.83)
1993 11.80 0.84 0.66 1.50 (0.78) (0.53) -- (1.31)
1992 11.34 0.87 0.76 1.63 (1.00) (0.17) -- (1.17)
1991 10.26 0.92 1.10 2.02 (0.94) -- -- (0.94)
1990 10.90 0.87 (0.45) 0.42 (0.96) (0.10) -- (1.06)
1989 10.78 0.86 0.08 0.94 (0.78) (0.04) -- (0.82)
1988 9.99 0.73 0.52 1.25 (0.45) (0.01) -- (0.46)
1987 10.00 -- (0.01) (0.01) -- -- -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.03 14.33% $36,147 0.51%++ 6.80% 313%
1994 9.87 (2.87) 36,521 0.50++ 7.65 78
1993 11.99 14.08 90,350 0.50 7.15 96
1992 11.80 15.41 98,130 0.47 7.67 136
1991 11.34 20.99 83,200 0.48 8.18 131
1990 10.26 3.90 77,622 0.48 8.35 181
1989 10.90 9.14 68,855 0.49 8.24 219
1988 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.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the Cash Reserves 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.
<PAGE>
Fixed Income Portfolio (Commencement of Operations 11/14/84)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.93 $0.80 $0.69 $1.49 ($0.60) -- -- ($0.60)
1994 12.86 0.77 (1.28) (0.51) (0.82) ($0.47) ($0.13)+ (1.42)
1993 12.67 0.88 0.75 1.63 (0.83) (0.61) -- (1.44)
1992 12.20 0.90 0.74 1.64 (1.02) (0.15) -- (1.17)
1991 10.94 0.94 1.25 2.19 (0.93) -- -- (0.93)
1990 11.64 0.92 (0.49) 0.43 (1.03) (0.10) -- (1.13)
1989 11.40 0.90 0.11 1.01 (0.76) (0.01) -- (0.77)
1988 10.86 0.97 0.43 1.40 (0.86) -- -- (0.86)
1987 11.95 0.93 (0.61) 0.32 (0.91) (0.50) -- (1.41)
1986 10.92 0.99 1.20 2.19 (1.02) (0.14) -- (1.16)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.82 14.19% $1,487,409 0.49% 7.28% 140%
1994 10.93 (4.43) 1,194,957 0.49 6.79 100
1993 12.86 14.26 909,738 0.47 7.06 144
1992 12.67 14.35 859,712 0.47 7.50 137
1991 12.20 21.12 831,547 0.47 8.25 143
1990 10.94 3.79 666,736 0.46 8.43 209
1989 11.64 9.25 559,995 0.47 8.36 100
1988 11.40 13.43 405,385 0.49 8.91 168
1987 10.86 2.55 290,824 0.52 8.54 202
1986 11.95 21.27 95,898 0.55 8.39 169
</TABLE>
Fixed Income Portfolio II (Commencement of Operations 8/31/90)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.42 $0.71 $0.71 $1.42 ($0.51) -- -- ($0.51)
1994 11.97 0.63 (1.16) (0.53) (0.67) ($0.21) ($0.14)+ (1.02)
1993 11.67 0.69 0.77 1.46 (0.61) (0.55) -- (1.16)
1992 11.34 0.77 0.61 1.38 (0.81) (0.24) -- (1.05)
1991 10.09 0.81 1.10 1.91 (0.66) -- -- (0.66)
1990 10.00 0.04 0.05 0.09 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.33 14.13% $176,945 0.51% 6.75% 153%
1994 10.42 (4.76) 129,902 0.51 6.07 137
1993 11.97 13.53 94,836 0.51 6.17 101
1992 11.67 13.02 78,302 0.49 7.05 182
1991 11.34 19.59 42,881 0.49 7.76 190
1990 10.09 0.88 20,729 0.52* 8.00* 7
</TABLE>
<PAGE>
Global Fixed Income Portfolio (Commencement of Operations 4/30/93)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.20 $0.71 $0.81 $1.52 ($0.67) -- -- ($0.67)
1994 10.67 0.58 (0.61) (0.03) (0.41) (0.03) -- (0.44)
1993 10.00 0.13 0.61 0.74 (0.07) -- -- (0.07)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.05 15.54% $55,147 0.58% 6.34% 118%
1994 10.20 (0.29) 43,066 0.57 5.48 117
1993 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.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the 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.
<PAGE>
High Yield Portfolio (Commencement of Operations 2/28/89)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $8.97 $0.90 $0.19 $1.09 ($0.85) ($0.08) ($0.05)+ ($0.98)
1994 9.49 0.75 (0.42) 0.33 (0.69) (0.16) -- (0.85)
1993 8.58 0.73 0.90 1.63 (0.72) -- -- (0.72)
1992 7.80 0.74 0.89 1.63 (0.85) -- -- (0.85)
1991 7.07 1.42 0.82 2.24 (1.51) -- -- (1.51)
1990 9.98 1.36 (2.82) (1.46) (1.42) (0.03) -- (1.45)
1989 10.00 0.55 (0.44) 0.11 (0.13) -- -- (0.13)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $9.08 13.58% $220,785 0.50% 10.68% 96%
1994 8.97 3.57 182,969 0.50 9.01 112
1993 9.49 20.12 50,396 0.53++ 8.94 99
1992 8.58 22.49 20,491 0.53++ 9.74 148
1991 7.80 36.70 6,453 0.76 19.45 106
1990 7.07 (16.26) 4,820 0.82 16.93 65
1989 9.98 0.91 3,479 0.73* 11.66* 17
</TABLE>
Intermediate Duration Portfolio (Commencement of Operations 10/3/94)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.00 $0.69 $0.42 $1.11 ($0.43) -- -- ($0.43)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $10.68 11.39% $ 19,237 0.52%*++ 6.56%* 168%
</TABLE>
International Fixed Income Portfolio (Commencement of Operations 4/29/94)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.05 $0.67 $0.92 $1.59 ($0.63) -- -- ($0.63)
1994 10.00 0.21 (0.11) 0.10 (0.05) -- -- (0.05)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.01 16.36% $127,882 0.54% 6.35%* 140%
1994 10.05 1.01 66,879 0.60*++ 5.83* 31
</TABLE>
<PAGE>
Limited Duration Portfolio (Commencement of Operations 3/31/92)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.19 $0.56 $0.22 $0.78 ($0.55) -- ($0.01)+ ($0.56)
1994 10.72 0.56 (0.52) 0.04 (0.51) (0.04) ($0.02)+ (0.57)
1993 10.58 0.32 0.22 0.54 (0.32) (0.08) -- (0.40)
1992 10.00 0.19 0.49 0.68 (0.10) -- -- (0.10)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $10.41 7.95% $100,186 0.43%++ 5.96% 119%
1994 10.19 0.40 62,775 0.41 4.16 192
1993 10.72 5.33 128,991 0.42++ 3.92 217
1992 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.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the High Yield, 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.
<PAGE>
Mortgage-Backed Securities Portfolio (Commencement of Operations 1/31/92)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 9.95 $0.72 $0.47 $1.19 ($0.65) -- -- ($0.65)
1994 10.95 0.52 (0.83) (0.31) (0.45) ($0.21) ($0.03)+ (0.69)
1993 10.44 0.63 0.48 1.11 (0.60) -- -- (0.60)
1992 10.00 0.29 0.28 0.57 (0.13) -- -- (0.13)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $10.49 12.52% $ 49,766 0.50%++ 6.35% 107%
1994 9.95 (2.95) 119,518 0.50++ 5.30 220
1993 10.95 11.03 50,249 0.50++ 6.92 93
1992 10.44 5.75 13,601 0.50*++ 8.11* 133
</TABLE>
Municipal Portfolio (Commencement of Operations 10/01/92)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.04 $0.59 $0.71 $1.30 ($0.59) -- -- ($0.59)
1994 11.15 0.51 (1.01) (0.50) (0.54) -- ($0.07)+ (0.61)
1993 10.00 0.37 1.04 1.41 (0.26) -- -- (0.26)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $10.75 13.37% $36,040 0.50%++ 5.64% 58%
1994 10.04 (4.64) 38,549 0.50++ 4.98 34
1993 11.15 14.20 26,914 0.50*++ 4.65* 66
</TABLE>
PA Municipal Portfolio (Commencement of Operations 10/01/92)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.13 $0.58 $0.77 $1.35 ($0.57) -- -- ($0.57)
1994 11.26 0.56 (1.00) (0.44) (0.64) ($0.05) -- (0.69)
1993 10.00 0.39 1.17 1.56 (0.30) -- -- (0.30)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $10.91 13.74% $15,734 0.50%++ 5.56% 57%
1994 10.13 (4.08) 23,515 0.50++ 5.39 69
1993 11.26 15.81 15,633 0.50*++ 4.74* 94
</TABLE>
<PAGE>
Special Purpose Fixed Income Portfolio (Commencement of Operations 3/31/92)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995o $11.52 $0.91 $0.75 $1.66 ($0.65) -- -- ($0.65)
1994 13.40 0.80 (1.28) (0.48) (0.78) ($0.53) ($0.09)+ (1.40)
1993 12.72 0.88 0.92 1.80 (0.82) (0.30) -- (1.12)
1992 11.80 0.39 0.72 1.11 (0.19) -- -- (0.19)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $12.53 14.97% $390,258 0.49% 7.33% 143%
1994 11.52 (4.00) 384,731 0.50 6.66 100
1993 13.40 15.19 300,185 0.48 6.84 124
1992 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.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the 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%.
<PAGE>
Balanced Portfolio (Commencement of Operations 12/31/92)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $11.28 $0.54 $1.78 $2.32 ($0.47) ($0.07) -- ($0.54)
1994 11.84 0.47 (0.45) 0.02 (0.43) (0.15) -- (0.58)
1993 11.06 0.25 0.66 0.91 (0.13) -- -- (0.13)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $13.06 21.37% $334,630 0.58% 4.55% 95%
1994 11.28 0.19 309,596 0.58 4.06 75
1993 11.84 8.31 291,762 0.58* 3.99* 62
</TABLE>
Multi-Asset-Class Portfolio (Commencement of Operations 7/29/94)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 9.97 $0.44 $1.33 $1.77 ($0.40) -- -- ($0.40)
1994 10.00 0.07 (0.10) (0.03) -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.34 18.28% $96,839 0.58%++ 4.56% 112%
1994 9.97 (0.30) 51,877 0.58*++ 4.39* 20
</TABLE>
Select Equity Portfolio (Commencement of Operations 2/26/88)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $17.29 $0.27 $2.07 $2.34 ($0.30) ($7.53) -- ($7.83)
1994 18.41 0.71 0.06 0.77 (0.70) (1.19) -- (1.89)
1993 17.65 0.31 1.49 1.80 (0.32) (0.72) -- (1.04)
1992 16.09 0.32 1.76 2.08 (0.31) (0.21) -- (0.52)
1991 11.86 0.34 4.26 4.60 (0.33) (0.04) -- (0.37)
1990 13.69 0.30 (1.63) (1.33) (0.34) (0.16) -- (0.50)
1989 10.90 0.38 2.82 3.20 (0.34) (0.07) -- (0.41)
1988 10.00 0.19 0.82 1.01 (0.11) -- -- (0.11)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.80 26.22% $29,581 0.62%++ 2.48% 73%
1994 17.29 4.50 29,155 0.62++ 1.75 27
1993 18.41 10.46 295,050 0.60 1.78 33
1992 17.65 13.26 205,264 0.60 1.89 19
1991 16.09 39.48 118,557 0.60 2.41 29
1990 11.86 (10.07) 71,481 0.61 2.75 39
1989 13.69 30.20 34,415 0.64 3.29 35
1988 10.90 10.13 20,541 0.70* 3.13* 16
</TABLE>
<PAGE>
* Annualized
** Total return figures for partial years are not annualized.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the Multi-Asset-Class 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.
10
<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.
11
<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.
12
<PAGE>
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.
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.
13
<PAGE>
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;
(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
14
<PAGE>
(h) a portfolio will not invest its assets in securities of any investment
company, except by purchase in the open market involving only customary brokers'
commissions or in connection with mergers, acquisitions of assets or
consolidations and except as may otherwise be permitted by the Investment
Company Act of 1940, as amended.
Limitations (a), (b), (d), (e) and (f),and certain other limitations described
in the Statement of Additional Information are fundamental and may be changed
only with the approval of the holders of a majority of the shares of each
portfolio. The other investment limitations described here and in the Statement
of Additional Information are not fundamental policies meaning that the Board of
Trustees may change them without shareholder approval. If a percentage
limitation on investment or utilization of assets as set forth above is adhered
to at the time an investment is made, a later change in percentage resulting
from changes in the value or total cost of the portfolio's assets will not be
considered a violation of the restriction, and the sale of securities will not
be required.
Emerging Markets Portfolio - (a non-diversified portfolio)
<TABLE>
<S> <C>
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
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
Comparative Index: MSCI Emerging Markets Free Index
Strategies: Emerging Markets Investing
Foreign Investing
Non-Diversified Status
</TABLE>
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
15
<PAGE>
<TABLE>
<S> <C>
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally greater than $1 billion
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
Comparative Index: S&P 500 Index
Strategies: Core Equity Investing
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
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
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
Allowable Foreign Equities ADRs Emerging Markets Issuers Eastern European Issuers
Investments: 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>
16
<PAGE>
Comparative
Index: MSCI World Ex-U.S. Index
Strategies: International Equity Investing
Emerging Markets Investing
Foreign Investing
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>
<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.
17
<PAGE>
Approach: The Adviser selects common stocks which are deemed to be
undervalued at the time of purchase, based on proprietary
measures of value. The Portfolio will be structured taking
into account the economic sector weights of the S&P MidCap 400
Index, with sector weights normally being within 5% of the
sector weights of the Index.
Policies: Generally at least 65% invested in Equity Securities of
mid-cap companies deemed to be undervalued
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization
Range: Generally matching the S&P MidCap 400 Index (currently $500
million to $3 billion)
<TABLE>
<S> <C> <C> <C> <C>
Allowable Common Stock Preferred Stock Convertibles ADRs
Investments: 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
Small Cap Value Portfolio (not currently being offered to new investors)
<TABLE>
<S> <C>
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>
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
</TABLE>
Comparative Index: Russell 2000 Index
Strategies: Value Stock Investing
18
<PAGE>
Value Portfolio
<TABLE>
<S> <C>
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>
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
</TABLE>
Comparative Index: S&P 500 Index
Strategy: Value Stock Investing
Cash Reserves Portfolio
<TABLE>
<S> <C>
Objective: To realize maximum current income, consistent with the preservation of capital and liquidity, by investing
in money market instruments and other short-term securities having expected maturities of thirteen months
or less. The Portfolio's average weighted maturity will not exceed 90 days. The securities in which the
Portfolio will invest may not yield as high a level of current income as securities of lower quality or
longer maturities which generally have less liquidity, greater market risk and more price fluctuation. The
Portfolio is designed to provide maximum principal stability for investors seeking to invest funds for the
short term, or, for investors seeking to combine a long-term investment program in other portfolios of the
Fund with an investment in money market instruments. The Portfolio seeks to maintain, but there can be no
assurance that it will be able to maintain, a constant net asset value of $1.00 per share.
Approach: The Adviser selects a diversified portfolio of money market securities of government and corporate
issuers, any of which may be variable or floating rate, and which have remaining maturities of thirteen
months or less from the date of purchase. For the purpose of determining remaining maturity on Floaters,
demand features and interest reset dates will be taken into consideration.
Policies: The Portfolio seeks to maintain, but there can be no assurance that it will be able to maintain, a
constant net asset value of $1.00 per share.
Quality Specifications: 100% of Commercial Paper Rated in Top Tier
Maturity and Duration: Dollar weighted average maturity less than 90 days Individual maturities 13 months or less
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Zero Coupons
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
19
<PAGE>
Domestic Fixed Income Portfolio
<TABLE>
<S> <C>
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>
<TABLE>
<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
Fixed Income Portfolio
<TABLE>
<S> <C>
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.
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
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>
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
High Yield Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Foreign Bonds
Brady Bonds Foreign Currency Forwards Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Municipals Preferred Stock
Investment Companies Loan Participations
</TABLE>
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Fixed Income Investing
Foreign Investing
21
<PAGE>
Fixed Income Portfolio II
<TABLE>
<S> <C>
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>
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
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
Global Fixed Income Portfolio - (a non-diversified portfolio)
<TABLE>
<S> <C>
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
</TABLE>
Quality
Specifications: 95% Investment Grade Securities
Maturity and
Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<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>
22
<PAGE>
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
High Yield Portfolio
<TABLE>
<S> <C>
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
</TABLE>
Quality
Specifications: None
Maturity and
Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<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
23
<PAGE>
Intermediate Duration Portfolio
<TABLE>
<S> <C>
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
</TABLE>
Quality
Specifications: 100% Investment Grade Securities
Maturity and
Duration: Average duration between two and five years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
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
International Fixed Income Portfolio - (a non-diversified portfolio)
<TABLE>
<S> <C>
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
</TABLE>
Quality
Specifications: 95% Investment Grade Securities
Maturity and
Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<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>
24
<PAGE>
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
Limited Duration Portfolio
<TABLE>
<S> <C>
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>
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
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
Mortgage-Backed Securities Portfolio
<TABLE>
<CAPTION>
<S> <C>
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.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
Maturity and
Duration: Average weighted maturity generally greater than 7 years
Duration generally between 2 and 7 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Mortgage Securities CMOs Asset-Backeds SMBS
U.S. Governments Zero Coupons Agencies When Issued
Floaters Inverse Floaters Structured Notes Futures & Options
Cash Equivalents Repurchase Agreements Municipals Investment Companies
Swaps
Comparative Index: Lehman Mortgage Index
Strategies: Mortgage Investing
Maturity and Duration Management
Value Investing
</TABLE>
Municipal Portfolio
<TABLE>
<S> <C>
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>
<TABLE>
<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>
26
<PAGE>
Comparative
Index: Lehman Long-Term Municipal Bond Index
Strategies: Municipals Management
Maturity and Duration Management
Value Investing
High Yield Investing
Mortgage Investing
PA Municipal Portfolio
<TABLE>
<S> <C>
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
</TABLE>
Quality Specifications: 80% Investment Grade Securities
Up to 20% High Yield
<TABLE>
Maturity and Duration: Average weighted maturity generally between 10 and 30 years
<S> <C> <C> <C> <C>
Allowable Investments: PA Municipals Municipals Taxable Investments U.S. Governments
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
27
<PAGE>
Special Purpose Fixed Income Portfolio
<TABLE>
<S> <C>
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
</TABLE>
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
High Yield Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Foreign Bonds
Brady Bonds Foreign Currency Forwards Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Municipals Preferred Stock
Investment Companies Loan Participations
</TABLE>
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Fixed Income Management and Asset Allocation
Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Fixed Income Investing
Foreign Investing
Balanced Portfolio
<TABLE>
<S> <C>
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.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
Equity Capitalization: Generally greater than $1 billion
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock U.S. Governments Zero Coupons
Corporates High Yield Foreign Bonds Mortgage Securities
CMOs Asset-Backeds SMBS When Issued
Brady Bonds Floaters Inverse Floaters Structured Notes
Agencies Convertibles Futures & Options Swaps
Foreign Currency Forwards Cash Equivalents Repurchase Agreements
Eastern European Issuers Investment Funds Municipals Investment Companies
ADRs Foreign Equities Rights Warrants
Loan Participations
</TABLE>
Comparative Index: A weighted blend of quarterly returns compiled by the
Adviser using:
60% S&P 500 Index
40% Salomon Broad Investment Grade Index
Strategies: Asset Allocation Management
Core Equity Investing
Fixed Income Management and Asset Allocation
Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Fixed Income Investing
Foreign Investing
Multi-Asset-Class Portfolio
<TABLE>
<S> <C>
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>
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock U.S. Governments Agencies
Corporates High Yield Foreign Bonds
Foreign Equities Foreign Currency
Eastern European Issuers Investment Funds Mortgage Securities CMOs
SMBS Asset-Backeds When Issued Brady Bonds
Floaters Inverse Floaters Structured Notes Zero Coupons
Futures & Options Swaps Forwards Cash Equivalents
Repurchase Agreements Convertibles Preferred Stock
Municipals Investment Companies ADRs
Rights Warrants
Loan Participations Emerging Markets Issuers Structured Investments
</TABLE>
29
<PAGE>
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
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<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.
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<PAGE>
For example, in a given interest rate environment, equity securities may be
judged to be fairly valued when compared to intermediate duration fixed-income
securities, but overvalued compared to long duration fixed-income securities.
Consequently, while a portfolio investing only in fixed-income securities may
not emphasize long duration assets to the same extent, the fixed-income portion
of a balanced investment may invest a percentage of its assets in long duration
bonds on the basis of their valuation relative to equity securities.
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.
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<PAGE>
The market for high yield securities is still relatively new. Because of this, a
long-term track record for bond default rates does not exist. In addition, the
secondary market for high yield securities is generally less liquid than that
for investment grade corporate securities. In periods of reduced market
liquidity, high yield bond prices may become more volatile, and both the high
yield market and a portfolio may experience sudden and substantial price
declines. This lower liquidity might have an effect on a portfolio's ability to
value or dispose of such securities. Also, there may be significant disparities
in the prices quoted for high yield securities by various dealers. Under such
conditions, a portfolio may find it difficult to value its securities
accurately. A portfolio may also be forced to sell securities at a significant
loss in order to meet shareholder redemptions. These factors add to the risks
associated with investing in high yield securities.
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.
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%
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.
33
<PAGE>
About Maturity and Duration: Most debt obligations provide interest (coupon)
payments in addition to a final (par) payment at maturity. Some obligations also
have call provisions. Depending on the relative magnitude of these payments and
the nature of the call provisions, the market values of debt obligations may
respond differently to changes in the level and structure of interest rates.
Traditionally, a debt security's term-to-maturity has been used as a proxy for
the sensitivity of the security's price to changes in interest rates (which is
the interest rate risk or volatility of the security). However, term-to-maturity
measures only the time until a debt security provides its final payment, taking
no account of the pattern of the security's payments prior to maturity.
Duration is a measure of the expected life of a fixed-income security that was
developed as a more precise alternative to the concept of term-to-maturity.
Duration incorporates a bond's yield, coupon interest payments, final maturity
and call features into one measure. Duration is one of the fundamental tools
used by the Adviser in the selection of fixed-income securities. Duration is a
measure of the expected life of a fixed-income security on a present value
basis. Duration takes the length of the time intervals between the present time
and the time that the interest and principal payments are scheduled or, in the
case of a callable bond, expected to be received, and weights them by the
present values of the cash to be received at each future point in time. For any
fixed-income security with interest payments occurring prior to the payment of
principal, duration is always less than maturity. In general, all other factors
being the same, the lower the stated or coupon rate of interest of a
fixed-income security, the longer the duration of the security; conversely, the
higher the stated or coupon rate of interest of a fixed-income security, the
shorter the duration of the security.
There are some situations where even the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure. In
these and other similar situations, the Adviser will use sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
Money Market Investing: A money market fund like the Cash Reserves Portfolio
invests in securities which present minimal credit risk and may not yield as
high a level of current income as securities of lower quality or longer
maturities which generally have less liquidity, greater market risk and more
price fluctuation. A money market portfolio is designed to provide maximum
principal stability for investors seeking to invest funds for the short-term,
or, for investors seeking to combine a long-term investment program in other
portfolios of the Fund with an investment in money market instruments. However,
because the Cash Reserves Portfolio invests in the money market obligations of
private financial and non-financial corporations in addition to those of the
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
34
<PAGE>
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.
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.
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<PAGE>
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).
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A portfolio may invest in obligations of U.S. banks, foreign branches of U.S.
banks (Eurodollars), and U.S. branches of foreign banks (Yankee dollars). Euro
and Yankee dollar investments will involve some of the same risks of investing
in international securities that are discussed in the Foreign Investing section
of this Prospectus.
Portfolios will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion, or the equivalent in other
currencies, or, in the case of domestic banks which do not have total assets of
at least $1 billion, the aggregate investment made in any one such bank is
limited to $100,000 and the principal amount of such investment is insured in
full by the Federal Deposit Insurance Corporation, (ii) in the case of U.S.
banks, it is a member of the Federal Deposit Insurance Corporation, and (iii) in
the case of foreign branches of U.S. banks, the security is deemed by the
Adviser to be of an investment quality comparable with other debt securities
which may be purchased by the portfolio.
(2) Each portfolio (except Cash Reserves) may invest in commercial paper rated
at time of purchase by one or more NRSRO in one of their two highest categories,
(e.g., A-l or A-2 by Standard & Poor's or Prime 1 or Prime 2 by Moody's), or, if
not rated, issued by a corporation having an outstanding unsecured debt issue
rated high-grade by a NRSRO (e.g. A or better by Moody's, Standard & Poor's or
Fitch). The Cash Reserves Portfolio invests only in commercial paper rated in
the highest category;
(3) Short-term corporate obligations rated high-grade at the time of purchase by
a NRSRO (e.g. A or better by Moody's, Standard & Poor' s or Fitch);
(4) U.S. Government obligations including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of the U.S.
Government and differ mainly in interest rates, maturities and dates of issue;
(5) Securities issued or guaranteed by U.S. Government sponsored
instrumentalities and Federal agencies. These include securities issued by the
Federal Home Loan Banks, Federal Land Bank, Farmers Home Administration, Farm
Credit Banks, Federal Intermediate Credit Bank, Federal National Mortgage
Association, Federal Financing Bank, the Tennessee Valley Authority, and others;
(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,
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additional mortgage prepayments must be reinvested at lower interest rates. In
part to compensate for these risks, mortgages will generally offer higher yields
than comparable bonds.
Common Stocks: are Equity Securities which represent an ownership interest in a
corporation, entitling the shareholder to voting rights and receipt of dividends
paid based on proportionate ownership.
Convertibles: are convertible bonds or shares of convertible Preferred Stock
which may be exchanged for a fixed number of shares of Common Stock at the
purchaser's option.
Corporates--corporate bonds: are debt instruments issued by private
corporations. Bondholders, as creditors, have a prior legal claim over common
and preferred stockholders of the corporation as to both income and assets for
the principal and interest due to the bondholder. A portfolio will buy
Corporates subject to any quality constraints. If a security held by a portfolio
is down-graded, the portfolio may retain the security.
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.
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See each individual portfolio listing of Allowable Investments to determine
which of the above the portfolio can hold. Preferred Stock is contained in both
the definition of Equity Securities and Fixed-Income Securities since it
exhibits characteristics commonly associated with each type.
Fixed-Income Securities: Commonly include but are not limited to U.S.
Governments, Zero Coupons, Agencies, Corporates, High Yield, Mortgage
Securities, SMBS, CMOs, Asset-Backeds, Convertibles, Brady Bonds, Floaters,
Inverse Floaters, Cash Equivalents, Repurchase Agreements, Preferred Stock, and
Foreign Bonds. See each individual portfolio listing of Allowable Investments to
determine which securities a portfolio may hold. Preferred Stock is contained in
both the definition of Equity Securities and Fixed-Income Securities since it
exhibits characteristics commonly associated with each type of security.
Floaters--Floating and Variable Rate Obligations: are debt obligations with a
floating or variable rate of interest, i.e. the rate of interest varies with
changes in specified market rates or indices, such as the prime rate, or at
specified intervals. Certain floating or variable rate obligations may carry a
demand feature that permits the holder to tender them back to the issuer of the
underlying instrument, or to a third party, at par value prior to maturity. When
the demand feature of certain floating or variable rate obligations represents
an obligation of a foreign entity, the demand feature will be subject to certain
risks discussed under Foreign Investing.
Foreign Currency: Portfolios investing in foreign securities will regularly
transact security purchases and sales in foreign currencies. These portfolios
may hold foreign currency or purchase or sell currencies on a forward basis (see
Forwards).
Foreign Equities: are Common Stock, Preferred Stock, Rights and Warrants of
foreign issuers. 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
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generally require the portfolio to hold high-grade, liquid securities or cash
equal to the portfolio's obligations in a segregated account throughout the
duration of the contract.
A portfolio may also combine forward contracts with investments in securities
denominated in other currencies in order to achieve desired credit and currency
exposures. Such combinations are generally referred to as synthetic securities.
For example, in lieu of purchasing a foreign bond, a portfolio may purchase a
U.S. dollar-denominated security and at the same time enter into a forward
contract to exchange U.S. dollars for the contract's underlying currency at a
future date. By matching the amount of U.S. dollars to be exchanged with the
anticipated value of the U.S. dollar-denominated security, a portfolio may be
able to lock in the foreign currency value of the security and adopt a synthetic
investment position reflecting the credit quality of the U.S. dollar-denominated
security.
There is a risk in adopting a synthetic investment position to the extent that
the value of a security denominated in the U.S. dollar or other foreign currency
is not exactly matched with a portfolio's obligation under the forward contract.
On the date of maturity, a portfolio may be exposed to some risk of loss from
fluctuations in that currency. Although the Adviser will attempt to hold such
mismatching to a minimum, there can be no assurance that the Adviser will be
able to do so. When a portfolio enters into a forward contract for purposes of
creating a synthetic security, it will generally be required to hold high-grade,
liquid securities or cash in a segregated account with a daily value at least
equal to its obligation under the forward contract.
Futures & Options--Futures Contracts, Options on Futures Contracts and Options:
are Derivatives. Futures contracts provide for the sale by one party and
purchase by another party of a specified amount of a specific security, at a
specified future time and price. An option is a legal contract that gives the
holder the right to buy or sell a specified amount of the underlying security or
futures contract at a fixed or determinable price upon the exercise of the
option. A call option conveys the right to buy and a put option conveys the
right to sell a specified quantity of the underlying security.
A portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts in
combination with its outstanding obligations with respect to options
transactions would exceed 50% of its total assets. It will maintain assets
sufficient to meet its obligations under such contracts in a segregated account
with the custodian bank or will otherwise comply with the SEC's position on
asset coverage.
Possible Risks: The primary risks associated with the use of futures and options
are (i) imperfect correlation between the change in market value of the
securities held by a portfolio and the prices of futures and options relating to
the stocks, bonds or futures contracts purchased or sold by a portfolio; and
(ii) possible lack of a liquid secondary market for a futures contract and the
resulting inability to close a futures position which could have an adverse
impact on a portfolio's ability to execute futures and options strategies.
Additional risks associated with options transactions are (i) the risk that an
option will expire worthless; (ii) the risk that the issuer of an
over-the-counter option will be unable to fulfill its obligation to the
portfolio due to 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:
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Moody's: Ba-rated bonds have "speculative elements" so their future "cannot
be considered assured," and protection of principal and interest is
"moderate" and "not well safeguarded during both good and bad times in the
future." B-rated bonds "lack characteristics of a desirable investment" and
the assurance of interest or principal payments "may be small." Caa-rated
bonds are "of poor standing" and "may be in default" or may have "elements
of danger with respect to principal or interest." Ca-rated bonds represent
obligations which are speculative in a high degree. Such issues are often
in default or have other marked shortcomings. C-rated bonds are the "lowest
rated" class of bonds, and issues so rated can be regarded as having
"extremely poor prospects" of ever attaining any real investment standing.
Standard & Poor's: BB-rated bonds have "less near-term vulnerability to
default" than B- or CCC-rated securities but face "major ongoing
uncertainties . . . which may lead to inadequate capacity" to pay interest
or principal. B-rated bonds have a "greater vulnerability to default than
BB-rated bonds and the ability to pay interest or principal will likely be
impaired by adverse business conditions." CCC-rated bonds have a currently
identifiable "vulnerability to default" and, without favorable business
conditions, will be "unable to repay interest and principal." C The rating
C is reserved for income bonds on which "no interest is being paid." D -
Debt rated D is in "default", and "payment of interest and/or repayment of
principal is in arrears."
While these securities offer high yields, they also normally carry with them a
greater degree of risk than securities with higher ratings. Lower-rated bonds
are considered speculative by traditional investment standards. High yield
securities may be issued as a consequence of corporate restructuring or similar
events. Also, high yield securities are often issued by smaller, less credit
worthy companies, or by highly leveraged (indebted) firms, which are generally
less able than more established or less leveraged firms to make scheduled
payments of interest and principal. The price movement of these securities is
influenced less by changes in interest rates and more by the financial and
business position of the issuing corporation when compared to investment grade
bonds.
The risks posed by securities issued under such circumstances are substantial.
If a security held by a portfolio is down-graded, the portfolio may retain the
security.
Inverse Floaters--Inverse Floating Rate Obligations: are Fixed-Income
Securities, which have coupon rates that vary inversely at a multiple of a
designated floating rate, such as LIBOR (London Inter-Bank Offered Rate). Any
rise in the reference rate of an inverse floater (as a consequence of an
increase in interest rates) causes a drop in the coupon rate while any drop in
the reference rate of an inverse floater causes an increase in the coupon rate.
Inverse floaters may exhibit substantially greater price volatility than fixed
rate obligations having similar credit quality, redemption provisions and
maturity, and inverse floater CMOs exhibit greater price volatility than the
majority of mortgage pass-through securities or CMOs. In addition, some inverse
floater CMOs exhibit extreme sensitivity to changes in prepayments. As a result,
the yield to maturity of an inverse floater CMO is sensitive not only to changes
in interest rates but also to changes in prepayment rates on the related
underlying mortgage assets.
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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.
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.
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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 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.
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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.
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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.
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.
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SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of mortgage assets. 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 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.
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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 opportunity to earn higher
yields than those available on ordinary interest-paying obligations of similar
credit quality and maturity. However, zero coupon obligation prices may also
exhibit greater price volatility than ordinary fixed-income securities because
of the manner in which their principal and interest are returned to the
investor.
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GENERAL SHAREHOLDER INFORMATION
PURCHASE OF SHARES
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.
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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:
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.
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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.
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.
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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 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.
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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 --- 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.
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.
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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:
_ 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.
_ 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.
_ The Municipal and the PA Municipal Portfolios normally distribute
substantially all of their net investment income in the form of monthly
dividends.
_ 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.
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In all portfolios except the Cash Reserves Portfolio, undistributed net
investment income is included in the portfolio's net assets for the purpose of
calculating net asset value per share. Therefore, on the ex-dividend date, the
net asset value per share excludes the dividend (i.e., is reduced by the per
share amount of the dividend). Dividends paid shortly after the purchase of
shares by an investor, although in effect a return of capital, are taxable as
ordinary income.
Certain Mortgage Securities may provide for periodic or unscheduled payments of
principal and interest as the mortgages underlying the securities are paid or
prepaid. However, such principal payments (not otherwise characterized as
ordinary discount income or bond premium expense) will not normally be
considered as income to the portfolio and therefore will not be distributed as
dividends. Rather, these payments on mortgage-backed securities will be
reinvested on behalf of the shareholders by the portfolio in accordance with
its investment objectives and policies.
Special Considerations for the Cash Reserves Portfolio: Net investment income is
computed and dividends declared as of 12:00 noon (Eastern Time), on each day.
Such dividends are payable to Cash Reserves Portfolio shareholders of record as
of 12:00 noon (Eastern Time) on that day, if the portfolio is open for business.
Shareholders who redeem prior to 12:00 noon (Eastern Time) are not entitled to
dividends for that day. Dividends declared for Saturdays, Sundays and holidays
are payable to shareholders of record as of 12:00 noon (Eastern Time) on the
preceding business day on which the portfolio was open for business.
For the purpose of calculating dividends, net income shall consist of interest
earned, including any discount or premium ratably amortized to the date of
maturity, minus estimated expenses of the portfolio.
Net realized short-term capital gains, if any, of the Cash Reserves Portfolio
will be distributed whenever the Trustees determine that such distributions
would be in the best interest of shareholders, but at least once a year. The
portfolio does not expect to realize any long-term capital gains. Should any
such gains be realized, they will be distributed annually.
Federal Taxes: Each portfolio of the Fund intends to qualify for taxation as a
regulated investment company under the Code so that each portfolio will not be
subject to Federal income tax to the extent it distributes its income to its
shareholders. Dividends, either in cash or reinvested in shares, paid by a
portfolio from net investment income will be taxable to shareholders as ordinary
income, 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, Select Equity, and Select Value Portfolios,
such dividends will generally qualify in part for the dividends received
deduction for corporations, but the portion of the dividends so qualified
depends on the aggregate taxable qualifying dividend income received by each
portfolio from domestic (U.S.) sources. The Fund will send each shareholder a
statement each year indicating the amount of the dividend income which qualifies
for such treatment.
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.
54
<PAGE>
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
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.
55
<PAGE>
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.
56
<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.
Until further notice, the Adviser has voluntarily agreed to waive its advisory
fees and reimburse certain expenses to the extent necessary to keep Total
Operating Expenses for the Emerging Markets, Mid Cap Value, Cash Reserves,
Domestic Fixed Income, Global Fixed Income, High Yield, Intermediate Duration,
International Fixed Income, Limited Duration, Mortgage-Backed Securities,
Municipal, PA Municipal, Multi-Asset-Class and Select Equity Portfolios from
exceeding 1.18%, 0.88%, 0.32%, 0.50%, 0.58%, 0.525%, 0.52%, 0.60%, 0.42%, 0.50%,
0.50%, 0.50%, 0.58% and 0.61%, respectively.
57
<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%
58
<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
Manager
Portfolio Since
Portfolio Manager (Year)
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
59
<PAGE>
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
60
<PAGE>
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
Horacio A. Valeiras International
(1992)
Emerging Markets
(1993)
- --------------------------------------------------------------------------------
Global Fixed Income J. David Germany 1993
and International
Fixed Income
Portfolios:
- --------------------------------------------------------------------------------
Richard B. Worley 1993
- --------------------------------------------------------------------------------
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.
61
<PAGE>
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.
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.
62
<PAGE>
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 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.
63
<PAGE>
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.
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.
64
<PAGE>
The following is a list of the Trustees and the principal executive officers of
the Fund and a brief statement of their present positions and principal
occupations during the past five years:
Thomas L. Bennett,* Chairman of the Board of Trustees; Portfolio Manager, Miller
Anderson & Sherrerd, LLP; Director, MAS Fund Distribution, Inc.
David P. Eastburn, Trustee; Retired; formerly: Director (Trustee) of each of the
investment companies in The Vanguard Group, except Vanguard Specialized
Portfolios; Director of Penn Mutual Life Insurance Company and General Accident
Insurance; President, Federal Reserve Bank of Philadelphia.
Joseph P. Healey, Trustee; Headmaster, Haverford School; formerly Dean, Hobart
College; Associate Dean, William & Mary College.
Joseph J. Kearns, Trustee; Vice President and Treasurer, The J. Paul Getty
Trust.
C. Oscar Morong, Jr., Trustee; Managing Director, Morong Capital Management;
Director, Ministers and Missionaries Benefit Board of American Baptist Churches,
The Indonesia Fund, The Landmark Funds; formerly Senior Vice President and
Investment Manager for CREF, TIAA-CREF Investment Management, Inc.
*Trustee Bennett is deemed to be an "interested person" of the Fund as that term
is defined in the Investment Company Act of 1940, as amended.
James D. Schmid, President; [ ], 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.
65
<PAGE>
THIS PAGE INTENTIONALL LEFT BLANK
<PAGE>
January 30, 1996
Investment Adviser and Administrator: Transfer Agent:
Miller Anderson & Sherrerd, LLP Chase Global Funds Services Company
One Tower Bridge 73 Tremont Street
West Conshohocken, Boston, Massachusetts 02108-0913
Pennsylvania 19428-2899
General Distribution Agent:
MAS Fund Distribution, Inc.
One Tower Bridge
P.O. Box 868
West Conshohocken,
Pennsylvania 19428-0868
Table of Contents
Page Page
Fund Expenses 2 General Information
Prospectus Summary 4 Other Information 52
Financial Highlights 8 Purchase of Shares 52
Yield and Total Return 14 Redemption of Shares 53
Investment Suitability 15 Shareholder Services 54
Investment Limitations 15 Valuation of Shares 54
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 36 Administrative Services 61
Investments 41 General Distribution Agent 62
Portfolio Transactions 62
Trustees and Officers 64
66
<PAGE>
ACCOUNT REGISTRATION FORM
MAS Fund Distribution, Inc.
General Distribution Agent
REGISTRATION/PRIMARY MAILING ADDRESS
City State Zip
Telephone No.
Type of Account: o Defined Benefit Plan o Defined Contribution Plan
o Profit Sharing/Thrift Plan o Other Employee Benefit Plan
o Endowment o Foundation o Taxable o Other (Specify)
o United States Citizen o Resident Alien
o Non-Resident Alien, Indicate Country of Residence
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City State Zip
Telephone No.
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City State Zip
Telephone No.
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City State Zip
Telephone No.
INVESTMENT
For Purchase of:
o Equity Portfolio
o Value Portfolio
o Growth Portfolio
o Mid Cap Growth Portfolio
o Balanced Portfolio
o Multi-Asset-Class Portfolio
o Balanced Investing--Indicate Portfolios
o Fixed Income Portfolio
o Fixed Income Portfolio II
o Special Purpose Fixed Income Portfolio
o High Yield Portfolio
o Limited Duration Fixed Income Portfolio
o Intermediate Duration Portfolio
o Mortgage-Backed Securities Portfolio
o Cash Reserves Portfolio
o International Equity Portfolio
o Emerging Markets Portfolio
o International Fixed Income Portfolio
o Global Fixed Income Portfolio
o Municipal Portfolio
o PA Municipal Portfolio
o Mid Cap Value Portfolio
o Domestic Fixed Income Portfolio
67
<PAGE>
TAXPAYER IDENTIFICATION NUMBER
Part 1.
Social Security Number
- -
or
Employer Identification Number
-
Part 2. BACKUP WITHHOLDING
o 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 payee) are required by law to provide us (as payer) with your current
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 distributions as well as redemptions.
Backup withholding isnot an additional tax; the tax liability of persons 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.
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)
o Mailing of Redemption proceeds to the name and address in Section 1 above.
o Wire of Redemption proceeds 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
68
<PAGE>
DISTRIBUTION OPTION
o Income dividends and capital gains distributions to be reinvested in
additional shares.
o Income dividends and capital gains distributions to be paid in cash.
o Income dividends in cash and capital gains distributions in additional
shares.
If cash option is chosen, please indicate instructions below:
o Mail distribution check to the name and address in which account is
registered.
o Wire distributions to the same Commercial Bank indicated in Section 5 above.
o 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
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
Prospectus of the MAS Funds 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)
(X)
Signature Date
(X)
Signature Date
FOR INTERNAL USE ONLY (X)
Signature Date
O* F OR S
69
<PAGE>
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 Adviser Class Shares of the Fund. The Fund also offers
Institutional Class Shares and Investment 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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
How to Use This Prospectus: 3 Fixed Income: Balanced: 34
- -------------------------- ------------- ---------
Cash Reserves 21 Multi-Asset-Class: 35
Portfolio Summaries: Domestic Fixed Income 22
Equity: Fixed Income 23 Select Equity Portfolio: 6
Emerging Markets 17 Fixed Income II 24
Equity 17 Global Fixed Income 25 Prospectus Glossary:
Growth 18 High Yield 26 Strategies 36
International Equity 18 Intermediate Duration 27 Investments 41
Mid Cap Growth 19 International Fixed Income 28
Mid Cap Value 19 Limited Duration 29 Other Information: 52
Small Cap Value 20 Mortgage-Backed Securities 30 Table of Contents: Back Cover
Value 20 Municipal 31
PA Municipal 32
Special Purpose Fixed Income 33
</TABLE>
This Prospectus, which should be retained for future reference, sets forth
concisely information that you should know before you invest. A Statement of
Additional Information containing additional information about the Fund has been
filed with the Securities and Exchange Commission. Such Statement is dated
January 30, 1996 as revised from time to time, and has been incorporated by
reference into this Prospectus. A copy of the Statement may be obtained, without
charge, by writing to the Fund or by calling the Client Services Group at the
telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
70
<PAGE>
EXPENSE SUMMARY
ADVISER 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 operations.
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses:
(as a percentage of average net assets after fee waivers)
12b-1 Fees . %
Investment Total
Advisory Other Operating
Portfolio Fees 12b-1 Fees Expenses Expenses
Emerging Markets % % %*
Equity
Growth
International Equity
Mid Cap Growth
Mid Cap Value *
Small Cap Value
Value
Cash Reserves *
Domestic Fixed Income *
Fixed Income
Fixed Income II
Global Fixed Income *
High Yield *
Intermediate Duration *
International Fixed Income *
Limited Duration *
Mortgage-Backed Securities *
Municipal *
PA Municipal *
Special Purpose Fixed
Income
Balanced *
Multi-Asset-Class *
Select Equity
71
<PAGE>
*After fee waivers and reimbursements.
*Until further notice, the Adviser has voluntarily agreed to waive its advisory
fees and reimburse certain expenses to the extent necessary to keep Total
Operating Expenses for the Emerging Markets, Mid Cap Value, Cash Reserves,
Domestic Fixed Income, Global Fixed Income, High Yield, Intermediate Duration,
International Fixed Income, Limited Duration, Mortgage-Backed Securities,
Municipal, PA Municipal, Multi-Asset-Class and Select Equity Portfolios from
exceeding 1.18%, 0.88%, 0.32%, 0.50%, 0.58%, 0.525%, 0.52%, 0.60%, 0.42%, 0.50%,
0.50%, 0.50%, 0.58% and 0.61%, respectively. Absent fee waivers and
reimbursements by the Adviser, Total Operating Expenses would be ___%, ___%,
___%, ___%, ___%, ___%, ___%, ___%, ___%, ___%, and ___% for the Emerging
Markets, Mid Cap Value, Cash Reserves, Domestic Fixed Income, Intermediate
Duration, International Fixed Income, Mortgage-Backed Securities, Municipal, PA
Municipal, Multi-Asset Class and Select Equity Portfolios, respectively.
3
<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 $ $ $ $
Equity
Growth
International Equity
Mid Cap Growth
Mid Cap Value
Small Cap Value
Value
Cash Reserves
Domestic Fixed Income
Fixed Income
Fixed Income II
Global Fixed Income
High Yield
Intermediate Duration
International Fixed Income
Limited Duration
Mortgage-Backed Securities
Municipal
PA Municipal
Special Purpose Fixed Income
Balanced
Multi-Asset-Class
Select Equity
4
<PAGE>
HOW TO USE THIS PROSPECTUS
A PROSPECTUS SUMMARY begins on page __;
FINANCIAL HIGHLIGHTS and a description of YIELD AND TOTAL RETURN begin on page
__;
GENERAL INFORMATION including INVESTMENT LIMITATIONS pertinent to all portfolios
begins on page __;
SUMMARY PAGES for each portfolio's Objective, Policies and Strategies begin on
page __;
The PROSPECTUS GLOSSARY which defines specific Allowable Investments, Policies
and Strategies printed in bold type throughout this Prospectus begins on page
__;
OTHER INFORMATION including SHAREHOLDER SERVICES begins on page __.
5
<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 - (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 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 - 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, Mortgages 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.
6
<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.
7
<PAGE>
Special Purpose Fixed Income - seeks to achieve above-average total return over
a market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of U.S. Governments, Corporates,
Mortgage Securities, Foreign Bonds and other Fixed-Income Securities and
Derivatives. The portfolio is structured to complement an investment in one or
more of the Fund's Equity Portfolios for investors seeking a balanced
investment. The portfolio's average weighted maturity will ordinarily exceed
five years.
BALANCED INVESTING
Balanced Portfolio - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing in a
diversified portfolio of Equity Securities, Fixed-Income Securities and
Derivatives. When the Adviser judges the relative outlook for the equity and
fixed-income markets to be neutral, the portfolio will be invested 60% in equity
securities and 40% in fixed-income securities. The asset mix is actively managed
by the Adviser, with equity securities ordinarily representing between 45% and
75% of the total investment. The average weighted maturity of the fixed-income
portion of the portfolio will ordinarily be greater than five years.
Multi-Asset-Class Portfolio - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of Equity Securities,
Fixed-Income Securities and High Yield Securities of United States and foreign
issuers and Derivatives. The asset mix is actively managed by the Adviser.
Balanced Investing and the Balanced Investment Program - MAS offers a
balanced investing option allowing clients to combine investments in two or
more portfolios of the Fund. Clients can authorize MAS to manage the mix of
assets among the portfolios according to their individual objectives and
specifications. If client objectives are consistent with active management of
investments in the Equity and Special Purpose Fixed Income Portfolios around a
60/40 asset mix, the account will be managed in the same manner as the
Adviser's fully-discretionary, Balanced Investment Program. When client
objectives require use of different portfolios, a different neutral asset mix
or specific limitations, a balanced program is managed according to those
specifications.
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;
8
<PAGE>
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
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-related 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,
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 the other portfolios.
HOW TO INVEST: Adviser Class Shares of each portfolio are offered to investors
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 or through the Fund's
distributor. Shares are offered without a sales commission at the net asset
value of the portfolio next determined after receipt of an order by the Fund.
Share purchases may be made through the Shareholder Organization, subject to the
procedures and policies of each such Organization. The minimum initial
investment for Adviser Class Shares is $500,000. The Fund also offers
Institutional and Investment Class Shares which differ from the Adviser 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.
9
<PAGE>
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 Stanely 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.
10
<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 Adviser 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)
Emerging Markets Portfolio (Commencement of Operations 2/28/95)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.00 $0.10 $1.53 $1.63 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.63 16.30% $ 42,459 1.18%*++ 2.04%* 63%
Equity Portfolio (Commencement of Operations 11/14/84)
</TABLE>
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $21.05 $0.52 $4.55 $5.07 ($0.52) ($1.17) -- ($1.69)
1994 22.82 0.44 0.41 0.85 (0.41) (2.21) -- (2.62)
1993 22.04 0.41 1.95 2.36 (0.43) (1.15) -- (1.58)
1992 20.78 0.43 1.86 2.29 (0.42) (0.61) -- (1.03)
1991 15.86 0.44 5.64 6.08 (0.44) (0.72) -- (1.16)
1990 18.65 0.48 (2.57) (2.09) (0.54) (0.16) -- (0.70)
1989 14.48 0.51 4.15 4.66 (0.46) (0.03) -- (0.49)
1988 17.14 0.40 (1.93) (1.53) (0.32) (0.81) -- (1.13)
1987 14.09 0.43 3.67 4.10 (0.41) (0.64) -- (1.05)
1986 10.83 0.45 3.49 3.94 (0.49) (0.19) -- (0.68)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $24.43 26.15% $1,597,632 0.61% 2.39%* 67%
1994 21.05 4.11 1,193,017 0.60 2.10 41
1993 22.82 11.05 1,098,003 0.59 1.86 51
1992 22.04 11.55 918,989 0.59 2.03 21
1991 20.78 40.18 675,487 0.60 2.36 33
1990 15.86 (11.67) 473,261 0.59 2.66 44
1989 18.65 32.95 602,261 0.59 3.29 29
1988 14.48 (8.41) 385,864 0.62 2.99 51
1987 17.14 30.89 322,803 0.66 2.88 66
1986 14.09 37.60 108,367 0.68 3.17 52
</TABLE>
International Equity Portfolio (Commencement of Operations 11/25/88)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $14.52 $0.19 ($0.75) ($0.56) -- ($1.35) ($0.10)+ ($1.45)
1994 13.18 0.12 1.63 1.75 (0.16) (0.25) -- (0.41)
1993 11.03 0.21 2.14 2.35 (0.20) -- -- (0.20)
1992 11.56 0.36 (0.33) 0.03 (0.56) -- -- (0.56)
1991 9.83 0.22 1.83 2.05 (0.23) (0.09) -- (0.32)
1990 11.86 0.26 (1.90) (1.64) (0.31) (0.08) -- (0.39)
1989 10.00 0.26 1.75 2.01 (0.15) -- -- (0.15)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $12.51 (3.36%) $1,160,986 0.70% 1.90% 112%
1994 14.52 13.33 1,132,867 0.64 0.89 69
1993 13.18 21.64 891,675 0.66 1.23 43
1992 11.03 0.37 512,127 0.70 1.41 42
1991 11.56 21.22 274,295 0.67 2.08 51
1990 9.83 (14.38) 126,035 0.65 2.40 45
1989 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.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the 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 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 Equity and
International Equity Portfolios excludes the effect of expense offsets. If
expense offsets were included, the Ratio of Expenses to Average Net Assets
would be 0.60% and 0.66%, respectively.
<PAGE>
Mid Cap Growth Portfolio (Commencement of Operations 3/30/90)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $16.29 $0.03 $4.21 $4.24 ($0.03) ($1.90) -- ($1.93)
1994 18.56 0.02 (0.58) (0.56) (0.01) (1.70) -- (1.71)
1993 14.51 0.01 4.80 4.81 -- (0.76) -- (0.76)
1992 14.92 0.01 0.44 0.45 (0.03) (0.83) -- (0.86)
1991 9.00 0.04 5.91 5.95 (0.03) -- -- (0.03)
1990 10.00 0.02 (1.01) (0.99) (0.01) -- -- (0.01)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $18.60 30.56% $373,547 0.61% 0.21% 129%
1994 16.29 (3.28) 302,995 0.60 0.12 55
1993 18.56 33.92 309,459 0.59 0.07 69
1992 14.51 2.87 192,817 0.60 0.05 39
1991 14.92 66.26 171,163 0.60 0.29 46
1990 9.00 (9.98) 76,398 0.64* 0.34* 23
</TABLE>
Mid Cap Value Portfolio (Commencement of Operations 12/30/94)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.00 $0.55o $2.90 $3.45 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $13.45 34.50% $ 4,507 0.93%*++ 10.13*o 639%o
</TABLE>
Small Cap Value Portfolio (Commencement of Operations 7/01/86)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $17.67 $0.19 $2.49 $2.68 ($0.14) ($1.93) -- ($2.07)
1994 17.55 0.16 1.14 1.30 (0.24) (0.94) -- (1.18)
1993 12.84 0.18 4.64 4.82 (0.11) -- -- (0.11)
1992 11.45 0.10 1.48 1.58 (0.19) -- -- (0.19)
1991 7.20 0.23 4.21 4.44 (0.19) -- -- (0.19)
1990 10.42 0.28 (3.05) (2.77) (0.45) -- -- (0.45)
1989 8.54 0.34 1.74 2.08 (0.20) -- -- (0.20)
1988 10.24 0.18 (1.42) (1.24) (0.14) (0.32) -- (0.46)
1987 9.35 0.13 0.84 0.97 (0.08) -- -- (0.08)
1986 10.00 0.08 (0.73) (0.65) -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $18.28 18.39% $430,368 0.87 1.20% 119%
1994 17.67 8.04 308,156 0.88 0.91 162
1993 17.55 37.72 175,029 0.88 1.33 93
1992 12.84 14.12 105,886 0.86 1.06 50
1991 11.45 63.07 52,182 0.88 1.70 53
1990 7.20 (27.63) 100,848 0.85 1.77 59
1989 10.42 24.85 189,223 0.85 3.48 36
1988 8.54 (11.50) 202,500 0.86 2.32 41
1987 10.24 10.53 201,621 0.92 1.67 38
1986 9.35 (6.52) 87,755 0.902 2.274* 0
</TABLE>
Value Portfolio (Commencement of Operations 11/05/84)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $12.63 $0.31 $3.34 $3.65 ($0.31) ($1.08) -- ($1.39)
1994 12.76 0.30 0.59 0.89 (0.29) (0.73) -- (1.02)
1993 12.67 0.30 1.92 2.22 (0.31) (1.82) -- (2.13)
1992 12.92 0.35 1.05 1.40 (0.38) (1.27) -- (1.65)
1991 10.29 0.44 3.79 4.23 (0.44) (1.16) -- (1.60)
1990 14.56 0.52 (3.14) (2.62) (0.62) (1.03) -- (1.65)
1989 12.42 0.54 2.73 3.27 (0.47) (0.66) -- (1.13)
1988 15.81 0.48 (1.68) (1.20) (0.46) (1.73) -- (2.19)
1987 14.26 0.55 2.47 3.02 (0.53) (0.94) -- (1.47)
1986 10.78 0.57 3.89 4.46 (0.58) (0.40) -- (0.98)
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary in order to keep the total annual
operating expenses for the Mid Cap Value Portfolio from exceeding 0.88%.
Voluntarily waived and reimbursed expenses totalled 2.13%* for the period
ended September 30, 1995.
# 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.
o Net Investment Income, the Ratio of Net Investment Income to Average Net
Assets and the Portfolio Turnover Rate reflect activity relating to a
nonrecurring initiative to invest in higher-paying dividend income
producing securities.
<PAGE>
Value Portfolio (Commencement of Operations 11/05/84) (continued)
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $14.89 32.58% $1,271,586 0.60% 2.43% 56%
1994 12.63 7.45 981,337 0.61 2.40 54
1993 12.76 19.67 762,175 0.59 2.48 43
1992 12.67 12.83 448,329 0.60 2.87 55
1991 12.92 45.54 458,117 0.60 3.67 64
1990 10.29 (19.88) 369,044 0.59 3.87 51
1989 14.56 28.49 726,776 0.59 4.05 35
1988 12.42 (5.40) 619,287 0.59 3.96 47
1987 15.81 22.99 700,538 0.62 3.68 28
1986 14.26 43.65 636,805 0.66 4.26 33
</TABLE>
Cash Reserves Portfolio (Commencement of Operations 8/29/90)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.000 $.055 -- $.055 ($.055) -- -- ($.055)
1994 1.000 .034 -- .034 (.034) -- -- (.034)
1993 1.000 .028 -- .028 (.028) -- -- (.028)
1992 1.000 .038 -- .038 (.038) -- -- (.038)
1991 1.000 .064 -- .064 (.064) -- -- (.064)
1990 1.000 .007 -- .007 (.007) -- -- (.007)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $1.000 5.57% $44,624 0.33%++ 5.45% N/A
1994 1.000 3.40 37,933 0.32++ 3.70 N/A
1993 1.000 2.81 10,717 0.32++ 2.78 N/A
1992 1.000 3.89 12,935 0.32++ 3.95 N/A
1991 1.000 6.63 24,163 0.32++ 6.57 N/A
1990 1.000 0.74 23,285 0.48* 8.31* N/A
</TABLE>
Domestic Fixed Income Portfolio (Commencement of Operations 9/30/87)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)+ (1.83)
1993 11.80 0.84 0.66 1.50 (0.78) (0.53) -- (1.31)
1992 11.34 0.87 0.76 1.63 (1.00) (0.17) -- (1.17)
1991 10.26 0.92 1.10 2.02 (0.94) -- -- (0.94)
1990 10.90 0.87 (0.45) 0.42 (0.96) (0.10) -- (1.06)
1989 10.78 0.86 0.08 0.94 (0.78) (0.04) -- (0.82)
1988 9.99 0.73 0.52 1.25 (0.45) (0.01) -- (0.46)
1987 10.00 -- (0.01) (0.01) -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.03 14.33% $36,147 0.51%++ 6.80% 313%
1994 9.87 (2.87) 36,521 0.50++ 7.65 78
1993 11.99 14.08 90,350 0.50 7.15 96
1992 11.80 15.41 98,130 0.47 7.67 136
1991 11.34 20.99 83,200 0.48 8.18 131
1990 10.26 3.90 77,622 0.48 8.35 181
1989 10.90 9.14 68,855 0.49 8.24 219
1988 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.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the Cash Reserves 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.
<PAGE>
Fixed Income Portfolio (Commencement of Operations 11/14/84)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.93 $0.80 $0.69 $1.49 ($0.60) -- -- ($0.60)
1994 12.86 0.77 (1.28) (0.51) (0.82) ($0.47) ($0.13)+ (1.42)
1993 12.67 0.88 0.75 1.63 (0.83) (0.61) -- (1.44)
1992 12.20 0.90 0.74 1.64 (1.02) (0.15) -- (1.17)
1991 10.94 0.94 1.25 2.19 (0.93) -- -- (0.93)
1990 11.64 0.92 (0.49) 0.43 (1.03) (0.10) -- (1.13)
1989 11.40 0.90 0.11 1.01 (0.76) (0.01) -- (0.77)
1988 10.86 0.97 0.43 1.40 (0.86) -- -- (0.86)
1987 11.95 0.93 (0.61) 0.32 (0.91) (0.50) -- (1.41)
1986 10.92 0.99 1.20 2.19 (1.02) (0.14) -- (1.16)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.82 14.19% $1,487,409 0.49% 7.28% 140%
1994 10.93 (4.43) 1,194,957 0.49 6.79 100
1993 12.86 14.26 909,738 0.47 7.06 144
1992 12.67 14.35 859,712 0.47 7.50 137
1991 12.20 21.12 831,547 0.47 8.25 143
1990 10.94 3.79 666,736 0.46 8.43 209
1989 11.64 9.25 559,995 0.47 8.36 100
1988 11.40 13.43 405,385 0.49 8.91 168
1987 10.86 2.55 290,824 0.52 8.54 202
1986 11.95 21.27 95,898 0.55 8.39 169
</TABLE>
Fixed Income Portfolio II (Commencement of Operations 8/31/90)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.42 $0.71 $0.71 $1.42 ($0.51) -- -- ($0.51)
1994 11.97 0.63 (1.16) (0.53) (0.67) ($0.21) ($0.14)+ (1.02)
1993 11.67 0.69 0.77 1.46 (0.61) (0.55) -- (1.16)
1992 11.34 0.77 0.61 1.38 (0.81) (0.24) -- (1.05)
1991 10.09 0.81 1.10 1.91 (0.66) -- -- (0.66)
1990 10.00 0.04 0.05 0.09 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.33 14.13% $176,945 0.51% 6.75% 153%
1994 10.42 (4.76) 129,902 0.51 6.07 137
1993 11.97 13.53 94,836 0.51 6.17 101
1992 11.67 13.02 78,302 0.49 7.05 182
1991 11.34 19.59 42,881 0.49 7.76 190
1990 10.09 0.88 20,729 0.52* 8.00* 7
</TABLE>
Global Fixed Income Portfolio (Commencement of Operations 4/30/93)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.20 $0.71 $0.81 $1.52 ($0.67) -- -- ($0.67)
1994 10.67 0.58 (0.61) (0.03) (0.41) (0.03) -- (0.44)
1993 10.00 0.13 0.61 0.74 (0.07) -- -- (0.07)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.05 15.54% $55,147 0.58% 6.34 118%
1994 10.20 (0.29) 43,066 0.57 5.48 117
1993 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.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the 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.
<PAGE>
High Yield Portfolio (Commencement of Operations 2/28/89)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $8.97 $0.90 $0.19 $1.09 ($0.85) ($0.08) ($0.05)+ ($0.98)
1994 9.49 0.75 (0.42) 0.33 (0.69) (0.16) -- (0.85)
1993 8.58 0.73 0.90 1.63 (0.72) -- -- (0.72)
1992 7.80 0.74 0.89 1.63 (0.85) -- -- (0.85)
1991 7.07 1.42 0.82 2.24 (1.51) -- -- (1.51)
1990 9.98 1.36 (2.82) (1.46) (1.42) (0.03) -- (1.45)
1989 10.00 0.55 (0.44) 0.11 (0.13) -- -- (0.13)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $9.08 13.58% $220,785 0.50% 10.68% 96%
1994 8.97 3.57 182,969 0.50 9.01 112
1993 9.49 20.12 50,396 0.53++ 8.94 99
1992 8.58 22.49 20,491 0.53++ 9.74 148
1991 7.80 36.70 6,453 0.76 19.45 106
1990 7.07 (16.26) 4,820 0.82 16.93 65
1989 9.98 0.91 3,479 0.73* 11.66* 17
</TABLE>
Intermediate Duration Portfolio (Commencement of Operations 10/3/94)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.00 $0.69 $0.42 $1.11 ($0.43) -- -- ($0.43)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $10.68 11.39% $ 19,237 0.52%*++ 6.56%* 168%
</TABLE>
International Fixed Income Portfolio (Commencement of Operations 4/29/94)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.05 $0.67 $0.92 $1.59 ($0.63) -- -- ($0.63)
1994 10.00 0.21 (0.11) 0.10 (0.05) -- -- (0.05)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.01 16.36% $127,882 0.54% 6.35%* 140%
1994 10.05 1.01 66,879 0.60*++ 5.83* 31
</TABLE>
Limited Duration Portfolio (Commencement of Operations 3/31/92)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.19 $0.56 $0.22 $0.78 ($0.55) -- ($0.01)+ ($0.56)
1994 10.72 0.56 (0.52) 0.04 (0.51) (0.04) ($0.02)+ (0.57)
1993 10.58 0.32 0.22 0.54 (0.32) (0.08) -- (0.40)
1992 10.00 0.19 0.49 0.68 (0.10) -- -- (0.10)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $10.41 7.95% $100,186 0.43%++ 5.96% 119%
1994 10.19 0.40 62,775 0.41 4.16 192
1993 10.72 5.33 128,991 0.42++ 3.92 217
1992 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.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the High Yield, 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.
<PAGE>
Mortgage-Backed Securities Portfolio (Commencement of Operations 1/31/92)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 9.95 $0.72 $0.47 $1.19 ($0.65) -- -- ($0.65)
1994 10.95 0.52 (0.83) (0.31) (0.45) ($0.21) ($0.03)+ (0.69)
1993 10.44 0.63 0.48 1.11 (0.60) -- -- (0.60)
1992 10.00 0.29 0.28 0.57 (0.13) -- -- (0.13)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $10.49 12.52% $ 49,766 0.50%++ 6.35% 107%
1994 9.95 (2.95) 119,518 0.50++ 5.30 220
1993 10.95 11.03 50,249 0.50++ 6.92 93
1992 10.44 5.75 13,601 0.50*++ 8.11* 133
</TABLE>
Municipal Portfolio (Commencement of Operations 10/01/92)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.04 $0.59 $0.71 $1.30 ($0.59) -- -- ($0.59)
1994 11.15 0.51 (1.01) (0.50) (0.54) -- ($0.07)+ (0.61)
1993 10.00 0.37 1.04 1.41 (0.26) -- -- (0.26)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $10.75 13.37% $36,040 0.50%++ 5.64% 58%
1994 10.04 (4.64) 38,549 0.50++ 4.98 34
1993 11.15 14.20 26,914 0.50*++ 4.65* 66
</TABLE>
PA Municipal Portfolio (Commencement of Operations 10/01/92)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.13 $0.58 $0.77 $1.35 ($0.57) -- -- ($0.57)
1994 11.26 0.56 (1.00) (0.44) (0.64) ($0.05) -- (0.69)
1993 10.00 0.39 1.17 1.56 (0.30) -- -- (0.30)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $10.91 13.74% $15,734 0.50%++ 5.56% 57%
1994 10.13 (4.08) 23,515 0.50++ 5.39 69
1993 11.26 15.81 15,633 0.50*++ 4.74* 94
</TABLE>
Special Purpose Fixed Income Portfolio (Commencement of Operations 3/31/92)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995o $11.52 $0.91 $0.75 $1.66 ($0.65) -- -- ($0.65)
1994 13.40 0.80 (1.28) (0.48) (0.78) ($0.53) ($0.09)+ (1.40)
1993 12.72 0.88 0.92 1.80 (0.82) (0.30) -- (1.12)
1992 11.80 0.39 0.72 1.11 (0.19) -- -- (0.19)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $12.53 14.97% $390,258 0.49% 7.33% 143%
1994 11.52 (4.00) 384,731 0.50 6.66 100
1993 13.40 15.19 300,185 0.48 6.84 124
1992 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.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the Mortgage-Backed Securities, Municipal and PA
Municipal Portfolios from exceeding 0.50%, 0.50% and 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%.
<PAGE>
Balanced Portfolio (Commencement of Operations 12/31/92)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $11.28 $0.54 $1.78 $2.32 ($0.47) ($0.07) -- ($0.54)
1994 11.84 0.47 (0.45) 0.02 (0.43) (0.15) -- (0.58)
1993 11.06 0.25 0.66 0.91 (0.13) -- -- (0.13)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $13.06 21.37% $334,630 0.58% 4.55% 95%
1994 11.28 0.19 309,596 0.58 4.06 75
1993 11.84 8.31 291,762 0.58* 3.99* 62
</TABLE>
Multi-Asset-Class Portfolio (Commencement of Operations 7/29/94)#
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 9.97 $0.44 $1.33 $1.77 ($0.40) -- -- ($0.40)
1994 10.00 0.07 (0.10) (0.03) -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.34 18.28% $96,839 0.58%++ 4.56% 112%
1994 9.97 (0.30) 51,877 0.58*++ 4.39* 20
</TABLE>
Select Equity Portfolio (Commencement of Operations 2/26/88)
<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 Total
of Period Income unrealized) Activities income) capital gains) Distributions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $17.29 $0.27 $2.07 $2.34 ($0.30) ($7.53) -- ($7.83)
1994 18.41 0.71 0.06 0.77 (0.70) (1.19) -- (1.89)
1993 17.65 0.31 1.49 1.80 (0.32) (0.72) -- (1.04)
1992 16.09 0.32 1.76 2.08 (0.31) (0.21) -- (0.52)
1991 11.86 0.34 4.26 4.60 (0.33) (0.04) -- (0.37)
1990 13.69 0.30 (1.63) (1.33) (0.34) (0.16) -- (0.50)
1989 10.90 0.38 2.82 3.20 (0.34) (0.07) -- (0.41)
1988 10.00 0.19 0.82 1.01 (0.11) -- -- (0.11)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $11.80 26.22% $29,581 0.62%++ 2.48% 73%
1994 17.29 4.50 29,155 0.62++ 1.75 27
1993 18.41 10.46 295,050 0.60 1.78 33
1992 17.65 13.26 205,264 0.60 1.89 19
1991 16.09 39.48 118,557 0.60 2.41 29
1990 11.86 (10.07) 71,481 0.61 2.75 39
1989 13.69 30.20 34,415 0.64 3.29 35
1988 10.90 10.13 20,541 0.70* 3.13* 16
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the Multi-Asset-Class 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.
<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
11
<PAGE>
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 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 or 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 Investment Class Shares
and distribution fees charged to Adviser Class Shares.
The Annual Report to Shareholders of the Fund for the Fund's most recent fiscal
year-end contains additional performance information that includes comparisons
with appropriate indices. The Annual Report is available without charge upon
request by writing to the Fund or calling the Client Services Group at the
telephone number shown on the front cover of this Prospectus.
GENERAL INFORMATION:
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.
12
<PAGE>
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: Each portfolio may lend its securities to qualified
brokers, dealer, banks and other financial institutions for the purpose of
realizing additional income. Loans of securities will be collateralized by cash,
letters of credit, or securities issued or guaranteed by the U.S. Government or
its agencies. The collateral will equal at least 100% of the current market
value of the loaned securities. In addition, a portfolio will not loan its
portfolio securities to the extent that greater than one-third of its total
assets, at fair market value, would be committed to loans at that time.
Illiquid Securities/Restricted Securities: Each of the portfolios may invest
up to 15% of its net assets (except the Cash Reserves Portfolio which may invest
up to 10% of its net assets) in securities that are illiquid by virtue of the
absence of a readily available market, or because of legal or contractual
restrictions on resale. This policy does not limit the acquisition of (i)
restricted securities eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933 or (ii) commercial paper
issued pursuant to Section 4(2) under the Securities Act of 1933, that are
determined to be liquid in accordance with guidelines established by the Fund's
Board of Trustees.
Turnover: The Adviser manages the portfolios generally without regard to
restrictions on portfolio Turnover, except those imposed by provisions of the
federal tax laws regarding short-term trading. In general, the portfolios will
not trade for short-term profits, but when circumstances warrant, investments
may be sold without regard to the length of time held.
The larger than expected turnover rate for the Mid Cap Value Portfolio was due
to the small size of the portfolio and the fact that it commenced operations
during the fiscal year. In addition, the portfolio entered into various
transactions which increased the turnover rate in order to qualify under certain
tax rules. With respect to the Fixed Income Portfoios 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.
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.
13
<PAGE>
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.
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;
(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.
14
<PAGE>
(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.
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
15
<PAGE>
Comparative Index: MSCI Emerging Markets Free Index
Strategies: Emerging Markets Investing
Foreign Investing
Non-Diversified Status
</TABLE>
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
Comparative Index: S&P 500 Index
Strategies: Core Equity Investing
</TABLE>
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
Comparative Index: S&P 500 Index
Strategy: Growth Stock Investing
</TABLE>
16
<PAGE>
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 Foreign Equities ADRs Emerging Markets Issuers Eastern European Issuers
Investments: 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
Comparative
Index: MSCI World Ex-U.S. Index
Strategies: International Equity Investing
Emerging Markets Investing
Foreign Investing
</TABLE>
17
<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
Comparative Index: S&P MidCap 400 Index
Strategies: Growth Stock Investing
</TABLE>
18
<PAGE>
Mid Cap Value Portfolio
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in common stocks with equity capitalizations in the
range of the companies represented in the S&P MidCap 400 Index
which are deemed by the Adviser to be relatively undervalued
based on certain proprietary measures of value. The Portfolio
will typically exhibit a lower price/earnings value ratio than
the S&P MidCap 400 Index.
Approach: The Adviser selects common stocks which are deemed to be
undervalued at the time of purchase, based on proprietary
measures of value. The Portfolio will be structured taking
into account the economic sector weights of the S&P MidCap 400
Index, with sector weights normally being within 5% of the
sector weights of the Index.
Policies: Generally at least 65% invested in Equity Securities of
mid-cap companies deemed to be undervalued
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization
Range: Generally matching the S&P MidCap 400 Index (currently $500
million to $3 billion)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Common Stock Preferred Stock Convertibles ADRs
Investments: 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
Comparative
Index: S&P MidCap 400 Index
Strategies: Value Stock Investing
</TABLE>
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.
19
<PAGE>
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
Comparative Index: Russell 2000 Index
Strategies: Value Stock Investing
</TABLE>
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
Comparative Index: S&P 500 Index
Strategy: Value Stock Investing
</TABLE>
20
<PAGE>
Cash Reserves Portfolio
Objective: To realize maximum current income, consistent with the
preservation of capital and liquidity, by investing in
money market instruments and other short-term securities
having expected maturities of thirteen months or less.
The Portfolio's average weighted maturity will not
exceed 90 days. The securities in which the Portfolio
will invest may not yield as high a level of current
income as securities of lower quality or longer
maturities which generally have less liquidity, greater
market risk and more price fluctuation. The Portfolio is
designed to provide maximum principal stability for
investors seeking to invest funds for the short term,
or, for investors seeking to combine a long-term
investment program in other portfolios of the Fund with
an investment in money market instruments. The Portfolio
seeks to maintain, but there can be no assurance that it
will be able to maintain, a constant net asset value of
$1.00 per share.
Approach: The Adviser selects a diversified portfolio of money
market securities of government and corporate issuers,
any of which may be variable or floating rate, and which
have remaining maturities of thirteen months or less
from the date of purchase. For the purpose of
determining remaining maturity on Floaters, demand
features and interest reset dates will be taken into
consideration.
Policies: The Portfolio seeks to maintain, but there can be no
assurance that it will be able to maintain, a constant
net asset value of $1.00 per share.
Quality Specifications: 100% of Commercial Paper Rated in Top Tier
Maturity and Duration: Dollar weighted average maturity less than 90 days
Individual maturities 13 months or less
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Zero Coupons
Allowable Investments: Cash Equivalents Repurchase Agreements U.S. Governments Floaters
Corporates Agencies Asset-Backeds Investment Companies
Comparative Index: Lipper Money Market Index
Strategy: Money Market Investing
</TABLE>
21
<PAGE>
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
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
</TABLE>
22
<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
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
</TABLE>
23
<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)
on 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 Investments: U.S. Governments Zero Coupons Agencies Corporates
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
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Fixed Income Investing
Foreign Investing
</TABLE>
24
<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
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
</TABLE>
25
<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
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
</TABLE>
26
<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 Investments: U.S. Governments Zero Coupons Agencies Corporates
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
Comparative Index: Lehman Brothers Intermediate Government/Corporate Index
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Fixed Income Investing
Foreign Investing
</TABLE>
27
<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
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
</TABLE>
28
<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 Investments: U.S. Governments Zero Coupons Agencies Corporates
Mortgage Securities CMOs Asset-Backeds When Issued
Convertibles Floaters Structured Notes Futures & Options
Swaps Cash Equivalents Repurchase Agreements Investment Companies
Comparative Index: Salomon 1-3 Year Index
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
</TABLE>
29
<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 Investments: Mortgage Securities CMOs Asset-Backeds SMBS
U.S. Governments Zero Coupons Agencies When Issued
Floaters Inverse Floaters Structured Notes Futures & Options
Cash Equivalents Repurchase Agreements Municipals Investment Companies
Swaps
Comparative Index: Lehman Mortgage Index
Strategies: Mortgage Investing
Maturity and Duration Management
Value Investing
</TABLE>
30
<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
Comparative
Index: Lehman Long-Term Municipal Bond Index
Strategies: Municipals Management
Maturity and Duration Management
Value Investing
High Yield Investing
Mortgage Investing
</TABLE>
31
<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 Investments: PA Municipals Municipals Taxable Investments U.S. Governments
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
Comparative Index: Lehman Long-Term Municipal Bond Index
Strategies: Municipals Management
Maturity and Duration Management
Value Investing
High Yield Investing
Mortgage Investing
</TABLE>
32
<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 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
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
</TABLE>
33
<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 Investments: Common Stock Preferred Stock U.S. Governments Zero Coupons
Corporates High Yield Foreign Bonds Mortgage Securities
CMOs Asset-Backeds SMBS When Issued
Brady Bonds Floaters Inverse Floaters Structured Notes
Agencies Convertibles Futures & Options Swaps
Foreign Currency Forwards Cash Equivalents Repurchase Agreements
Eastern European Issuers Investment Funds Municipals Investment Companies
ADRs Foreign Equities Rights Warrants
Loan Participations
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
</TABLE>
34
<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 Investments: Common Stock U.S. Governments Agencies
Corporates High Yield Foreign Bonds
Foreign Equities Foreign Currency
Eastern European Issuers Investment Funds Mortgage Securities CMOs
SMBS Asset-Backeds When Issued Brady Bonds
Floaters Inverse Floaters Structured Notes Zero Coupons
Futures & Options Swaps Forwards Cash Equivalents
Repurchase Agreements Convertibles Preferred Stock
Municipals Investment Companies ADRs
Rights Warrants
Loan Participations Emerging Markets Issuers Structured Investments
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
</TABLE>
35
<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.
36
<PAGE>
For example, in a given interest rate environment, equity securities may be
judged to be fairly valued when compared to intermediate duration fixed-income
securities, but overvalued compared to long duration fixed-income securities.
Consequently, while a portfolio investing only in fixed-income securities may
not emphasize long duration assets to the same extent, the fixed-income portion
of a balanced investment may invest a percentage of its assets in long duration
bonds on the basis of their valuation relative to equity securities.
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.
37
<PAGE>
The market for high yield securities is still relatively new. Because of this, a
long-term track record for bond default rates does not exist. In addition, the
secondary market for high yield securities is generally less liquid than that
for investment grade corporate securities. In periods of reduced market
liquidity, high yield bond prices may become more volatile, and both the high
yield market and a portfolio may experience sudden and substantial price
declines. This lower liquidity might have an effect on a portfolio's ability to
value or dispose of such securities. Also, there may be significant disparities
in the prices quoted for high yield securities by various dealers. Under such
conditions, a portfolio may find it difficult to value its securities
accurately. A portfolio may also be forced to sell securities at a significant
loss in order to meet shareholder redemptions. These factors add to the risks
associated with investing in high yield securities.
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.
38
<PAGE>
The table below provides a summary of ratings assigned to all U.S. and foreign
debt holdings of 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.
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%
39
<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.
40
<PAGE>
About Maturity and Duration: Most debt obligations provide interest (coupon)
payments in addition to a final (par) payment at maturity. Some obligations also
have call provisions. Depending on the relative magnitude of these payments and
the nature of the call provisions, the market values of debt obligations may
respond differently to changes in the level and structure of interest rates.
Traditionally, a debt security's term-to-maturity has been used as a proxy for
the sensitivity of the security's price to changes in interest rates (which is
the interest rate risk or volatility of the security). However, term-to-maturity
measures only the time until a debt security provides its final payment, taking
no account of the pattern of the security's payments prior to maturity.
Duration is a measure of the expected life of a fixed-income security that was
developed as a more precise alternative to the concept of term-to-maturity.
Duration incorporates a bond's yield, coupon interest payments, final maturity
and call features into one measure. Duration is one of the fundamental tools
used by the Adviser in the selection of fixed-income securities. Duration is a
measure of the expected life of a fixed-income security on a present value
basis. Duration takes the length of the time intervals between the present time
and the time that the interest and principal payments are scheduled or, in the
case of a callable bond, expected to be received, and weights them by the
present values of the cash to be received at each future point in time. For any
fixed-income security with interest payments occurring prior to the payment of
principal, duration is always less than maturity. In general, all other factors
being the same, the lower the stated or coupon rate of interest of a
fixed-income security, the longer the duration of the security; conversely, the
higher the stated or coupon rate of interest of a fixed-income security, the
shorter the duration of the security.
There are some situations where even the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure. In
these and other similar situations, the Adviser will use sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
Money Market Investing: A money market fund like the Cash Reserves Portfolio
invests in securities which present minimal credit risk and may not yield as
high a level of current income as securities of lower quality or longer
maturities which generally have less liquidity, greater market risk and more
price fluctuation. A money market portfolio is designed to provide maximum
principal stability for investors seeking to invest funds for the short-term,
or, for investors seeking to combine a long-term investment program in other
portfolios of the Fund with an investment in money market instruments. However,
because the Cash Reserves Portfolio invests in the money market obligations of
private financial and non-financial corporations in addition to those of the
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.
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<PAGE>
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
Government-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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<PAGE>
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.
43
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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.
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Common Stocks: are Equity Securities which represent an ownership interest in a
corporation, entitling the shareholder to voting rights and receipt of dividends
paid based on proportionate ownership.
Convertibles: are convertible bonds or shares of convertible Preferred Stock
which may be exchanged for a fixed number of shares of Common Stock at the
purchaser's option.
Corporates--corporate bonds: are debt instruments issued by private
corporations. Bondholders, as creditors, have a prior legal claim over common
and preferred stockholders of the corporation as to both income and assets for
the principal and interest due to the bondholder. A portfolio will buy
Corporates subject to any quality constraints. If a security held by a portfolio
is down-graded, the portfolio may retain the security.
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.
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Equity Securities: Commonly include but are not limited to Common Stock,
Preferred Stock, ADRs, Rights, Warrants, Convertibles, and Foreign Equities. See
each individual portfolio listing of Allowable Investments to determine which of
the above the portfolio can hold. Preferred Stock is contained in both the
definition of Equity Securities and Fixed-Income Securities since it exhibits
characteristics commonly associated with each type.
Fixed-Income Securities: Commonly include but are not limited to U.S.
Governments, Zero Coupons, Agencies, Corporates, High Yield, Mortgage
Securities, SMBS, CMOs, Asset-Backeds, Convertibles, Brady Bonds, Floaters,
Inverse Floaters, Cash Equivalents, Repurchase Agreements, Preferred Stock, and
Foreign Bonds. See each individual portfolio listing of Allowable Investments to
determine which securities a portfolio may hold. Preferred Stock is contained in
both the definition of Equity Securities and Fixed-Income Securities since it
exhibits characteristics commonly associated with each type of security.
Floaters--Floating and Variable Rate Obligations: are debt obligations with a
floating or variable rate of interest, i.e. the rate of interest varies with
changes in specified market rates or indices, such as the prime rate, or at
specified intervals. Certain floating or variable rate obligations may carry a
demand feature that permits the holder to tender them back to the issuer of the
underlying instrument, or to a third party, at par value prior to maturity. When
the demand feature of certain floating or variable rate obligations represents
an obligation of a foreign entity, the demand feature will be subject to certain
risks discussed under Foreign Investing.
Foreign Currency: Portfolios investing in foreign securities will regularly
transact security purchases and sales in foreign currencies. These portfolios
may hold foreign currency or purchase or sell currencies on a forward basis (see
Forwards).
Foreign Equities: are Common Stock, Preferred Stock, Rights and Warrants of
foreign issuers. 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.
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A portfolio may also combine forward contracts with investments in securities
denominated in other currencies in order to achieve desired credit and currency
exposures. Such combinations are generally referred to as synthetic securities.
For example, in lieu of purchasing a foreign bond, a portfolio may purchase a
U.S. dollar-denominated security and at the same time enter into a forward
contract to exchange U.S. dollars for the contract's underlying currency at a
future date. By matching the amount of U.S. dollars to be exchanged with the
anticipated value of the U.S. dollar-denominated security, a portfolio may be
able to lock in the foreign currency value of the security and adopt a synthetic
investment position reflecting the credit quality of the U.S. dollar-denominated
security.
There is a risk in adopting a synthetic investment position to the extent that
the value of a security denominated in the U.S. dollar or other foreign currency
is not exactly matched with a portfolio's obligation under the forward contract.
On the date of maturity, a portfolio may be exposed to some risk of loss from
fluctuations in that currency. Although the Adviser will attempt to hold such
mismatching to a minimum, there can be no assurance that the Adviser will be
able to do so. When a portfolio enters into a forward contract for purposes of
creating a synthetic security, it will generally be required to hold high-grade,
liquid securities or cash in a segregated account with a daily value at least
equal to its obligation under the forward contract.
Futures & Options--Futures Contracts, Options on Futures Contracts and Options:
are Derivatives. Futures contracts provide for the sale by one party and
purchase by another party of a specified amount of a specific security, at a
specified future time and price. An option is a legal contract that gives the
holder the right to buy or sell a specified amount of the underlying security or
futures contract at a fixed or determinable price upon the exercise of the
option. A call option conveys the right to buy and a put option conveys the
right to sell a specified quantity of the underlying security.
A portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts in
combination with its outstanding obligations with respect to options
transactions would exceed 50% of its total assets. It will maintain assets
sufficient to meet its obligations under such contracts in a segregated account
with the custodian bank or will otherwise comply with the SEC's position on
asset coverage.
Possible Risks: The primary risks associated with the use of futures and options
are (i) imperfect correlation between the change in market value of the
securities held by a portfolio and the prices of futures and options relating to
the stocks, bonds or futures contracts purchased or sold by a portfolio; and
(ii) possible lack of a liquid secondary market for a futures contract and the
resulting inability to close a futures position which could have an adverse
impact on a portfolio's ability to execute futures and options strategies.
Additional risks associated with options transactions are (i) the risk that an
option will expire worthless; (ii) the risk that the issuer of an
over-the-counter option will be unable to fulfill its obligation to the
portfolio due to 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:
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Moody's: Ba-rated bonds have "speculative elements" so their future
"cannot be considered assured," and protection of principal and
interest is "moderate" and "not well safeguarded during both good and
bad times in the future." B-rated bonds "lack characteristics of a
desirable investment" and the assurance of interest or principal
payments "may be small." Caa-rated bonds are "of poor standing" and
"may be in default" or may have "elements of danger with respect to
principal or interest." Ca-rated bonds represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings. C-rated bonds are the "lowest rated" class
of bonds, and issues so rated can be regarded as having "extremely poor
prospects" of ever attaining any real investment standing.
Standard & Poor's: BB-rated bonds have "less near-term vulnerability to
default" than B- or CCC-rated securities but face "major ongoing
uncertainties . . . which may lead to inadequate capacity" to pay
interest or principal. B-rated bonds have a "greater vulnerability to
default than BB-rated bonds and the ability to pay interest or
principal will likely be impaired by adverse business conditions."
CCC-rated bonds have a currently identifiable "vulnerability to
default" and, without favorable business conditions, will be "unable to
repay interest and principal." C - The rating C is reserved for income
bonds on which "no interest is being paid." D - Debt rated D is in
"default", and "payment of interest and/or repayment of principal is in
arrears."
While these securities offer high yields, they also normally carry with them a
greater degree of risk than securities with higher ratings. Lower-rated bonds
are considered speculative by traditional investment standards. High yield
securities may be issued as a consequence of corporate restructuring or similar
events. Also, high yield securities are often issued by smaller, less credit
worthy companies, or by highly leveraged (indebted) firms, which are generally
less able than more established or less leveraged firms to make scheduled
payments of interest and principal. The price movement of these securities is
influenced less by changes in interest rates and more by the financial and
business position of the issuing corporation when compared to investment grade
bonds.
The risks posed by securities issued under such circumstances are substantial.
If a security held by a portfolio is down-graded, the portfolio may retain the
security.
Inverse Floaters--Inverse Floating Rate Obligations: are Fixed-Income
Securities, which have coupon rates that vary inversely at a multiple of a
designated floating rate, such as LIBOR (London Inter-Bank Offered Rate). Any
rise in the reference rate of an inverse floater (as a consequence of an
increase in interest rates) causes a drop in the coupon rate while any drop in
the reference rate of an inverse floater causes an increase in the coupon rate.
Inverse floaters may exhibit substantially greater price volatility than fixed
rate obligations having similar credit quality, redemption provisions and
maturity, and inverse floater CMOs exhibit greater price volatility than the
majority of mortgage pass-through securities or CMOs. In addition, some inverse
floater CMOs exhibit extreme sensitivity to changes in prepayments. As a result,
the yield to maturity of an inverse floater CMO is sensitive not only to changes
in interest rates but also to changes in prepayment rates on the related
underlying mortgage assets.
Investment Companies: The portfolios 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.
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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.
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.
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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 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.
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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 a portfolio, which has the flexibility to invest 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.
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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.
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.
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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 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.
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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.
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Zero Coupons--Zero Coupon Obligations: are Fixed-Income Securities that do not
make regular interest payments. Instead, zero coupon obligations are sold at
substantial discounts from their face value. The difference between a zero
coupon obligation's issue or purchase price and its face value represents the
imputed interest an investor will earn if the obligation is held until maturity.
Zero coupon obligations may offer investors the opportunity to earn higher
yields than those available on ordinary interest-paying obligations of similar
credit quality and maturity. However, zero coupon obligation prices may also
exhibit greater price volatility than ordinary fixed-income securities because
of the manner in which their principal and interest are returned to the
investor.
GENERAL SHAREHOLDER INFORMATION
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
Adviser Class Shares of each portfolio are offered to investors 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 or through the Fund's
distributor.
Adviser 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. Adviser 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
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for business. See Other Information-Closed Holidays and Valuation of Shares.
Investors should contact their Shareholder Organizations for information about
how to purchase, redeem and exchange shares. Adviser Class Shares of a portfolio
may be exchanged only for Adviser Class Shares of another portfolio that has
shares issued and outstanding.
The Fund reserves the right, in its sole discretion, to suspend the offering of
Adviser 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 Adviser 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.
Adviser Class Shares of the Fund's portfolios are sold through organizations who
provide distribution and Shareholder services 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.
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.
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.
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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 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.
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.
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The Trustees have also agreed to establish procedures reasonably designed,
taking into account current market conditions and the portfolio's investment
objective, to stabilize the net asset value per share as computed for the
purposes of sales and redemptions at $1.00. These procedures include periodic
review, as the Trustees deem appropriate and at such intervals as are reasonable
in light of current market conditions, of the relationship between the amortized
cost value per share and a net asset value per share based upon available
indications of market value. In such a review, investments for which market
quotations are readily available are valued at the most recent bid price or
quoted yield equivalent for such securities or for securities of comparable
maturity, quality and type as obtained from one or more of the major market
makers for the securities to be valued. Other investments and assets are valued
at fair value, as determined in good faith by the Trustees.
In the event of a deviation of over 1/2 of 1% between a portfolio's net asset
value based upon available market quotations or market equivalents and $1.00 per
share based on amortized cost, the Trustees will promptly consider what action,
if any, should be taken. The Trustees will also take such action as they deem
appropriate to eliminate or to reduce to the extent reasonably practicable any
material dilution or other unfair results which might arise from differences
between the two. Such action may include redeeming shares in kind, selling
instruments prior to maturity to realize capital gains or losses or to shorten
average maturity, withholding dividends, paying distributions from capital or
capital gains, or utilizing a net asset value per share not equal to $1.00 based
upon available market quotations.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES: Dividends and Capital Gains
Distributions: The Fund maintains different dividend and capital gain
distribution policies for each portfolio. These are:
o The Equity, Value, 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.
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Certain Mortgage Securities may provide for periodic or unscheduled payments of
principal and interest as the mortgages underlying the securities are paid or
prepaid. However, such principal payments (not otherwise characterized as
ordinary discount income or bond premium expense) will not normally be
considered as income to the portfolio and therefore will not be distributed as
dividends. Rather, these payments on mortgage-backed securities will be
reinvested on behalf of the shareholders by the portfolio in accordance with its
investment objectives and policies.
Special Considerations for the Cash Reserves Portfolio: Net investment income is
computed and dividends declared as of 12:00 noon (Eastern Time), on each day.
Such dividends are payable to Cash Reserves Portfolio shareholders of record as
of 12:00 noon (Eastern Time) on that day, if the portfolio is open for business.
Shareholders who redeem prior to 12:00 noon (Eastern Time) are not entitled to
dividends for that day. Dividends declared for Saturdays, Sundays and holidays
are payable to shareholders of record as of 12:00 noon (Eastern Time) on the
preceding business day on which the portfolio was open for business.
For the purpose of calculating dividends, net income shall consist of interest
earned, including any discount or premium ratably amortized to the date of
maturity, minus estimated expenses of the portfolio.
Net realized short-term capital gains, if any, of the Cash Reserves Portfolio
will be distributed whenever the Trustees determine that such distributions
would be in the best interest of shareholders, but at least once a year. The
portfolio does not expect to realize any long-term capital gains. Should any
such gains be realized, they will be distributed annually.
Federal Taxes: Each portfolio of the Fund intends to qualify for taxation as a
regulated investment company under the Code so that each portfolio will not be
subject to Federal income tax to the extent it distributes its income to its
shareholders. Dividends, either in cash or reinvested in shares, paid by a
portfolio from net investment income will be taxable to shareholders as ordinary
income, 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, Select Equity, and Select Value Portfolios,
such dividends will generally qualify in part for the dividends received
deduction for corporations, but the portion of the dividends so qualified
depends on the aggregate taxable qualifying dividend income received by each
portfolio from domestic (U.S.) sources. The Fund will send each shareholder a
statement each year indicating the amount of the dividend income which qualifies
for such treatment.
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.
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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
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.
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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 &
Sherrerd, LLP (the "Adviser") in a transaction in which Morgan Stanley Asset
Management Holdings Inc., an indirect wholly owned subsidiary of Morgan Stanley
Group Inc., became the sole general partner of the Adviser. Morgan Stanley Asset
Management Holdings Inc. and two other wholly owned subsidiaries of Morgan
Stanley Group Inc. became the limited partners of the Adviser. In connection
with this transaction, the Adviser entered into a new Investment Management
Agreement ("Agreement") with MAS Funds dated as of January 3, 1996, which
agreement was approved by the shareholders of each Portfolio at a special
meeting held on October 6, 1995. The Adviser will retain its name and remain at
its current location, One Tower Bridge, West Conshohocken, PA 19428. The Adviser
will continue to provide investment counseling services to employee benefit
plans, endowments, and other institutional investors.
62
<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.
Until further notice, the Adviser has voluntarily agreed to waive its advisory
fees and reimburse certain expenses to the extent necessary to keep Total
Operating Expenses for the Emerging Markets, Mid Cap Value, Cash Reserves,
Domestic Fixed Income, Global Fixed Income, High Yield, Intermediate Duration,
International Fixed Income, Limited Duration, Mortgage-Backed Securities,
Municipal, PA Municipal, Multi-Asset-Class and Select Equity Portfolios from
exceeding 1.18%, 0.88%, 0.32%, 0.50%, 0.58%, 0.525%, 0.52%, 0.60%, 0.42%, 0.50%,
0.50%, 0.50%, 0.58% and 0.61%, respectively.
63
<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%
DISTRIBUTION PLAN. The Board of Trustees has approved a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 of the 1940 Act (the "Rule". Under this Plan, the
Distributor is compensated at an annual rate of ___% of the average aggregate
daily net assets of the Investment Class shares of each Portfolio. The Plan
permits the Distributor, at its sole discretion, to use all or a portion of the
fee received, to pay financial institutions or other industry professionals such
as investment advisers, accountants, banks, and estate planning firms for
distribution and shareholder support services.
64
<PAGE>
MAS Portfolio Management
Manager
Portfolio Since
Portfolio Manager (Year)
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
65
<PAGE>
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
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:
- --------------------------------------------------------------------------------
66
<PAGE>
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
67
<PAGE>
- --------------------------------------------------------------------------------
International Dean Williams International
Equity and Emerging (1988)
Markets Portfolios: Emerging Markets
(1994)
- --------------------------------------------------------------------------------
Horacio A. Valeiras International
(1992)
Emerging Markets
(1993)
- --------------------------------------------------------------------------------
Global Fixed Income J. David Germany 1993
and International
Fixed Income
Portfolios:
- --------------------------------------------------------------------------------
Richard B. Worley 1993
- --------------------------------------------------------------------------------
68
<PAGE>
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.
69
<PAGE>
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.
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.
70
<PAGE>
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 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.
71
<PAGE>
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
pre-emptive 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, 1998, 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.
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.
72
<PAGE>
The following is a list of the Trustees and the principal executive
officers of the Fund and a brief statement of their present positions and
principal occupations during the past five years:
Thomas L. Bennett,* Chairman of the Board of Trustees; Portfolio Manager,
Miller Anderson & Sherrerd, LLP; Director, MAS Fund Distribution, Inc.
David P. Eastburn, Trustee; Retired; formerly: Director (Trustee) of each
of the investment companies in The Vanguard Group, except Vanguard
Specialized Portfolios; Director of Penn Mutual Life Insurance Company and
General Accident Insurance; President, Federal Reserve Bank of
Philadelphia.
Joseph P. Healey, Trustee; Headmaster, Haverford School; formerly Dean,
Hobart College; Associate Dean, William & Mary College.
Joseph J. Kearns, Trustee; Vice President and Treasurer, The J. Paul Getty
Trust.
C. Oscar Morong, Jr., Trustee; Managing Director, Morong Capital
Management; Director, Ministers and Missionaries Benefit Board of American
Baptist Churches, The Indonesia Fund, The Landmark Funds; formerly Senior
Vice President and Investment Manager for CREF, TIAA-CREF Investment
Management, Inc.
*Trustee Bennett is deemed to be an "interested person" of the Fund as that
term is defined in the Investment Company Act of 1940, as amended.
James D. Schmid, President; [ ], 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.
73
<PAGE>
January 30, 1996
Investment Adviser and Administrator: Transfer Agent:
Miller Anderson & Sherrerd, LLP Chase Global Funds Services
Company
One Tower Bridge 73 Tremont Street
West Conshohocken, Boston, Massachusetts 02108-0913
Pennsylvania 19428-2899
General Distribution Agent:
MAS Fund Distribution, Inc.
One Tower Bridge
P.O. Box 868
West Conshohocken,
Pennsylvania 19428-0868
Table of Contents
<TABLE>
<CAPTION>
Page Page
<S> <C> <C> <C>
Fund Expenses 2 General Information
Prospectus Summary 4 Other Information 52
Financial Highlights 8 Purchase of Shares 52
Yield and Total Return 14 Redemption of Shares 53
Investment Suitability 15 Shareholder Services 54
Investment Limitations 15 Valuation of Shares 54
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 36 Administrative Services 61
Investments 41 General Distribution Agent 62
Portfolio Transactions 62
Trustees and Officers 64
</TABLE>
74
<PAGE>
ACCOUNT REGISTRATION FORM
MAS Fund Distribution, Inc.
General Distribution Agent
REGISTRATION/PRIMARY MAILING ADDRESS
City ______________________________________ State________________ Zip________
Telephone No.__________
Type of Account:
o Defined Benefit Plan
o Defined Contribution Plan
o Profit Sharing/Thrift Plan
o Other Employee Benefit Plan
o Endowment
o Foundation
o Taxable
o Other (Specify)
o United States Citizen
o Resident Alien
o Non-Resident Alien, Indicate Country of Residence
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City ______________________________________ State________________ Zip________
Telephone No.____________
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City ______________________________________ State________________ Zip________
Telephone No.
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City ______________________________________ State________________ Zip________
Telephone No.
INVESTMENT
For Purchase of:
o Equity Portfolio
o Value Portfolio
o Growth Portfolio
o Mid Cap Growth Portfolio
o Balanced Portfolio
o Multi-Asset-Class Portfolio
o Balanced Investing--Indicate Portfolios
o Fixed Income Portfolio
o Fixed Income Portfolio II
o Special Purpose Fixed Income Portfolio
o High Yield Portfolio
o Limited Duration Fixed Income Portfolio
o Intermediate Duration Portfolio
o Mortgage-Backed Securities Portfolio
o Cash Reserves Portfolio
o International Equity Portfolio
o Emerging Markets Portfolio
o International Fixed Income Portfolio
o Global Fixed Income Portfolio
o Municipal Portfolio
o PA Municipal Portfolio
o Mid Cap Value Portfolio
o Domestic Fixed Income Portfolio
75
<PAGE>
TAXPAYER IDENTIFICATION NUMBER
Part 1.
Social Security Number
- -
- --------------------------
or
Employer Identification Number
-
- ------------
Part 2. BACKUP WITHHOLDING
o 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 payee) are required by law to provide us (as payer) with your current
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 distributions as well as redemptions.
Backup withholding is not an additional tax; the tax liability of persons
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.
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)
o Mailing of Redemption proceeds to the name and address in Section 1 above.
o Wire of Redemption proceeds 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
76
<PAGE>
DISTRIBUTION OPTION
o Income dividends and capital gains distributions to be reinvested in
additional shares.
o Income dividends and capital gains distributions to be paid in cash.
o Income dividends in cash and capital gains distributions in additional shares.
If cash option is chosen, please indicate instructions below:
o Mail distribution check to the name and address in which account is
registered.
o Wire distributions to the same Commercial Bank indicated in Section 5 above.
o 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
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
Prospectus of the MAS Funds 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)_________
(X)___________________________________
Signature_____________________________ Date_______________
(X)___________________________________
Signature_____________________________ Date_______________
FOR INTERNAL USE ONLY (X)
_____________________________________________
Signature____________________________________ Date________
O*/ F OR S
---------------------------------------------
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
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, two of which are described in this prospectus. The Advisory Foreign
Fixed Income and the Advisory Mortgage Portfolios are available only to private
advisory clients of Miller Anderson & Sherrerd, LLP ("MAS" or "the Adviser")
Adviser to MAS Funds. The Advisory Mortgage Portfolio is a diversified
investment company and the Advisory Foreign Fixed Income Portfolio is a
non-diversified investment company. The investment objective of each portfolio
is described with its investment policies as referenced below.
PORTFOLIO OBJECTIVES PAGE REFERENCE
-------------------- --------------
Advisory Foreign Fixed Income 9
Advisory Mortgage 10
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.
<PAGE>
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 an estimate for the first 10 months of
operations.
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses:
(as a percentage of average net assets after fee waivers)
12b-1 Fees None
<TABLE>
<CAPTION>
Investment Total
Advisory Other Operating
Portfolio Fees Expenses Expenses
--------- ---------- -------- ----------
<S> <C> <C> <C>
Advisory Foreign Fixed Income 0.000%* 0.16% %
Advisory Mortgage 0.000** ** **
</TABLE>
* Until further notice, the Adviser has voluntarily agreed to
waive its advisory fees. In addition, the Adviser has
voluntarily agreed to reimburse certain expenses to the extent
necessary to keep Total Operating Expenses from exceeding
0.08%. Absent these fee waivers by the Adviser, Total Operating
Expenses would be 0.54% for the Advisory Foreign Fixed Income
Portfolio.
** Until further notice, the Adviser has voluntarily agreed to
waive its advisory fees. In addition, the Adviser has
voluntarily agreed to reimburse certain expenses to the extent
necessary to keep Total Operating Expenses from exceeding
0.15%. Absent these fee waivers and reimbursements by the
Adviser, Total Operating Expenses would be 0.459% for the
Advisory Mortgage Portfolio.
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 1 and 3 year examples are shown.
Portfolio 1 year 3 year
---------------------------------------------------------------------
Advisory Foreign Fixed Income $2 $5
Advisory Mortgage 1 3
HOW TO USE THIS PROSPECTUS
--------------------------
A PROSPECTUS SUMMARY is presented on page __;
FINANCIAL HIGHLIGHTS and a description of YIELD AND TOTAL RETURN begin on
page __;
GENERAL INFORMATION and the INVESTMENT LIMITATIONS pertinent to the portfolios
begin on page __;
A SUMMARY PAGE of each portfolio's Objective, Policies and Strategies begins
on page __;
The PROSPECTUS GLOSSARY which defines specific investments, policies and
strategies printed in bold type throughout this Prospectus begins on page __;
<PAGE>
OTHER INFORMATION including Shareholder Services begins on page __.
A TABLE OF CONTENTS is presented on the last page of this Prospectus.
PROSPECTUS SUMMARY
The Advisory Foreign Fixed Income 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 high-grade Foreign Bonds and Derivatives. The
portfolio is available only to private advisory clients of Miller Anderson &
Sherrerd, LLP.
The Advisory Mortgage Portfolio seeks to achieve returns consistent with returns
generated by the market for Mortgage Securities by investing primarily (at least
65% of its assets under normal circumstances) in mortgage securities. The
portfolio's average weighted maturity will ordinarily be greater than seven
years. The portfolio is available only to private advisory clients of Miller
Anderson & Sherrerd, LLP.
RISK FACTORS
Prospective investors in the Portfolios should consider the following factors as
they apply to each Portfolio's allowable investment policies and approaches:
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 the 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 Each portfolio may purchase securities on a When-Issued basis.
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 may invest a portion of its assets in Derivatives
securities 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 (Floaters) and inverse floating rate
securities (Inverse Floaters) and Mortgage Securities (Mortgages),
including principal-only and interest-only Stripped Mortgage-Backed
Securities (SMBS), may be highly sensitive to interest rate changes,
and highly sensitive to the rate of principal payments (including
prepayments on underlying mortgage assets);
o Investments in foreign securities involves certain special
considerations which are not typically associated with investing in
U.S. companies. See Foreign Investing. A portfolio investing in foreign
securities may also engage in foreign currency exchange transactions;
and,
o The Advisory Foreign Fixed Income Portfolio is Non-Diversified for
purposes of the Investment Company Act of 1940, as amended, meaning
that it may invest a greater percentage of assets in the securities of
one issuer than the other portfolios.
<PAGE>
HOW TO INVEST
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. Investment is available only to advisory clients of MAS.
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.
THE FUND'S INVESTMENT ADVISER
Miller Anderson & Sherrerd, LLP ("MAS" or the "Adviser") is a Pennsylvania
limited liability partnership founded in 1969 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, endowment funds, foundations and
other institutional investors, and as of the date of this Prospectus had in
excess of $33 billion in assets under management.
THE FUND'S DISTRIBUTOR--
MAS Fund Distribution, Inc. (the "Distributor") provides distribution services
to the Fund.
ADMINISTRATIVE SERVICES
The Adviser provides the Fund directly, or through third parties, with fund
administration services. Chase Global Funds Services Company, a subsidiary of
The Chase Manhattan Bank, N.A. serves as Transfer Agent to the Fund. See
Administrative Services.
<PAGE>
Financial Highlights - Fiscal Years Ended September 30
Selected per share data and ratios for a share
outstanding throughout each period
The following information provides selected per share data and ratios for the
shares outstanding of the Advisory Foreign Fixed Income and Advisory Mortgage
Portfolios throughout the period presented and is part of the Portfolios'
audited Annual Report to Shareholders for the period ended September 30, 1995
which is incorporated by reference in the Statement of Additional Information.
The following should be read in conjunction with the Fund's financial statements
which are included in the Annual Report to Shareholders and including the notes
thereto. The Portfolio'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.
Advisory Foreign Fixed Income Portfolio (Commencement of Operations 10/7/94)
<TABLE>
<CAPTION>
Net Gains Dividend
Net Asset or Losses Distributions
Value- Net on Securities Total from (net
Beginning Investment (realized and Investment investment Total
of Period Income unrealized) Activities income) Distributions
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $10.00 $0.74 $0.44 $1.18 ($0.38) ($0.38)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $10.80 12.12% $537,133 0.16%*++ 7.44%* 96%
</TABLE>
Advisory Mortgage Portfolio (Commencement of Operations 4/12/95)
<TABLE>
<CAPTION>
Net Gains Dividend
Net Asset or Losses Distributions
Value- Net on Securities Total from (net
Beginning Investment (realized and Investment investment Total
of Period Income unrealized) Activities income) Distributions
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $10.00 $0.25 $0.35 $0.60 ($0.19) ($0.19)
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
End of Total Period to Average to Average Turnover
Period Return** (thousands) Net Assets## Net Assets Rate
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $10.41 6.03% $1,443,038 0.10%*++ 6.72%* 110%
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the Advisory Foreign Fixed Income and Advisory
Mortgage Portfolios from exceeding 0.15% and 0.08%, respectively.
Voluntarily waived fees and reimbursed expenses totalled 0.38%* and 0.49%*
for the period ended September 30, 1995.
## For the period ended September 30, 1995, the Ratio of Expenses to Average
Net Assets for the Advisory Foreign Fixed Income and Advisory Mortgage
Portfolios excludes the effect of expense offsets. If expense offsets were
included, the Ratio of Expenses to Average Net Assets would be 0.15%* and
0.08%*, respectively.
<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 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 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 that are charged to all shareholder accounts and any non
recurring charges for the period stated. The yield formula provides for
semiannual compounding, which assumes that net investment income is earned and
reinvested at a constant rate and annualized at the end of a six-month period.
Methods used to calculate advertised yields are standardized for all stock and
bond mutual funds. However, these methods differ from the accounting methods
used by the portfolio to maintain its books and records, therefore the
advertised 30-day yield may not reflect the income paid to your own account or
the yield reported in the portfolio's reports to shareholders.
The 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, and various indices, all as further
described in the Statement of Additional Information.
The Annual Report to Shareholders, when available, will be provided 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. Both portfolios will seek to produce total return by actively
trading portfolio securities. The achievement of any portfolio's objective
cannot be assured.
Suitability: The portfolios are designed for advisory clients of MAS who are
long-term investors and can accept the risks entailed in investing in the bond
market and are not meant to provide a vehicle for playing short-term swings in
the market.
Securities Lending: Each portfolio may lend its securities to qualified brokers,
dealers, banks and other financial institutions for the purpose of realizing
additional income. Loans of securities will be collateralized by cash, letters
of credit, or securities issued or guaranteed by the U.S. Government or its
agencies. The collateral will equal at least 100% of the current market value of
the loaned securities. In addition, a portfolio will not loan its portfolio
securities to the extent that greater than one-third of its total assets, at
fair market value, would be committed to loans at that time.
<PAGE>
Illiquid Securities/Restricted Securities: Each of the portfolios may invest up
to 15% of its net assets in securities that are illiquid by virtue of the
absence of a readily available market, or because of legal or contractual
restrictions on resale. This policy does not limit the acquisition of (i)
restricted securities eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933 or (ii) commercial paper
issued pursuant to Section 4(2) under the Securities Act of 1933, that are
determined to be liquid in accordance with guidelines established by the Fund's
Board of Trustees.
Turnover: The Adviser manages the 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. 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.
With respect to the portfolios, the annual turnover rate may exceed
100% due to changes in portfolio duration, yield curve strategy or commitments
to forward delivery mortgage-backed securities.
Cash Equivalents/Temporary Defense 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. 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, increaase or decrease the average
weighted maturity or duration of a portfolio without regard to that portfolio's
total average weighted maturity.
Concentration: Concentration is defined as investment of 25% or more of a
portfolio's total assets in the securities of issuers operating in any one
industry. Except as provided in a portfolio's specific investment policies, a
portfolio will not concentrate investments in any one industry.
Investment Limitations: Each portfolio is subject to certain limitations
designed to reduce its exposure to specific situations. Some of these
limitations are:
(a) with respect to 75% of its assets, a portfolio will not purchase securities
of any issuer if, as a result, more than 5% of the portfolio's total assets
taken at market value would be invested in the securities of any single issuer
except that this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities. This limitation is
not applicable to the Advisory Foreign Fixed Income Portfolio. However, both
Advisory 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
Advisory Foreign Fixed Income Portfolio. However, both Advisory 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;
(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, or instruments issued by U.S. banks when any such
portfolio adopts a temporary defensive position; (2) asset-backed securities
will be classified according to the underlying assets securing such securities;
and (3) the Advisory Mortgage Portfolio will concentrate in mortgage-backed
securities.
<PAGE>
(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;
(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; and
(i) a portfolio (except the Cash Reserve Portfolio) may enter into OTC
derivative transactions (Swaps, Caps, Floors, Puts, etc., excluding Foreign
exchange contracts) with Counterparties that are 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 (collateralization of amounts due from Counterparties) to limit
exposure to Counterparties with ratings below AA and A1.
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. Investment limitations
(a) and (b) are not fundamental policies for the Advisory Foreign Fixed Income
Portfolio. If a percentage limitation on investment or utilization of assets as
set forth above is adhered to at the time an investment is made, a later change
in percentage resulting from changes in the value or total cost of the
portfolio's assets will not be considered a violation of the restriction, and
the sale of securities will not be required.
<PAGE>
Advisory Foreign Fixed Income Portfolio - (a non-diversified portfolio available
only to advisory clients of MAS)
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing primarily in investment grade fixed-income securities
of foreign issuers.
Approach: The Portfolio is available only to the Adviser's private
advisory clients.
Policies: Generally at least 65% invested in Fixed-Income Securities of
issuers in at least 3 countries located outside of the U.S.
Derivatives may be used to represent country investments, or
otherwise pursue portfolio strategy.
May invest all or a portion of assets in U.S. securities as a
defensive strategy.
Quality 100% Investment Grade Securities
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: Foreign Bonds Foreign Currency Forwards Eastern European Issuers
Investments: Convertibles U.S. Governments Zero Coupons Agencies
Corporates Mortgage Securities CMOs SMBS
Asset-Backeds When Issued Securities Brady Bonds Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Municipals Preferred Stock
Investment Companies
</TABLE>
Benchmark
Index: Salomon Broad Investment Grade
Strategies: Foreign Fixed Income Investing
Maturity and Duration Management
Value Investing
Foreign Investing
Non-Diversified Status
Mortgage Investing
<PAGE>
Advisory Mortgage Portfolio - (available only to advisory clients of MAS)
Objective: To achieve returns consistent with returns generated by the
market for mortgage securities by investing primarily (at least
65% of its assets under normal circumstances) in mortgage
securities.
Approach: The Portfolio is available only to the Adviser's private
advisory clients
Policies: Generally at least 65% invested in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Securities not guaranteed by the U.S. Government or a private
organization will be Investment Grade
Specifications: Securities
Maturity and Average weighted maturity generally greater than 7 years
Duration: 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 Securities
Floaters Inverse Floaters Structured Notes Futures & Options
Cash Equivalents Repurchase Agreements Investment Companies Swaps
</TABLE>
Benchmark
Index: Lehman Mortgage Index
Strategies: Mortgage Investing
Maturity and Duration Management
Value Investing
<PAGE>
PROSPECTUS GLOSSARY
CHARACTERISTICS AND RISKS OF STRATEGIES AND INVESTMENTS
-------------------------------------------------------
STRATEGIES
Foreign Fixed Income Investing: A portion of a portfolio may be invested 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. 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.
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.
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.
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 MAS's fixed-income strategy.
<PAGE>
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.
Mortgage Investing: The Advisory Mortgage Portfolio will be primarily (at least
65% of the time under normal circumstances) 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 in 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.
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
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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.
INVESTMENTS
Each portfolio may invest in the securities defined below in accordance with
their listing of Allowable Investments and any quality or policy constraints.
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.
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Cash Equivalents: are short-term fixed-income instruments comprising:
(1) Time deposits, certificates of deposit (including marketable variable rate
certificates of deposit) and bankers' acceptances issued by a commercial bank or
savings and loan association. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. Certificates of deposit are negotiable short-term obligations
issued by commercial banks or savings and loan associations against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods).
A portfolio may invest in obligations of U.S. banks, foreign branches of U.S.
banks (Eurodollars), and U.S. branches of foreign banks (Yankee dollars). Euro
and Yankee dollar investments will involve some of the same risks of investing
in international securities that are discussed in the Foreign Investing section
of this Prospectus.
Portfolios will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion, or the equivalent in other
currencies, or, in the case of domestic banks which do not have total assets of
at least $1 billion, the aggregate investment made in any one such bank is
limited to $100,000 and the principal amount of such investment is insured in
full by the Federal Deposit Insurance Corporation, (ii) in the case of U.S.
banks, it is a member of the Federal Deposit Insurance Corporation, and (iii) in
the case of foreign branches of U.S. banks, the security is deemed by the
Adviser to be of an investment quality comparable with other debt securities
which may be purchased by the portfolio.
(2) Each portfolio may invest in commercial paper rated at time of purchase by
one or more NRSRO in one of their two highest categories, (e.g., A-l or A-2 by
Standard & Poor's or Prime 1 or Prime 2 by Moody's), or, if not rated, issued by
a corporation having an outstanding unsecured debt issue rated high-grade by a
NRSRO (e.g. A or better by Moody's, Standard & Poor's or Fitch);
(3) Short-term corporate obligations rated high-grade at the time of purchase by
a NRSRO (e.g. A or better by Moody's, Standard & Poor's or Fitch);
(4) U.S. Government obligations including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of the U.S.
Government and differ mainly in interest rates, maturities and dates of issue;
(5) Government Agency securities issued or guaranteed by U.S. Government
sponsored instrumentalities and Federal agencies. These include securities
issued by the Federal Home Loan Banks, Federal Land Bank, Farmers Home
Administration, Farm Credit Banks, Federal Intermediate Credit Bank, Federal
National Mortgage Association, Federal Financing Bank, the Tennessee Valley
Authority, and others; and
(6) Repurchase agreements collateralized by securities listed above.
CMOs--Collateralized Mortgage Obligations: are Derivatives which are
collateralized by mortgage pass-through securities. Cash flows from the mortgage
pass-through securities are allocated to various tranches (a "tranche" is
essentially a separate security) in a predetermined, specified order. Each
tranche has a stated maturity - the latest 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.
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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.
Convertibles: are convertible bond 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 that are not listed in the Applicable Allowable
Investments for the portfolio. Any applicable limitations are described under
each investment definition. Each of the Portfolios covered by this Prospectus
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 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.
Fixed-Income Securities: Commonly include but are not limited to U.S.
Governments, Zero Coupons, Agencies, Corporates, 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 the definition
of Fixed-Income Securities since it exhibits some characteristics commonly
associated with that 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 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.
<PAGE>
A portfolio may also combine forward contracts with investments in securities
denominated in other currencies in order to achieve desired credit and currency
exposures. Such combinations are generally referred to as synthetic securities.
For example, in lieu of purchasing a foreign bond, a portfolio may purchase a
U.S. dollar-denominated security and at the same time enter into a forward
contract to exchange U.S. dollars for the contract's underlying currency at a
future date. By matching the amount of U.S. dollars to be exchanged with the
anticipated value of the U.S. dollar-denominated security, a portfolio may be
able to lock in the foreign currency value of the security and adopt a synthetic
investment position reflecting the credit quality of the U.S. dollar-denominated
security. There is a risk in adopting a synthetic investment position to the
extent that the value of a security denominated in the U.S. dollar or other
foreign currency is not exactly matched with a portfolio's obligation under the
forward contract. On the date of maturity, a portfolio may be exposed to some
risk of loss from fluctuations in that currency. Although the Adviser will
attempt to hold such mismatching to a minimum, there can be no assurance that
the Adviser will be able to do so. When a portfolio enters into a forward
contract for purposes of creating a synthetic security, it will generally be
required to hold high-grade, liquid securities or cash in a segregated account
with a daily value at least equal to its obligation under the forward contract.
Futures & Options--Futures Contracts, Options on Futures Contracts and Options:
are Derivatives. Futures contracts provide for the sale by one party and
purchase by another party of a specified amount of a specific security, at a
specified future time and price. An option is a legal contract that gives the
holder the right to buy or sell a specified amount of the underlying security or
futures contract at a fixed or determinable price upon the exercise of the
option. A call option conveys the right to buy and a put option conveys the
right to sell a specified quantity of the underlying security.
A portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts in
combination with its outstanding obligations with respect to options
transactions would exceed 50% of its total assets. It will maintain assets
sufficient to meet its obligations under such contracts in a segregated account
with the custodian bank or will otherwise comply with the SEC's position on
asset coverage.
Possible Risks: The primary risks associated with the use of futures and options
are (i) imperfect correlation between the change in market value of the
securities held by a portfolio and the prices of futures and options relating to
the stocks, bonds or futures contracts purchased or sold by a portfolio; and
(ii) possible lack of a liquid secondary market for a futures contract and the
resulting inability to close a futures position which could have an adverse
impact on a portfolio's ability to execute futures and options strategies.
Additional risks associated with options transactions are (i) the risk that an
option will expire worthless; (ii) the risk that the issuer of an
over-the-counter option will be unable to fulfill its obligation to the
portfolio due to 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.
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.
<PAGE>
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.
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), non-agency
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 private issuers, whether or not such securities are subject
to guarantees, may entail greater risk. If there is no guarantee provided by the
issuer, mortgage-backed securities purchased by the portfolio will be 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 consisting usually 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,
<PAGE>
bridges, schools, hospitals, mass transportation, streets, water and sewer
works; to obtain funds for operating expenses; to refund outstanding municipal
obligations; and to loan funds to various public institutions and facilities.
Certain industrial development bonds are also considered municipal bonds if
their interest is exempt from federal income tax. Industrial development bonds
are issued by or on behalf of public authorities to obtain funds for various
privately-operated manufacturing facilities, housing, sports arenas, convention
centers, airports, mass transportation systems and water, gas or sewage works.
Industrial development bonds are ordinarily dependent on the credit quality of a
private user, not the public issuer.
General obligation municipal bonds are secured by the issuer's pledge of full
faith, credit and taxing power. Revenue or special tax bonds are payable from
the revenues derived from a particular facility or, in some cases, from a
special excise or other tax, but not from general tax revenue.
Municipal notes are issued to meet the short-term funding requirements of local,
regional and state governments. Municipal notes include bond anticipation notes,
revenue anticipation notes and tax and revenue anticipation notes. These are
short-term debt obligations issued by state and local governments to aid cash
flows while waiting for taxes or revenue to be collected, at which time the debt
is retired. Other types of municipal notes in which the portfolio may invest are
construction loan notes, short-term discount notes, tax-exempt commercial paper,
demand notes, and similar instruments. Demand notes permit an investor (such as
the portfolio) to demand from the issuer payment of principal plus accrued
interest upon a specified number of days' notice. The portfolios eligible to
purchase municipal bonds may also purchase AMT bonds. AMT bonds are tax-exempt
private activity bonds issued after August 7, 1986, the proceeds of which are
directed, at least in part, to private, for-profit organizations. While the
income from AMT bonds is exempt from regular federal income tax, it is a tax
preference item in the calculation of the alternative minimum tax. The
alternative minimum tax is a special separate tax that applies to a limited
number of taxpayers who have certain adjustments to income or tax preference
items.
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 their
value, including accrued interest, always equals or exceeds the repurchase
price.
Pursuant to an order issued by the Securities and Exchange Commission, the
Fund's portfolios may pool their daily uninvested cash balances in order to
invest in repurchase agreements on a joint basis. By entering into repurchase
agreements on a joint basis, it is expected that the portfolios will incur lower
transaction costs and potentially obtain higher rates of interest on such
repurchase agreements. Each portfolio's participation in the income from jointly
purchased repurchase agreements will be based on that portfolio's percentage
share in the total purchase agreement.
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
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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 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 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
<PAGE>
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the portfolios would be less favorable than it would have been if this
investment technique were not used.
U.S. Governments--U.S. Treasury securities: are Fixed-Income Securities which
are backed by the full faith and credit of the U.S. Government as to the payment
of both principal and interest.
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 opportunity to earn higher
yields than those available on ordinary interest-paying obligations of similar
credit quality and maturity. However, zero coupon obligation prices may also
exhibit greater price volatility than ordinary fixed-income securities because
of the manner in which their principal and interest are returned to the
investor.
GENERAL INFORMATION
PURCHASE OF SHARES
The Advisory Foreign Fixed Income and the Advisory Mortgage Portfolios are
available only to private advisory clients of Miller Anderson & Sherrerd, LLP
Adviser to MAS Funds.
Shares of each 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. See
Other Information-Closed Holidays and Valuation of Shares.
Other Purchase Information: The Fund reserves the right, in its sole discretion,
to suspend the offering of 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.
Purchases of a portfolio's 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.
REDEMPTION OF SHARES
Shares of each portfolio may be redeemed by mail, or, if authorized, by
telephone. No charge is made for redemptions. The value of shares redeemed may
be more or less than the purchase price, depending on the net asset value at the
<PAGE>
time of redemption which is based on the market value of the investment
securities held by the portfolio.
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.
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.
VALUATION OF SHARES
Net asset value per share is computed by dividing the total value of the
investments and other assets of the portfolio, less any liabilities, by the
total outstanding shares of the portfolio. The net asset value per share is
determined as of the normal close of the bond markets (currently __ p.m. Eastern
Time) on each day the portfolio is open for business (See Other
Information-Closed Holidays). Bonds and other fixed-income securities listed on
a foreign exchange are valued at the latest quoted sales price available before
the time when assets are valued. For purposes of net asset value per share, all
assets and liabilities initially expressed in foreign currencies will be
converted into U.S. dollars at the bid price of such currencies against U.S.
dollars.
Net asset value includes interest on bonds and other Fixed-Income Securities
which is accrued daily. Bonds and other fixed-income securities which are traded
over the counter and on a stock exchange will be valued according to the
broadest and most representative market, and it is expected that for bonds and
other fixed-income securities this ordinarily will be the over-the-counter
market.
However, bonds and other fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. The prices provided by a pricing
service are determined without regard to bid or last sale prices but take into
account institutional size trading in similar groups of securities and any
developments related to specific securities. Bonds and other fixed-income
securities not priced in this manner are valued at the most recent quoted bid
price, or when stock exchange valuations are used, at the latest quoted sale
price on the day of valuation. If there is no such reported sale, the latest
quoted bid price will be used. Securities purchased with remaining maturities of
60 days or less are valued at amortized cost when the Board of Trustees
determines that amortized cost reflects fair value. In the event that amortized
cost does not approximate market, market prices as determined above will be
used. Other assets and securities, for which no quotations are readily available
(including restricted securities), will be valued in good faith at fair value
using methods approved by the Board of Trustees.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
Dividends and Capital Gains Distributions: The Advisory Foreign Fixed Income
Portfolio and the Advisory Mortgage Portfolio will normally distribute
substantially all of their net investment income to shareholders in the form of
quarterly and monthly dividends, respectively.
Certain mortgage-backed 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.
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.
<PAGE>
Federal Taxes: The Advisory Portfolios intend 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. 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.
Special Considerations. Under the Code if more than 50% of a portfolio's
securities is owned by 5 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.
Since the Advisory Foreign Fixed Income Portfolio is treated as a single entity
for Federal income tax purposes, it 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. This portfolio will make such an election
only if they deem it to be in the best interests of their shareholders. The
Federal income tax status of the portfolio will not be affected by the election.
If this election is made, shareholders of the portfolio will be required to: (i)
include in gross income, even though not actually received, their respective pro
rata share of foreign taxes paid by the portfolio; (ii) treat their pro rata
share of foreign taxes as paid by them; and (iii) either deduct their pro rata
share of foreign taxes in computing their taxable income or use it within the
limitations set forth in the Internal Revenue Code as a foreign tax credit
against U.S. income taxes (but not both). No deduction for foreign taxes may be
claimed by a shareholder who does not itemize deductions.
<PAGE>
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.
INVESTMENT ADVISER
The Investment Adviser to the Fund, Miller Anderson & Sherrerd, LLP is a
Pennsylvania limited 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
$__ billion in assets under management. On January 3, 1996, Morgan Stanley Group
Inc. acquired Miller Anderson & Sherrerd, LLP (the "Adviser") in a transaction
in which Morgan Stanley Asset Management Holdings Inc., an indirect wholly owned
subsidiary of Morgan Stanley Group Inc., became the sole general partner of the
Adviser. Morgan Stanley Asset Management Holdings Inc. and two other wholly
owned subsidiaries of Morgan Stanley Group Inc. became the limited partners of
the Adviser. In connection with this transaction, the Adviser entered into a new
Investment Management Agreement ("Agreement") with the MAS Funds dated as of
January 3, 1996, which Agreement was approved by the shareholders of each
Portfolio at a special meeting held on October 6, 1995. The Adviser will retain
its name and remain at its current location, One Tower Bridge, West
Conshohocken, PA 19428. The Adviser will continue to provide investment
counseling services to employee benefit plans, endowments, foundations, and
other institutional investors.
Under the Investment Management 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
-----
Advisory Foreign Fixed Income 0.375%*
Advisory Mortgage 0.375**
* Until further notice, the Adviser has voluntarily agreed to
waive its advisory fees. In addition, the Adviser has
voluntarily agreed to reimburse certain expense to the extent
necessary to keep Total Operating Expenses from exceeding ___.
Absent these fee waivers and reimbursements by the Adviser,
Total Operating Expenses would be 0.525% for the Advisory
Foreign Fixed Income Portfolio.
<PAGE>
** Until further notice, the Adviser has voluntarily agreed to
waive its advisory fees. In addition, the Adviser has
voluntarily agreed to reimburse certain expenses to the
extent necessary to keep Total Operating Expenses from
exceeding 0.08%. Absent these fee waivers by the Adviser,
Total Operating Expenses would be 0.590% for the Advisory
Mortgage Portfolio.
For the fiscal year ended September 30, 1995, the Adviser received no
compensation for its services under the Investment Advisory Agent.
PORTFOLIO MANAGEMENT
The investment professionals of MAS who are primarily responsible for the
day-to-day management of the Fund's portfolios are as follows:
Advisory Mortgage Portfolio - Kenneth B. Dunn and Scott F. Richard;
Advisory Foreign Fixed Income Portfolio - J. David Germany and Richard B.
Worley.
A description of their business experience during the past five years is as
follows:
Kenneth B. Dunn, Portfolio Manager, joined MAS in 1987.
J. David Germany, Portfolio Manager, joined MAS in 1991. He served as Vice
President & Senior Economist for Morgan Stanley & Co. from 1989 to 1991.
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.
Richard B. Worley, Portfolio Manager, joined MAS in 1978.
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 8, 1993, and provides fund accounting and other services pursuant to a
sub-administration agreement with MAS as Administrator.
GENERAL DISTRIBUTION AGENT
Shares of the Fund are distributed exclusively through MAS Fund Distribution,
Inc., a wholly-owned subsidiary of the Adviser.
PORTFOLIO TRANSACTIONS
The investment advisory agreement authorizes the Adviser to select the brokers
or dealers that will execute the purchases and sales of investment securities
for each of the Fund's portfolios and directs 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
<PAGE>
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, 1998, 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 Selected 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. (NY) and Morgan Stanley Trust Company
(NY), and its sub-custodians serve as custodians for the portfolios. The
custodians hold cash, securities and other assets as required by the 1940 Act.
Transfer and Dividend Disbursing Agent: Chase Global Funds Services Company, a
subsidiary of The Chase Manhattan Bank, N.A., 73 Tremont Street, Boston, MA
02108-3913.
Reports: Shareholders receive semiannual and annual financial statements. Annual
financial statements are audited by Price Waterhouse LLP, independent
accountants.
Litigation: The Fund is not involved in any litigation.
Closed Holidays: Currently, the weekdays on which the Advisory Portfolios are
closed for business are: New Year's Day, Martin Luther King Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans Day, Thanksgiving Day, and Christmas Day.
<PAGE>
TRUSTEES AND OFFICERS
The following is a list of the Trustees and the principal executive officers of
the Fund and a brief statement of their present positions and principal
occupations during the past five years:
Thomas L. Bennett,* Chairman of the Board of Trustees; Partner, 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, 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; Partner, 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 from May 1989 to March 1993.
John H. Grady, Jr., Secretary of the Fund since July 1995; Partner, Morgan,
Lewis & Bockius; LLP, formerly Attorney, Ropes & Gray.
<PAGE>
Investment Adviser and Administrator: Transfer Agent:
Miller Anderson & Sherrerd, LLP Chase Global Funds Services Company
One Tower Bridge 73 Tremont Street
West Conshohocken, Boston, Massachusetts 02108-0913
Pennsylvania 19428-2899
General Distribution Agent:
MAS Fund Distribution, Inc.
One Tower Bridge
P.O. Box 868
West Conshohocken,
Pennsylvania 19428-0868
Table of Contents
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C> <C> <C>
Fund Expenses 2 General Information:
Prospectus Summary 3 Purchase of Shares 20
Financial Highlights 5 Redemption of Shares 21
Yield and Total Return 6 Valuation of Shares 21
Investment Suitability 6 Dividends, Capital Gains Distributions
Investment Limitations 7 and Taxes 21
Portfolio Summaries 9 Investment Adviser 23
Prospectus Glossary: Portfolio Management 23
Strategies 11 Administrative Services 24
Investments 13 General Distribution Agent 24
Portfolio Transactions 24
Trustees and Officers 26
</TABLE>
<PAGE>
ACCOUNT REGISTRATION FORM
MAS Fund Distribution, Inc.
General Distribution Agent
REGISTRATION/PRIMARY MAILING ADDRESS
City_____________________________State__________________________Zip_______
Telephone No.__________
Type of Account:
o Defined Benefit Plan o Defined Contribution Plan
o Profit Sharing/Thrift Plan
o Other Employee Benefit Plan
o Endowment o Foundation o Taxable o Other (Specify)
o United States Citizen o Resident Alien
o Non-Resident Alien, Indicate Country of Residence
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City_____________________________State__________________________Zip_______
Telephone No.__________
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City_____________________________State__________________________Zip_______
Telephone No.__________
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City_____________________________State__________________________Zip_______
Telephone No.__________
INVESTMENT
For Purchase of:
o Equity Portfolio
o Value Portfolio
o Growth Portfolio
o Mid Cap Growth Portfolio
o Balanced Portfolio
o Multi-Asset-Class Portfolio
o Balanced Investing--Indicate Portfolios
o Fixed Income Portfolio
o Fixed Income Portfolio II
o Special Purpose Fixed Income Portfolio
o High Yield Portfolio
o Limited Duration Fixed Income Portfolio
o Intermediate Duration Portfolio
o Mortgage-Backed Securities Portfolio
o Cash Reserves Portfolio
o International Equity Portfolio
o Emerging Markets Portfolio
o International Fixed Income Portfolio
o Global Fixed Income Portfolio
o Municipal Portfolio
o PA Municipal Portfolio
o Mid Cap Value Portfolio
o Domestic Fixed Income Portfolio
<PAGE>
TAXPAYER IDENTIFICATION NUMBER
Part 1.
Social Security Number
- -
----------------------- or
Employer Identification Number
-
-------------
Part 2. BACKUP WITHHOLDING
o 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 payee) are required by law to provide us (as payer) with your current
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 distributions as well as redemptions.
Backup withholding isnot an additional tax; the tax liability of persons 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.
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)
o Mailing of Redemption proceeds to the name and address in Section 1 above.
o Wire of Redemption proceeds 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>
DISTRIBUTION OPTION
o Income dividends and capital gains distributions to be reinvested in
additional shares.
o Income dividends and capital gains distributions to be paid in cash.
o Income dividends in cash and capital gains distributions in additional
shares.
If cash option is chosen, please indicate instructions below:
o Mail distribution check to the name and address in which account is
registered.
o Wire distributions to the same Commercial Bank indicated in Section 5
above.
o 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
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
Prospectus of the MAS Funds 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)______
(X)___________________________________________
Signature_____________________________________ Date________
(X)___________________________________________
Signature_____________________________________ Date________
FOR INTERNAL USE ONLY (X)
_____________________________________________________________
Signature Date
O*/ F OR S
<PAGE>
MAS FUNDS
STATEMENT OF ADDITIONAL INFORMATION
January 30, 1996
MAS Funds (the "Fund") is a no load mutual fund consisting of
twenty-six portfolios offering a variety of investment alternatives. This
Statement of Additional Information sets forth information about the Fund
applicable to each of the twenty-six portfolios.
This Statement is not a Prospectus but should be read in conjunction
with the Fund's Prospectuses dated January 30, 1996, each as revised from time
to time. To obtain either of these Prospectuses, please call the Client Services
Group.
Client Services Group: 1-800-354-8185
Prices and Investment Results: 1-800-522-1525
TABLE OF CONTENTS
Page
Business History .......................................................... 3
Strategies and Investments ................................................ 3
Repurchase Agreements ..................................................... 3
Securities Lending ........................................................ 3
Foreign Investments ....................................................... 4
Futures Contracts ......................................................... 4
Restrictions on the Use of Futures Contracts .............................. 5
Risk Factors in Futures Transactions ...................................... 5
Options ................................................................... 6
Options on Foreign Currencies ............................................. 6
Combined Transactions ..................................................... 7
Risks of Options on Futures Contracts, Forward Contracts and Options
on Foreign Currencies ................................................... 7
Swap Contracts ............................................................ 8
Foreign Currency Exchange-Related Securities .............................. 8
Municipal Bonds ........................................................... 10
Duration .................................................................. 11
Mortgage-Backed Securities ................................................ 11
Stripped Mortgage-Backed Securities ....................................... 13
U.S. Government Securities ................................................ 13
Zero Coupon Bonds ......................................................... 14
Repurchase Agreements ..................................................... 14
Eurodollar and Yankee Obligations ......................................... 14
Brady Bonds ............................................................... 15
Cash Reserves Portfolio ................................................... 15
Tax Considerations ........................................................ 16
Purchase of Shares ........................................................ 16
Redemption of Shares ...................................................... 16
Shareholder Services ...................................................... 16
Investment Limitations .................................................... 17
Management of the Fund .................................................... 19
Distribution Plans ........................................................ 21
Investment Adviser ........................................................ 21
Administration ............................................................ 24
Distributor for Fund ...................................................... 26
Portfolio Transactions .................................................... 26
Portfolio Turnover ........................................................ 27
General Information ....................................................... 27
Performance Information ................................................... 29
Comparative Indices ....................................................... 35
Financial Statements ...................................................... 38
Appendix-Description of Securities and Ratings ............................ 39
Description of Bond Ratings ............................................... 41
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BUSINESS HISTORY
MAS Funds (formerly MAS Pooled Trust Fund) is an open end management investment
company established under Pennsylvania law as a Pennsylvania business trust
under an Amended and Restated Agreement and Declaration of Trust dated November
18, 1993. The Fund was originally established as The MAS Pooled Trust Fund, a
Pennsylvania business trust, in February, 1984.
STRATEGIES AND INVESTMENTS
The following information supplement the characteristics and risks of strategies
and investments set forth in the Fund's Prospectuses:
REPURCHASE AGREEMENTS
Each of the Fund's Portfolios may invest in repurchase agreements collateralized
by U.S. Government securities, certificates of deposit and certain bankers'
acceptances. 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. In these
transactions, the securities purchased by a Portfolio have a total value in
excess of the value of the repurchase agreement and are held by the Portfolio's
custodian bank until repurchased. Such agreements permit a Portfolio to keep all
its assets at work while retaining "overnight" flexibility in pursuit of
investments of a longer-term nature. The Adviser and the Fund's Administrator
will continually monitor the value of the underlying securities to ensure that
their value always equals or exceeds the repurchase price.
The use of repurchase agreements involves certain risks. For example, if the
seller of the agreements defaults on its obligation to repurchase the underlying
securities at a time when the value of these securities has declined, a
Portfolio may incur a loss upon disposition of them. If the seller of the
agreement becomes insolvent and subject to liquidation or reorganization under
the Bankruptcy Code or other laws, a bankruptcy court may determine that the
underlying securities are collateral not within the control of a Portfolio and
therefore subject to sale by the trustee in bankruptcy. Finally, it is possible
that a Portfolio may not be able to substantiate its interest in the underlying
securities. While the Fund's management acknowledges these risks, it is expected
that they can be controlled through stringent security selection criteria and
careful monitoring procedures.
SECURITIES LENDING
Each Portfolio may lend its investment securities to qualified institutional
investors who need to borrow securities in order to complete certain
transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its investment
securities, a Portfolio attempts to increase its income through the receipt of
interest on the loan. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account of
the Portfolio. Each Portfolio may lend its investment securities to qualified
brokers, dealers, domestic and foreign banks or other financial institutions, so
long as the terms, the structure and the aggregate amount of such loans are not
inconsistent with the Investment Company Act of 1940, as amended, or the Rules
and Regulations or interpretations of the Securities and Exchange Commission
(the "Commission") thereunder, which currently require that (a) the borrower
pledge and maintain with the Portfolio collateral consisting of cash, an
irrevocable letter of credit issued by a domestic U.S. bank, or securities
issued or guaranteed by the United States Government having a value at all times
not less than 100% of the value of the securities loaned, (b) the borrower add
to such collateral whenever the price of the securities loaned rises (i.e., the
borrower "marks to the market" on a daily basis), (c) the loan be made subject
to termination by the Portfolio at any time, and (d) the Portfolio receive
reasonable interest on the loan (which may include the Portfolio investing any
cash collateral in interest bearing short-term investments), any distribution on
the loaned securities and any increase in their market value. All relevant facts
and circumstances, including the creditworthiness of the broker, dealer or
institution, will be considered in making decisions with respect to the lending
of securities, subject to review by the Trustees.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's Trustees. In addition, voting rights may
pass with the loaned securities, but if a material event will occur affecting an
investment on loan, the loan must be called and the securities voted.
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FOREIGN INVESTMENTS
Investors should recognize that investing in foreign securities involves certain
special considerations which are not typically associated with investing in U.S.
issuers. Since the securities of foreign issuers are frequently denominated in
foreign currencies, and since the Portfolios may temporarily hold uninvested
reserves in bank deposits in foreign currencies, the Portfolios will be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, and may incur costs in connection with conversions between various
currencies. The investment policies of the Portfolios (except for the Limited
Duration, Mortgage-Backed Securities, Advisory Mortgage, Cash Reserves, PA
Municipal and Municipal Portfolios) permit them to enter into forward foreign
currency exchange contracts in order to hedge their respective holdings and
commitments against changes in the level of future currency rates. Such
contracts involve an obligation to purchase or sell a specific currency at a
future date at a price set at the time of the contract.
As foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards and practices comparable to those applicable to
domestic issuers, there may be less publicly available information about certain
foreign issuers than about domestic issuers. Securities of some foreign issuers
are generally less liquid and more volatile than securities of comparable
domestic issuers. There is generally less government supervision and regulation
of stock exchanges, brokers and listed issuers than in the U.S. In addition,
with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect U.S. investments in those countries.
Although the Portfolios will endeavor to achieve most favorable execution costs
in its portfolio transactions, fixed commissions on many foreign stock exchanges
are generally higher than negotiated commissions on U.S. exchanges. In addition,
it is expected that the expenses for custodian arrangements of the Portfolio's
foreign securities will be somewhat greater than the expenses for the custodian
arrangements for handling the U.S. securities of equal value.
Certain foreign governments levy withholding taxes against dividend and interest
income. Although in some countries a portion of these taxes are recoverable, the
non-recovered portion of foreign withholding taxes will reduce the income
received from investments in such countries. However, these foreign withholding
taxes are not expected to have a significant impact on those Portfolios for
which the investment objective is to seek long-term capital appreciation and any
income should be considered incidental.
The International Equity, Emerging Markets, International Fixed Income, Advisory
Foreign Fixed Income, Global Fixed Income, Multi-Asset-Class, High Yield,
Municipal, PA Muncipal and Balanced Portfolios may invest in the securities of
issuers in Eastern European and other developing markets. The economies of these
countries are currently suffering both from the stagnation resulting from
centralized economic planning and control and the higher prices and unemployment
associated with the transition to market economies. Unstable economic and
political conditions may adversely affect security values. Upon the accession to
power of Communist regimes approximately 40 years ago, the governments of a
number of Eastern European countries expropriated a large amount of property.
The claims of many property owners against those governments were never finally
settled. In the event of the return to power of the Communist Party, there can
be no assurance that the portfolio's investments in Eastern Europe would not
also be expropriated, nationalized or otherwise confiscated.
FUTURES CONTRACTS
Each Portfolio, except the Cash Reserves Portfolio, may enter into futures
contracts, options, and options on futures contracts. Futures contracts provide
for the future sale by one party and purchase by another party of a specified
amount of a specific security at a specified future time and at a specified
price. Futures contracts which are standardized as to maturity date and
underlying financial instrument are traded on national futures exchanges.
Futures exchanges and trading are regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission ("CFTC"), a U.S. Government Agency.
Although futures contracts by their terms call for actual delivery or acceptance
of the underlying securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery. Closing out an
open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold" or "selling" a contract previously
"purchased") in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
acceptable securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying securities)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold on the basis of
margin deposits that may range upward from less than 5% of the value of the
contract being traded. A Portfolio's margin deposits will be placed in a
segregated account maintained by the Fund's Custodian.
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After a futures contract position is opened, the value of the contract is marked
to market daily. If the futures contract price changes to the extent that the
margin on deposit does not satisfy margin requirements, payment of additional
"variation" margin will be required. Conversely, a change in the contract value
may reduce the required margin, resulting in a repayment of excess margin to the
contract holder. Variation margin payments are made to and from the futures
broker for as long as the contract remains open. The Fund expects to earn
interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers" or
"speculators." Hedgers use the futures markets primarily to offset unfavorable
changes in the value of securities otherwise held for investment purposes or
expected to be acquired by them. Speculators are less inclined to own the
securities underlying the futures contracts which they trade, and use futures
contracts with the expectation of realizing profits from fluctuations in the
value of the underlying securities.
Regulations of the CFTC applicable to the Fund require that the aggregate
initial margins and premiums required to establish non-hedging positions not
exceed 5% of the liquidation value of a Portfolio.
Although techniques other than the sale and purchase of futures contracts could
be used to control a Portfolio's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
the Portfolios will incur commission expenses in both opening and closing out
futures positions, these costs are lower than transaction costs incurred in the
purchase and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS
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, and will maintain assets
sufficient to meet its obligations under such contracts in a segregated account
with the custodian bank or will otherwise comply with the SEC's position on
asset coverage.
RISK FACTORS IN FUTURES TRANSACTIONS
Positions in futures contracts may be closed out only on an Exchange which
provides a secondary market for such futures. However, there can be no assurance
that a liquid secondary market will exist for any particular futures contract at
any specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, a Portfolio would continue to be required
to make daily cash payments to maintain its required margin. In such situations,
if the Portfolio has insufficient cash, it may have to sell portfolio securities
to meet daily margin requirements at a time when it may be disadvantageous to do
so. In addition, the Portfolio may be required to make delivery of the
instruments underlying interest rate futures contracts it holds. The inability
to close options and futures positions also could have an adverse impact on a
Portfolio's ability to effectively hedge. A Portfolio will minimize the risk
that it will be unable to close out a futures contract by only entering into
futures which are traded on national futures exchanges and for which there
appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss (as well as gain) to the investor. For example, if at the time of purchase,
10% of the value of the futures contract is deposited as margin, a subsequent
10% decrease in the value of the futures contract would result in a total loss
of the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the contract. A Portfolio would presumably have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying financial instrument and sold it after the decline.
Utilization of futures transactions by a Portfolio does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. It is also
possible that a Portfolio could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by a Portfolio of margin deposits in the event of bankruptcy of a
broker with whom the Portfolio has an open position in a futures contract or
related option.
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Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
OPTIONS
Investments in options involve some of the same considerations that are involved
in connection with investments in futures contracts (e.g., the existence of a
liquid secondary market). In addition, the purchase of an option also entails
the risk that changes in the value of the underlying security or contract will
not be fully reflected in the value of the option purchased. Depending on the
pricing of the option compared to either the futures contract or securities, an
option may or may not be less risky than ownership of the futures contract or
actual securities. In general, the market prices of options can be expected to
be more volatile than the market prices on the underlying futures contract or
securities.
OTC Options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC Option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Portfolios expect generally to enter into OTC Options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC Option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
Option it has entered into with a Portfolio or fails to make a cash settlement
payment due in accordance with the terms of that option, the Portfolio will lose
any premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor of credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC Option will be
satisfied. The staff of the SEC currently takes the position that OTC Options
purchased by the Portfolios or sold by them (the cost of the sell-back plus the
in-the-money amount, if any) or are illiquid, and are subject to the Portfolio's
limitation on investing in illiquid securities.
OPTIONS ON FOREIGN CURRENCIES
All Portfolios except the Cash Reserves, Limited Duration, Mortgage-Backed
Securities, Advisory Mortgage, Municipal and PA Municipal Portfolios, may
purchase and write options on foreign currencies in a manner similar to that in
which futures contracts on foreign currencies, or forward contracts, will be
utilized. For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminution in the value of portfolio securities, a
Portfolio may purchase put options on the foreign currency. If the value of the
currency does decline, a Portfolio will have the right to sell such currency for
a fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, a Portfolio may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the adverse movements
in exchange rates. As in the case of other types of options, however, the
benefit to a Portfolio derived from purchases of foreign currency options will
be reduced by the amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the direction or to the
extent anticipated, the Portfolios could sustain losses on transactions in
foreign currency options which would require them to forego a portion or all of
the benefits of advantageous changes in such rates.
The Portfolios may write options on foreign currencies for the same purposes.
For example, where a Portfolio anticipates a decline in the dollar value of
foreign currency denominated securities due to adverse fluctuations in exchange
rates it could, instead of purchasing a put option, write a call option on the
relevant currency. If the anticipated decline occurs, the option will most
likely not be exercised, and the diminution in value of portfolio securities
will be offset by the amount of the premium received.
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<PAGE>
Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, a Portfolio could
write a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Portfolios to hedge such
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Portfolios would be required to purchase or sell the underlying currency at a
loss which may not be offset by the amount of the premium. Through the writing
of options on foreign currencies, a Portfolio also may be required to forego all
or a portion of the benefits which might otherwise have been obtained from
favorable movements in exchange rates.
The Portfolios may only write covered call options on foreign currencies. A call
option written on a foreign currency by a Portfolio is "covered" if the
Portfolio owns the underlying foreign currency covered by the call, an absolute
and immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by the Custodian) or upon conversion or exchange of other foreign currency held
in its portfolio. A written call option is also covered if a Portfolio has a
call on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Portfolio in cash,
U.S. Government securities or other high grade liquid debt securities in a
segregated account with the Custodian, or (c) maintains in a segregated account
cash, U.S. Government securities or other high-grade liquid debt securities in
an amount not less than the value of the underlying foreign currency in U.S.
dollars, marked-to-market daily.
The Portfolios may also write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to provide a hedge against a decline in the U.S.
dollar value of a security which a Portfolio owns or has the right to acquire
and which is denominated in the currency underlying the option due to an adverse
change in the exchange rate. In such circumstances, the Portfolio will
collateralize the option by maintaining in a segregated account with the
Custodian, cash or U.S. Government securities or other high grade liquid debt
securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked to market daily.
COMBINED TRANSACTIONS
The Portfolios may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple foreign currency
transactions (including forward foreign currency exchange contracts) and any
combination of futures, options and foreign currency transactions, instead of a
single transaction, as part of a single hedging strategy when, in the opinion of
the Adviser, it is in the best interest of the Portfolio to do so. A combined
transaction, while part of a single strategy, may contain elements of risk that
are present in each of its component transactions and will be structured in
accordance with applicable SEC regulations and SEC staff guidelines.
RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS
ON FOREIGN CURRENCIES
Options on foreign currencies and forward contracts are not traded on contract
markets regulated by the CFTC or (with the exception of certain foreign currency
options) by the SEC. To the contrary, such instruments are traded through
financial institutions acting as market-makers, although foreign currency
options are also traded on certain national securities exchanges, such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. Similarly, options on currencies may be traded over-the-counter.
In an over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchase of an option
cannot lose more than the amount of the premium plus related transaction costs,
this entire amount could be lost. Moreover, the option writer and a trader of
forward contracts could lose amounts substantially in excess of their initial
investments, due to the margin and collateral requirements associated with such
positions.
Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation ("OCC"), thereby
reducing the risk of counterparty default. Furthermore, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting a
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
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The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effect of other political and
economic events. In addition, exchange-traded options of foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the OCC
or its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions, on exercise.
In addition, futures contracts, options on futures contracts, forward contracts
and options on foreign currencies may be traded on foreign exchanges. Such
transactions are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decision, (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SWAP CONTRACTS
All Portfolios, except the Cash Reserves Portfolio, may enter into Swap
Contracts. A swap is an agreement to exchange the return generated by one
instrument for the return generated by another instrument. The payment streams
are calculated by reference to a specified index and agreed upon notional
amount. The term "specified index" includes currencies, fixed interest rates,
prices, total return on interest rate indices, fixed income indices, stock
indices and commodity indices (as well as amounts derived from arithmetic
operations on these indices). For example, a Portfolio may agree to swap the
return generated by a fixed-income index for the return generated by a second
fixed-income index. The currency swaps in which the portfolios may enter will
generally involve an agreement to pay interest streams in one currency based on
a specified index in exchange for receiving interest streams denominated in
another currency. Such swaps may involve initial and final exchanges that
correspond to the agreed upon national amount.
The swaps in which the Portfolios may engage also include rate caps, floors and
collars under which one party pays a single or periodic fixed amount(s) (or
premium), and the other party pays periodic amounts based on the movement of a
specified index. Swaps do not involve the delivery of securities, other
underlying assets, or principal. Accordingly, the risk of loss with respect to
swaps is limited to the net amount of payments that a Portfolio is contractually
obligated to make. If the other party to a swap defaults, a Portfolio's risk of
loss consists of the net amount of payments that a Portfolio is contractually
entitled to receive. Currency swaps usually involve the delivery of the entire
principal value of one designated currency in exchange for the other designated
currency. Therefore, the entire principal value of a currency swap is subject to
the risk that the other party to the swap will default on its contractual
delivery obligations. If there is a default by the counterparty, the Portfolios
may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors, and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
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The Portfolios will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. 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, to avoid any
potential leveraging of the Portfolio. To the extent that these swaps, caps,
floors, and collars are entered into for hedging purposes, the Adviser believes
such obligations do not constitute "senior securities" under the Investment
Company Act of 1940 and, accordingly, will not treat them as being subject to a
Portfolio's borrowing restrictions. All of the portfolios of MAS Funds except
the Cash Reserves Portfolio may enter into OTC Derivatives transactions (Swaps,
Caps, Floors, Puts, etc., but excluding foreign exchange contracts) with
counterparties that are approved by the Adviser in accordance with guidelines
established by the Board of Trustees. These guidelines provide for a minimum
credit rating for each counterparty and various credit enhancement techniques
(for example, collateralization of amounts due from counterparties) to limit
exposure to counterparties with rating below AA.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the Portfolios would be less favorable than it would have been if this
investment technique were not used.
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FOREIGN CURRENCY EXCHANGE-RELATED SECURITIES
Foreign currency warrants. Foreign currency warrants are warrants which entitle
the holder to receive from their issuer an amount of cash (generally, for
warrants issued in the United States, in U.S. dollars) which is calculated
pursuant to a predetermined formula and based on the exchange rate between a
specified foreign currency and the U.S. dollar as of the exercise date of the
warrant. Foreign currency warrants generally are exercisable upon their issuance
and expire as of a specified date and time. Foreign currency warrants have been
issued in connection with U.S. dollar-denominated debt offerings by major
corporate issuers in an attempt to reduce the foreign currency exchange risk
which, from the point of view of prospective purchasers of the securities, is
inherent in the international fixed-income marketplace. Foreign currency
warrants may attempt to reduce the foreign exchange risk assumed by purchasers
of a security by, for example, providing for a supplemental payment in the event
that the U.S. dollar depreciates against the value of a major foreign currency
such as the Japanese Yen or German Deutschmark. The formula used to determine
the amount payable upon exercise of a foreign currency warrant may make the
warrant worthless unless the applicable foreign currency exchange rate moves in
a particular direction (e.g., unless the U.S. dollar appreciates or depreciates
against the particular foreign currency to which the warrant is linked or
indexed). Foreign currency warrants are severable from the debt obligations with
which they may be offered, and may be listed on exchanges. Foreign currency
warrants may be exercisable only in certain minimum amounts, and an investor
wishing to exercise warrants who possesses less than the minimum number required
for exercise may be required either to sell the warrants or to purchase
additional warrants, thereby incurring additional transaction costs. In the case
of any exercise of warrants, there may be a time delay between the time a holder
of warrants gives instructions to exercise and the time the exchange rate
relating to exercise is determined, during which time the exchange rate could
change significantly, thereby affecting both the market and cash settlement
values of the warrants being exercised. The expiration date of the warrants may
be accelerated if the warrants should be delisted from an exchange or if their
trading should be suspended permanently, which would result in the loss of any
remaining "time value" of the warrants (i.e., the difference between the current
market value and the exercise value of the warrants), and, in the case where the
warrants were "out-of-the-money," in a total loss of the purchase price of the
warrants. Warrants are generally unsecured obligations of their issuers and are
not standardized foreign currency options issued by the OCC. Unlike foreign
currency options issued by the OCC, the terms of foreign exchange warrants
generally will not be amended in the event of governmental or regulatory actions
affecting exchange rates or in the event of the imposition of other regulatory
controls affecting the international currency markets. The initial public
offering price of foreign currency warrants is generally considerably in excess
of the price that a commercial user of foreign currencies might pay in the
interbank market for a comparable option involving significantly larger amounts
of foreign currencies. Foreign currency warrants are subject to complex
political or economic factors.
Principal exchange rate linked securities. Principal exchange rate linked
securities are debt obligations the principal on which is payable at maturity in
an amount that may vary based on the exchange rate between the U.S. dollar and a
particular foreign currency at or about that time. The return on "standard"
principal exchange rate linked securities is enhanced if the foreign currency to
which the security is linked appreciates against the U.S. dollar, and is
adversely affected by increases in the foreign exchange value of the U.S.
dollar; "reverse" principal exchange rate linked securities are like the
"standard" securities, except that their return is enhanced by increases in the
value of the U.S. dollar and adversely impacted by increases in the value of
foreign currency. Interest payments on the securities are generally made in U.S.
dollars at rates that reflect the degree of foreign currency risk assumed or
given up by the purchases of the notes (i.e., at relatively higher interest
rates if the purchaser has assumed some of the foreign exchange risk, or
relatively lower interest rates if the issuer has assumed some of the foreign
exchange risk, based of the expectations of the current market). Principal
exchange rate linked securities may in limited cases be subject to acceleration
of maturity (generally, not without the consent of the holders of the
securities), which may have an adverse impact on the value of the principal
payment to be made at maturity.
Performance indexed paper. Performance indexed paper is U.S. dollar-denominated
commercial paper the yield of which is linked to certain foreign exchange rate
movements. The yield to the investor on performance indexed paper is between the
U.S. dollar and a designated currency as of or about that time (generally, the
index maturity two days prior to maturity). The yield to the investor will be
within a range stipulated at the time of purchase of the obligation, generally
with a guaranteed minimum rate of return that is below, and a potential maximum
rate of return that is above, market yields on U.S. dollar-denominated
commercial paper, with both the minimum and maximum rates of return on the
investment corresponding to the minimum and maximum values of the spot exchange
rate two business days prior to maturity.
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Options, Futures, Forward Contracts and Swap Contracts
Some of the options, futures contracts, forward contracts, and swap contracts
entered into by the Portfolios may be "Section 1256 contracts." Section 1256
contracts held by a Portfolio at the end of its taxable year (and, for purposes
of the 4% excise tax, on certain other dates as prescribed under the Code) are
"marked to market" with unrealized gains or losses treated as though they were
realized. Any gains or losses, including "marked to market" gains or losses, on
Section 1256 contracts other than forward contracts are generally 60% long-term
and 40% short-term capital gains or losses ("60/40") although all foreign
currency gains and losses from such contracts may be treated as ordinary in
character absent a special election.
Generally, hedging transactions and certain other transactions in options,
futures, forward contracts and swap contracts undertaken by a Portfolio, may
result in "straddles" for U.S. federal income tax purposes. The straddle rules
may affect the character of gain or loss realized by a Portfolio. In addition,
losses realized by a Portfolio on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options, futures,
forward contracts, and swap agreements to a Portfolio are not entirely clear.
The transactions may increase the amount of short-term capital gain realized by
a Portfolio. Short-term capital gain is taxed as ordinary income when
distributed to shareholders.
A Portfolio may make one or more of the elections available under the Code which
are applicable to straddles. If a Portfolio makes any of the elections, the
amount, character, and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the elections made. The rules applicable under certain of the elections
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a Portfolio that did not engage in such hedging transactions.
MUNICIPAL BONDS
General. Municipal Bonds generally include debt obligations issued by
states and their political subdivisions, and duly constituted authorities and
corporations, to obtain Funds to construct, repair or improve various public
facilities such as airports, bridges, highways, hospitals, housing, schools,
streets and water and sewer works. Municipal Bonds may also be issued to
refinance outstanding obligations as well as to obtain Funds for general
operating expenses and for loans to other public institutions and facilities.
The two principal classifications of Municipal Bonds are "general
obligation" and "revenue" or "special tax" bonds. General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue or special tax bonds are payable
only from the revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise or other tax, but not
from general tax revenues. The Municipal and PA Municipal Portfolios ("the
Portfolios") may also invest in tax-exempt industrial development bonds,
short-term municipal obligations, project notes, demand notes and tax-exempt
commercial paper.
Industrial revenue bonds in most cases are revenue bonds and generally
do not have the pledge of the credit of the issuer. The payment of the principal
and interest on such industrial revenue bonds is dependent solely on the ability
of the user of the facilities financed by the bonds to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment. Short-term municipal obligations issued by states,
cities, municipalities or municipal agencies, include Tax Anticipation Notes,
Revenue Anticipation Notes, Bond Anticipation Notes, Construction Loan Notes and
Short-Term Discount Notes. Project Notes are instruments issued by the
Department of Housing and Urban Development but issued by a state or local
housing agency. While the issuing agency has the primary obligation on such
Project notes, they are also secured by the full faith and credit of the United
States.
Note obligations with demand or put options may have a stated maturity
in excess of one year, but permit any holder to demand payment of principal plus
accrued interest upon a specified number of days' notice. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. The issuer of such notes normally has a
corresponding right, after a given period, to repay at its discretion the
outstanding principal of the note plus accrued interest upon a specific number
of days' notice to the bondholders. The interest rate on a demand note may be
based upon a known lending rate, such as the prime lending rate, and be adjusted
when such rate changes, or the interest rate on a demand note may be a market
rate that is adjusted at specified intervals. Each note purchased by the
Portfolios will meet the quality criteria set out in the Prospectus for the
Portfolios.
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The yields of Municipal Bonds depend on, among other things, general
money market conditions, conditions in the Municipal Bond market, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The ratings of Moody's and Standard & Poor's represent their opinions of
the quality of the Municipal Bonds rated by them. It should be emphasized that
such ratings are general and are not absolute standards of quality.
Consequently, Municipal Bonds with the same maturity, coupon and rating may have
different yields, while Municipal Bonds of the same maturity and coupon, but
with different ratings may have the same yield. It will be the responsibility of
the investment management staff to appraise independently the fundamental
quality of the bonds held by the Portfolios.
Municipal Bonds are sometimes purchased on a "when-issued" basis
meaning the Portfolio has committed to purchase certain specified securities at
an agreed upon price when they are issued. The period between commitment date
and issuance date can be a month or more. It is possible that the securities
will never be issued and the commitment canceled.
From time to time proposals have been introduced before Congress to
restrict or eliminate the Federal income tax exemption for interest on Municipal
Bonds. Similar proposals may be introduced in the future. If any such proposal
were enacted, it might restrict or eliminate the ability of the Portfolios to
achieve their investment objectives. In that event, the Fund's Trustees and
officers would reevaluate its investment objective and policies and consider
recommending to its shareholders changes in such objective and policies.
Similarly, from time to time proposals have been introduced before
State and local legislatures to restrict or eliminate the State and local income
tax exemption for interest on Municipal Bonds. Similar proposals may be
introduced in the future. If any such proposal were enacted, it might restrict
or eliminate the ability of the Portfolio to achieve its investment objective.
In that event, the Fund's Trustees and officers would reevaluate its investment
objective and policies and consider recommending to its shareholders changes in
such objective and policies.
DURATION
The Limited Duration and Intermediate Duration Fixed Income Portfolios
seek to achieve their objective by investing in the types of fixed income
securities described in the Prospectus and by maintaining an average duration of
between one and three years and two and five years, respectively. Duration is
one of the fundamental tools used by the Adviser in security selection for the
Portfolios and any other Portfolio which invests in fixed income securities.
Duration is a measure of the expected life of a fixed income security
that was developed as a more precise alternative to the concept of the "term of
maturity." Duration incorporates a bond's yield, coupon interest payments, final
maturity and call features into one measure.
Most debt obligations provide interest ("coupon") payments in addition
to a final ("par") payment at maturity. Some obligations also have call
provisions. Depending on the relative magnitude of these payments, the market
values of debt obligations may respond differently to changes in the level and
structure of interest rates.
Traditionally, a debt security's "term to maturity" has been used as a
proxy for the sensitivity of the security's price to changes in interest rates
(which is the "interest rate risk" or "volatility" of the security). However,
"term to maturity" measures only the time until a debt security provides its
final payment, taking no account of the pattern of the security's payments prior
to maturity. Duration is a measure of the expected life of a fixed income
security on a present value basis. Duration takes the length of the time
intervals between the present time and the time that the interest and principal
payments are scheduled or, in the case of a callable bond, expected to be
received, and weights them by the present values of the cash to be received at
each future point in time. For any fixed income security with interest payments
occurring prior to the payment of principal, duration is always less than
maturity. In general, all other things being the same, the lower the stated or
coupon rate of interest of a fixed income security, the longer the duration of
the security; conversely, the higher the stated or coupon rate of interest of a
fixed income security, the shorter the duration of the security.
There are some situations where even the standard duration calculation
does not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure is not properly captured by
duration in the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure. In
these and other similar situations, the Adviser will use more sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
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MORTGAGE-BACKED SECURITIES
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans. These securities are designed to provide monthly
payments of interest and principal to the investor. The mortgagor's monthly
payments to his/her lending institution are "passed-through" to investors. Fixed
Income, Domestic Fixed Income, Fixed Income Portfolio II, Special Purpose Fixed
Income, Limited Duration, High Yield, Intermediate Duration Fixed Income,
Mortgage-Backed Securities, Advisory Mortgage, International Fixed Income,
Advisory Foreign Fixed Income, Global Fixed Income, Multi-Asset-Class,
Municipal, PA Municipal, and Balanced Portfolios may invest in Mortgage-Backed
Securities. Most issuers or poolers provide guarantees of payments, regardless
of whether or not the mortgagor actually makes the payment. The guarantees made
by issuers or poolers are individual loan, title, pool and hazard insurance
purchased by the issuer. There can be no assurance that the private issuers can
meet their obligations under the policies. Mortgage-backed securities issued by
private issuers, whether or not such securities are subject to guarantees, may
entail greater risk. If there is no guarantee provided by the issuer,
mortgage-backed securities purchased by the Portfolios will be rated investment
grade by Moody's or Standard & Poor's, or, if unrated, deemed by the Adviser to
be of investment grade quality.
Underlying Mortgages
Pools consist of whole mortgage loans or participation in loans. The
majority of these loans are made to purchasers of 1-4 family homes. The terms
and characteristics of the mortgage instruments are generally uniform within a
pool but may vary among pools. For example, in addition to fixed-rate fixed-term
mortgages, the Portfolios may purchase pools of adjustable rate mortgages (ARM),
growing equity mortgages (GEM), graduated payment mortgage (GPM) and other types
where the principal and interest payment procedures vary. ARM's are mortgages
which reset the mortgage's interest rate with changes in open market interest
rates. The Portfolios' interest income will vary with changes in the applicable
interest rate on pools of ARM's. GPM and GEM pools maintain constant interest
rates, with varying levels of principal repayment over the life of the mortgage.
These different interest and principal payment procedures should not impact the
Portfolios' net asset values since the prices at which these securities are
valued each day will reflect the payment procedures.
All poolers apply standards for qualifications to local lending
institutions which originate mortgages for the pools. Poolers also establish
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, many mortgages included in pools are insured through
private mortgage insurance companies.
Average Life
The average life of pass-through pools varies with the maturities,
coupon rates, and type of the underlying mortgage instruments. In addition, a
pool's term may be shortened by unscheduled or early payments of principal and
interest on the underlying mortgages. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions.
Returns of Mortgage-Backed Securities
Yields on mortgage-backed pass-through securities are typically quoted
based on a prepayment assumption derived from the coupon and maturity of the
underlying instruments. Actual pre-payment experience may cause the realized
return to differ from the assumed yield. Reinvestment of pre-payments may occur
at higher or lower interest rates than the original investment, thus affecting
the realized returns of the Portfolios. The compounding effect from reinvestment
of monthly payments received by each Portfolio will increase its return to
shareholders, compared to bonds that pay interest semi-annually.
About Mortgage-Backed Securities
Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Additional payments are caused by repayments resulting from the
sale of the underlying residential property, refinancing or foreclosure net of
fees or costs which may be incurred. Some mortgage-backed securities are
described as "modified pass-through." These securities entitle the holders to
receive all interest and principal payments owed on the mortgages in the pool,
net of certain fees, regardless of whether or not the mortgagors actually make
payment.
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Residential mortgage loans are pooled by the Federal Home Loan Mortgage
Corporation (FHLMC). FHLMC is a corporate instrumentality of the U.S. Government
and was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. FHLMC issues
Participation Certificates ("PC's") which represent interests in mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and
ultimate collection of principal.
The Federal National Mortgage Association (FNMA) is a
Government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases residential mortgages from a list of approved seller/servicers
which include state and federally-chartered savings and loan associations,
mutual savings, banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA.
The principal Government guarantor of mortgage-backed securities is the
Government National Mortgage Association (GNMA). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued by
approved institutions and backed by pools of FHA-insured or VA-guaranteed
mortgages.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than Government and Government-related pools because there are no
direct or indirect Government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance purchased by the issuer. The insurance and guarantees are
issued by Governmental entities, private insurers and the mortgage poolers.
There can be no assurance that the private insurers can meet their obligations
under the policies. Mortgage-Backed securities purchased for the Portfolios
will, however, be rated of investment grade quality by Moody's and/or Standard &
Poor's or, if unrated, deemed by the Adviser to be of investment grade quality.
It is expected that Governmental or private entities may create
mortgage loan pools offering pass-through investments in addition to those
described above. The mortgages underlying these securities may be alternative
mortgage instruments, that is, mortgage instruments whose principal or interest
payment may vary or whose terms to maturity may be shorter than previously
customary. As new types of mortgage-backed securities are developed and offered
to investors, the Portfolios will, consistent with their investment objective
and policies, consider making investments in such new types of securities.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities ("SMBS") are derivative multiclass
mortgage securities. SMBS may be issued by agencies or instrumentalities of the
U.S. Government or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose entities of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the "IO" class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on a Portfolio yield to maturity from these securities. 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.
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U.S. GOVERNMENT SECURITIES
The term "U.S. Government securities" refers to a variety of securities
which are issued or guaranteed by the United States Government, and by various
instrumentalities which have been established or sponsored by the United States
Government. U.S. Treasury securities are backed by the "full faith and credit"
of the United States.
Agency Securities: Securities issued or guaranteed by Federal agencies
and U.S. Government sponsored instrumentalities may or may not be backed by the
full faith and credit of the United States. In the case of securities not backed
by the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment. Agencies which are backed by the full faith and credit of
the United States include the Export Import Bank, Farmers Home Administration,
Federal Financing Bank, and others. Certain debt issued by Resolution Funding
Corporation has both its principal and interest backed by the full faith and
credit of the U.S. Treasury in that its principal is defeased by U.S. Treasury
zero coupon issues, while the U.S. Treasury is explicitly required to advance
funds sufficient to pay interest on it, if needed. Certain agencies and
instrumentalities. such as the Government National Mortgage Association, are, in
effect, backed by the full faith and credit of the United States through
provisions in their charters that they may make "indefinite and unlimited"
drawings on the Treasury, if needed to service its debt. Debt from certain other
agencies and instrumentalities, including the Federal Home Loan Bank and Federal
National Mortgage Association, are not guaranteed by the United States, but
those institutions are protected by the discretionary authority of the U.S.
Treasury to purchase certain amounts of their securities to assist the
institution in meeting its debt obligations. Finally, other agencies and
instrumentalities, such as the Farm Credit System and the Federal Home Loan
Mortgage Corporation, are federally chartered institutions under Government
supervision, but their debt securities are backed only by the credit worthiness
of those institutions, not the U.S. Government.
Some of the U.S. Government agencies that issue or guarantee securities
include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration, Small
Business Administration and The Tennessee Valley Authority.
An instrumentality of the U.S. Government is a Government agency
organized under Federal charter with Government supervision. Instrumentalities
issuing or guaranteeing securities include, among others, Federal Home Loan
Banks, the Federal Land Banks, Central Bank for Cooperatives, Federal
Intermediate Credit Banks and the Federal National Mortgage Association.
ZERO COUPON BONDS
Zero Coupon bonds, are a term used to describe notes and bonds which
have been stripped of their unmatured interest coupons, or the coupons
themselves, and also receipts or certificates representing interest in such
stripped debt obligations and coupons. The timely payment of coupon interest and
principal on these instruments remains guaranteed by the "full faith and credit"
of the United States Government.
A zero coupon bond does not pay interest. Instead, it is issued at a
substantial discount to its "face value"--what it will be worth at maturity. The
difference between a security's issue or purchase price and its face value
represents the imputed interest an investor will earn if the security is held
until maturity. For tax purposes, a portion of this imputed interest is deemed
as income received by zero coupon bondholders each year. The Fund, which expects
to qualify as a regulated investment company, intends to pass along such
interest as a component of the Portfolio's distributions of net investment
income.
Zero coupon bonds may offer investors the opportunity to earn higher
yields than those available on U.S. Treasury bonds of similar maturity. However,
zero coupon bond prices may also exhibit greater price volatility than ordinary
debt securities because of the manner in which their principal and interest is
returned to the investor.
Zero Coupon Treasury Bonds are sold under a variety of different names,
such as: Certificate of Accrual on Treasury Securities (CATS), Treasury Receipts
(Trs), Separate Trading of Registered Interest and Principal of Securities
(STRIPS) and Treasury Investment Growth Receipts (TIGERS).
REPURCHASE AGREEMENTS
Repurchase agreements are transactions by which a person purchases a
security and simultaneously commits to resell that security to the seller (a
member bank of the Federal Reserve System or recognized securities dealer) at an
agreed upon price on an agreed upon date within a number of days (usually not
more than seven) from the date 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 maturity of the purchased security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security.
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The use of repurchase agreements involves certain risks. For example,
if the seller of the agreement defaults on its obligation to repurchase the
underlying securities at a time when the value of these securities has declined,
the Portfolio may incur a loss upon disposition of them. If the seller of the
agreement becomes insolvent and subject to liquidation or reorganization under
the Bankruptcy Code or other laws, a bankruptcy court may determine that the
underlying securities are collateral not within the control of the Portfolio and
therefore subject to sale by the trustee in bankruptcy. Finally, it is possible
that the Portfolio may not be able to substantiate its interest in the
underlying securities. While the Fund's management acknowledges these risks, it
is expected that they can be controlled through stringent security selection
criteria and careful monitoring procedures.
EURODOLLAR AND YANKEE OBLIGATIONS
Eurodollar bank obligations are dollar-denominated certificates of
deposit and time deposits issued outside the U.S. capital markets by foreign
branches of banks and by foreign banks. Yankee bank obligations are
dollar-denominated obligations issued in the U.S. capital markets by foreign
banks.
Eurodollar and Yankee obligations are subject to the same risks that
pertain to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a limited extent, Yankee) obligations are
subject to certain sovereign risks. One such risk is the possibility that a
sovereign country might prevent capital, in the form of dollars, from flowing
across their borders. Other risks include: adverse political and economic
developments; the extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes, and the
expropriation or nationalization of foreign issuers. However, Eurodollar and
Yankee obligations held in the Cash Reserves Portfolio will undergo the same
credit analysis as domestic issues in which the Cash Reserves Portfolio invests,
and will have at least the same financial strength as the domestic issuers
approved for the Cash Reserves Portfolio.
BRADY BONDS
A portion of each of the Fund's fixed-income investments (the Cash
Reserves Portfolio must invest in dollar-denominated Brady Bonds only) may be
invested in certain debt obligations customarily referred to as "Brady Bonds",
which are created through the exchange of existing commercial bank loans to
foreign entities for new obligations in connection with debt restructuring under
a plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady
(the "Brady Plan").
Brady Bonds have been issued only recently, and, accordingly, do not
have a long payment history. They may be collateralized or uncollateralized and
issued in various currencies (although most are dollar-denominated) and they are
actively traded in the over-the-counter secondary market.
Dollar-denominated, collateralized Brady Bonds, which may be fixed rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations which
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating rate bonds, initially is equal to at least
one year's rolling interest payments based on the applicable interest rate at
that time and is adjusted at regular intervals thereafter. Certain Brady Bonds
are entitled to "value recovery payments" in certain circumstances, which in
effect constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute the "residual risk"). In the event of
a default with respect to Collateralized Brady Bonds as a result of which the
payment obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal the
principal payments which would have then been due on the Brady Bonds in the
normal course. In addition, in light of the residual risk of the Brady Bonds
and, among other factors, the history of default with respect to commercial bank
loans by public and private entities of countries issuing Brady Bonds,
investments in Brady bonds are to be viewed as speculative.
- 15 -
<PAGE>
Brady Plan debt restructurings totaling approximately $73 billion have
been implemented to date in Argentina, Costa Rica, Mexico, Nigeria, the
Philippines, Uruguay and Venezuela, with the largest proportion of Brady Bonds
having been issued to date by Mexico and Venezuela. Brazil has announced plans
to issue Brady Bonds aggregating approximately $35 billion, based on current
estimates. There can be no assurance that the circumstances regarding the
issuance of Brady Bonds by these countries will not change.
CASH RESERVES PORTFOLIO
A-1 and Prime-1 Commercial Paper Ratings
Commercial paper rated A-1 by Standard & Poor's has the following
characteristics: (1) liquidity ratios are adequate to meet cash requirements;
(2) long-term senior debt is rated "A" or better; (3) the issuer has access to
at least two additional channels of borrowing; (4) basic earnings and cash flow
have an upward trend with allowance made for unusual circumstances; (5)
typically, the issuer's industry is well established and the issuer has a strong
position within the industry; and (6) the reliability and quality of management
are unquestioned. Relative strength or weakness of the above factors determine
whether the issuer's commercial paper is A-1, A-2, or A-3. The rating Prime-1 is
the highest commercial paper rating assigned by Moody's. Among the factors
considered by Moody's in assigning ratings are the following: (1) evaluation of
the management of the issuer; (2) economic evaluation of the issuer's industry
or industries and the appraisal of speculative-type risks which may be inherent
in certain areas; (3) evaluation of the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the issuer;
and (8) recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet such
obligations.
TAX CONSIDERATIONS
In order for a Portfolio to continue to qualify for Federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or foreign currencies, or other income derived with respect to its
business of investing in such securities or currencies. In addition, gains
realized on the sale or other disposition of securities or foreign currencies
not directly related to the company's principal business of investing in
securities held for less than three months must be limited to less than 30% of
the Portfolio's annual gross income. It is anticipated that any net gain
realized from the closing out of futures contracts will be considered gain from
the sale of securities and therefore be qualifying income for purposes of the
90% requirement. In order to avoid realizing excessive gains on securities held
less than three months, the Portfolio may be required to defer the closing out
of futures contracts beyond the time when it would otherwise be advantageous to
do so. It is anticipated that unrealized gains on futures contracts, which have
been open for less than three months as of the end of the Portfolio's fiscal
year and which are recognized for tax purposes, will not be considered gains on
securities held less than three months for the purpose of the 30% test.
Each Portfolio of the Fund will distribute to shareholders annually any
net capital gains which have been recognized for Federal income tax purposes
including unrealized gains at the end of the Portfolio's fiscal year on futures
transactions. Such distributions will be combined with distributions of capital
gains realized on the Portfolio's other investments and shareholders will be
advised of the nature of the payments.
The 30% limit on gains from the disposition of certain options,
futures, forward contracts, and swap contracts held less than three months, and
the qualifying income and diversification requirements applicable to a
Portfolio's assets, may limit the extent to which a Portfolio will be able to
engage in these transactions.
PURCHASE OF SHARES
Each Portfolio reserves the right in its sole discretion (i) to suspend
the offering of its shares (ii) to reject purchase orders, (iii) to reduce or
waive the minimum for initial and subsequent investments. The Officers of the
Fund may from time to time waive the minimum initial and subsequent investment
requirements in connection with investments in the Fund by employees of the
Adviser.
- 16 -
<PAGE>
REDEMPTION OF SHARES
Each Portfolio may suspend redemption privileges or postpone the date
of payment (i) during any period that the New York Stock Exchange is closed, or
trading on the Exchange is restricted as determined by the Commission, (ii)
during any period when an emergency exists as defined by the rules of the
Commission as a result of which it is not reasonably practicable for a Portfolio
to dispose of securities owned by it, or fairly to determine the value of its
assets, and (iii) for such other periods as the Commission may permit.
The Fund has made an election with the Commission to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net assets of the Portfolio
at the beginning of such period. Such commitment is irrevocable without the
prior approval of the Commission. Redemptions in excess of the above limits may
be paid in whole or in part in investment securities or in cash, as the Trustees
may deem advisable; however, payment will be made wholly in cash unless the
Trustees believe that economic or market conditions exist which would make such
a practice detrimental to the best interests of the Fund. If redemptions are
paid in investment securities, such securities will be valued as set forth in
the Fund's Prospectus under "Valuation of Shares" and a redeeming shareholder
would normally incur brokerage expenses if he converted these securities to
cash.
No charge is made by a Portfolio for redemptions. Redemption proceeds
may be more or less than the shareholder's cost depending on the market value of
the securities held by the Portfolio.
SHAREHOLDER SERVICES
The following supplements the shareholder services set forth in the Fund's
Prospectus:
Exchange Privilege
The exchange privilege is only available with respect to Portfolios that are
registered for sale in a shareholder's state. Exchange requests should be sent
to MAS Funds, c/o Miller Anderson & Sherrerd, LLP, Client Services Group, One
Tower Bridge, Suite 1150, P.O. Box 868, West Conshohocken, PA 19428-0868. Any
such exchange will be based on the respective net asset values of the shares
involved. Before making an exchange, a shareholder should consider the
investment objectives of the Portfolio to be purchased. Exchange requests may be
made either by mail or telephone. Telephone exchanges (referred to as "expedited
exchanges") will be accepted only if the certificates for the shares to be
exchanged are held by the Fund for the account of the shareholder and the
registration of the two accounts are identical. Requests for expedited exchanges
received prior to 12:00 p.m. for the Cash Reserves Portfolio and prior to 4:00
p.m. (Eastern time) for all other Portfolios will be processed as of the close
of business on the same day. Requests received after these times will be
processed on the next business day. Expedited exchanges may also be subject to
limitations as to amounts or frequency, and to other restrictions established by
the Board of Trustees to assure that such exchanges do not disadvantage the Fund
and its shareholders. The officers of the Fund reserve the right not to accept
any request for an exchange when, in their opinion, the exchange privilege is
being used as a tool for market timing.
For Federal income tax purposes, an exchange between Portfolios of the
Fund is a taxable event, and, accordingly, a capital gain or loss may be
realized. In a revenue ruling relating to circumstances similar to the Fund's,
an exchange between a series of a Fund was also deemed to be a taxable event. It
is likely, therefore, that a capital gain or loss would be realized on an
exchange between Portfolios; you may want to consult your tax adviser for
further information in this regard. The exchange privilege may be modified or
terminated at any time.
Transfer of Shares
Shareholders may transfer shares of the Fund's Portfolios to another
person by written request to the Client Services Group at the address noted
above. The request should clearly identify the account and number of shares to
be transferred and include the signature of all registered owners and all share
certificates, if any, which are subject to the transfer. The signature on the
letter of request, the share certificate or any stock power must be guaranteed
in the same manner as described under "Redemption of Shares." As in the case of
redemptions, the written request must be received in good order before any
transfer can be made.
INVESTMENT LIMITATIONS
Each Portfolio of the Fund is subject to the following restrictions
which are fundamental policies and may not be changed without the approval of
the lesser of: (1) at least 67% of the voting securities of the Portfolio
present at a meeting if the holders of more than 50% of the outstanding voting
securities of the Portfolio are present or represented by proxy, or (2) more
than 50% of the outstanding voting securities of the Portfolio.
- 17 -
<PAGE>
As a matter of fundamental policy, each Portfolio will not:
(1) invest in physical commodities or contracts on physical commodities;
(2) purchase or sell real estate, although it may purchase and sell securities
of companies which deal in real estate, other than real estate limited
partnerships, and may purchase and sell marketable securities which are secured
by interests in real estate;
(3) make loans except: (i) by purchasing debt securities in accordance with its
investment objectives and policies, or entering into repurchase agreements,
subjects to the limitations described in (h), below, (ii) by lending its
portfolio securities, and (iii) by lending portfolio assets to other Portfolios
of the Fund, so long as such loans are not inconsistent with the Investment
Company Act of 1940, as amended (the "1940 Act"), or the Rules and Regulations,
or interpretations or orders of the Securities and Exchange Commission
thereunder;
(4) with respect to 75% of its assets, purchase a security if, as a result, it
would hold more than 10% (taken at the time of such investment) of the
outstanding voting securities of any issuer (this restriction is not applicable
to the Global Fixed Income, International Fixed Income, Advisory Foreign Fixed
Income or the Emerging Markets Portfolios);
(5) with respect to 75% of its assets, purchase securities of any issuer if, as
a result, more than 5% of the Portfolio's total assets, taken at market value at
the time of such investment, would be invested in the securities of such issuer
except that this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities (this restriction
does not apply to the Global Fixed Income, International Fixed Income, Advisory
Foreign Fixed Income or the Emerging Markets Portfolios);
(6) borrow money, except (i) as a temporary measure for extraordinary or
emergency purposes, and (ii) in connection with reverse repurchase agreements,
provided that (i) and (ii) in combination do not exceed 33 1/3% of the
Portfolio's total assets (including the amount borrowed) less liabilities
(exclusive of borrowings);
(7) underwrite the securities of other issuers (except to the extent that the
fund may be deemed to be an underwriter within the meaning of the Securities Act
of 1933 in connection with the disposition of restricted securities);
(8) acquire any securities of companies within one industry, other than
mortgage-backed securities in the case of the Mortgage-Backed Securities and
Advisory Mortgage Portfolios, if as a result of such acquisition, more than 25%
of the value of the Portfolio's total assets would be invested in securities of
companies within such industry; provided, however, that there shall be no
limitation on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, when any such Portfolio adopts a
temporary defensive position. Additionally, the Cash Reserves Portfolio may
invest without limitation in obligations of the U.S. Government or its agencies
and instrumentalities or certificates of deposit or bankers' acceptance of
domestic banks;
(9) the Select Equity Portfolio may not invest in the securities of companies
listed by the Investor Responsibility Research Center as having direct
investment or employees in South Africa prior to August 31, 1993.
Each Portfolio is also subject to the following restrictions which may
be changed by the Board of Trustees without shareholder approval.
As a matter of non-fundamental policy, each Portfolio will not:
(a) enter into futures contracts to the extent that its outstanding obligations
to purchase securities under these contracts in combination with its outstanding
obligations with respect to options transactions would exceed 50% of its total
assets, and will maintain assets sufficient to meet its obligations under such
contracts in a segregated account with the custodian bank or will otherwise
comply with the SEC's position on asset coverage.
(b) invest in puts, calls, straddles or spreads except as described above in
(a);
(c) invest in warrants, valued at the lower of cost or market, in excess of 5%
of the value of its total assets. Included within that amount, but not to exceed
2% of the value of the Portfolio's net assets, may be warrants that are not
listed on the New York or American Stock Exchanges or an exchange with
comparable listing requirements. Warrants attached to securities are not subject
to this limitation.
(d) purchase on margin, except for use of short-term credit as may be necessary
for the clearance of purchases and sales of securities, but it may make margin
deposits in connection with transactions in options, futures, and options on
futures; or sell short unless, by virtue of its ownership of other securities,
- 18 -
<PAGE>
it has the right to obtain securities equivalent in kind and amount to the
securities sold and, if the right is conditional, the sale is made upon the same
conditions. Transactions in futures contracts and options are not deemed to
constitute selling securities short;
(e) purchase or retain securities of an issuer if those Officers and Trustees of
the Fund or its investment adviser owning more than 1/2 of 1% of such securities
together own more than 5% of such securities;
(f) borrow money other than from banks or other Portfolios of the Fund, provided
such borrowing is not inconsistent with the 1940 Act, as amended, or the Rules
and Regulations or interpretations or orders of the Securities and Exchange
Commission thereunder; or purchase additional securities when borrowings exceed
5% of total (gross) assets;
(g) pledge, mortgage, or hypothecate any of its assets to an extent greater than
50% of its total assets at fair market value;
(h) invest more than an aggregate of 15% of the net assets of the Portfolio
(except that the Cash Reserves Portfolio may not invest more than an aggregate
of 10% of its total assets), determined at the time of investment, in securities
subject to legal or contractual restrictions on resale or securities for which
there are no readily available markets, including repurchase agreements having
maturities of more than seven days and OTC options provided that (except for the
Cash Reserves Portfolio) there is no limitation with respect to or arising out
of investment in (i) securities that have legal or contractual restrictions on
resale but have a readily available market, or (ii) securities that are not
registered under the Securities act of 1933, as amended (the "1933 Act") but
which can be sold to qualified institutional investors in accordance with Rule
144A under the 1933 Act;
(i) invest for the purpose of exercising control over management of any company;
(j) invest its assets in securities of any investment company, except by
purchase in the open market involving only customary brokers' commissions or in
connection with mergers, acquisitions of assets or consolidations and except as
may otherwise be permitted by the 1940 Act, as amended;
(k) invest more than 5% of its total assets in securities of issuers (other than
securities issued or guaranteed by U.S. or foreign governments or political
subdivisions thereof) which have (with predecessors) a record of less than three
years' continuous operation;
(l) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases;
(m) (with respect to the Global Fixed Income, International Fixed Income,
Advisory Foreign Fixed Income and Emerging Markets Portfolios) purchase the
securities of any issuer (other than obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities) if, as a result, with
respect to 50% of its total assets, more than 5% of the value of its total
assets would be invested in the securities of any single issuer, or it would
hold more than 10% of the outstanding voting securities of such issuer, or more
than 25% of the value of its total assets would be invested in the securities of
any single issuer.
Unless otherwise indicated, if a percentage limitation on investment or
utilization of assets as set forth above is adhered to at the time an investment
is made, a later change in percentage resulting from changes in the value or
total cost of the Portfolio's assets will not be considered a violation of the
restriction, and the sale of securities will not be required.
MANAGEMENT OF THE FUND
Trustees and Officers
The Fund's officers, under the supervision of the Board of Trustees,
manage the day-to-day operations of the Fund. The Trustees set broad policies
for the Fund and choose its officers. The following is a list of the Trustees
and officers of the Fund and a brief statement of their present positions and
principal occupations during the past 5 years:
Thomas L. Bennett,* Chairman of the Board of Trustees; Portfolio Manager, Miller
Anderson & Sherrerd, LLP; Director, MAS Fund Distribution, Inc.
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.
- 19 -
<PAGE>
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.
James D. Schmid, President; [ ], Miller Anderson & Sherrerd, LLP; Director,
MAS Fund Distribution, Inc., Chairman of the Board of Directors, The Minerva
Fund, Inc.; formerly Vice President, Chase Manhattan Bank.
Lorraine Truten, Vice President; Head of Mutual Fund Administration, Miller
Anderson & Sherrerd, LLP; President, MAS Fund Distribution, Inc.
Douglas W. Kugler, Treasurer; Manager of Mutual Fund Administration, Miller
Anderson & Sherrerd, LLP; formerly Assistant Vice President, Provident Financial
Processing Corporation.
John H. Grady, Jr., Secretary; Partner, Morgan, Lewis & Bockius, LLP; formerly,
Attorney, Ropes & Gray.
Ellen P. Watson, Assistant Secretary; Supervisor of State Securities
Registration, Chase Global Funds Services; formerly Assistant Manager, Blue Sky
Department, The Putnam Companies.
*Trustee Bennett is deemed to be an "interested person" of the Fund as that term
is defined in the Investment Company Act of 1940, as amended.
Effective July 31, 1995, Dr. Marna C. Whittington and Mr. John D. Connolly
resigned as Trustees of the Fund. Also effective July 31, 1995, Mr. Karl O.
Hartmann resigned as Secretary of the Fund.
As of ___________, 1996, the Trustees and officers of the Fund, as a
group, owned 2% of the outstanding shares of the High Yield Portfolio and less
than 1% of the outstanding shares of any other Portfolio of the Fund.
Remuneration of Trustees and Officers
The Fund pays each Trustee, who is not also an officer or affiliated
person, a fee for each Board of Trustees Meeting attended plus travel and other
expenses incurred in attending such meetings. Trustees who are also officers or
affiliated persons receive no remuneration for their service as Trustees. The
Fund's officers and employees are paid by the Adviser or Sub-Administrator.
During the fiscal year ended September 30, 1995, the Fund paid $______ in fees
and expenses to its "non-interested" Trustees.
The aggregate compensation paid by the Fund to each of the Trustees
during its fiscal year ended September 30, 1995 is set forth below.
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Estimated Total
Aggregate (2) Accrued Annual Compensation
Compensation As Part of Fund Benefits upon from the
Name of Trustee (1) from the Fund Expenses Retirement Fund
- ------------------- ------------- -------- ---------- --------
<S> <C> <C> <C> <C>
Thomas L. Bennett* $______ $-0- $-0- $______
David P. Eastburn $______ $-0- $-0- $______
Joseph P. Healy $______ $-0- $-0- $______
Joseph J. Kearns $______ $-0- $-0- $______
C. Oscar Morong, Jr. $______ $-0- $-0- $______
</TABLE>
*Trustee Bennett is deemed to be an "interested person" of the Fund as that term
is defined in the Investment Company Act of 1940, as amended.
- 20 -
<PAGE>
(2) Does not include out of pocket expenses of $419, $2,009 and $176 paid to
Messrs. Eastburn, Kearns and Morong, respectively.
Principal Holders of Securities
As of___________ , 199__, the following persons owned of record or
beneficially 5% or more of the shares of a Portfolio:
The persons listed above as owning 25% or more of the outstanding
shares of each Portfolio may be presumed to "control" (as that term is defined
in the Investment Company Act of 1940, as amended) such Portfolios. As a result,
those persons would have the ability to vote a majority of the shares of the
Portfolios on any matter requiring the approval of shareholders of such
Portfolios.
DISTRIBUTION PLANS
The Fund's Distribution Plan provides that the Adviser Class Shares
will pay the Distributor a fee of .25% of the average daily net assets of each
Portfolio attributable to Adviser Class Shares, which the Distributor can use to
compensate broker/dealers and service providers which provide distribution
services to Investment Class Shareholders or their customers who beneficially
own Adviser Class Shares.
The Fund has adopted the Distribution Plan in accordance with the
provisions of Rule 12b-1 under the 1940 Act which regulates circumstances under
which an investment company may directly or indirectly bear expenses relating to
the distribution of its shares. Continuance of the Plan must be approved
annually by a majority of the Trustees of the Fund and the Trustees who are not
"interested persons" of the Fund within the meaning of the Investment Company
Act of 1940. The Plan requires that quarterly written reports of amounts spent
under the Plan and the purposes of such expenditures be furnished to and
reviewed by the Trustees. The Plan may not be amended to increase materially the
amount which may be spent thereunder without approval by a majority of the
outstanding Adviser Class Shares of the Fund. All material amendments of the
Plan will require approval by a majority of the Trustees of the Fund and of
the Trustees who are not "interested persons" of the Fund.
INVESTMENT ADVISER
Under an Investment Advisory Agreement ("Agreement") with the Fund, the
Adviser, subject to the control and supervision of the Fund's Board of Trustees
and in conformance with the stated investment 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 for investment securities.
As compensation for the services rendered by the Adviser under the
Agreement and the assumption by the Adviser of the expenses related thereto
(other than the cost of securities purchased for the Portfolios and the taxes
and brokerage commissions, if any, payable in connection with the purchase
and/or sale of such securities), 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:
- 21 -
<PAGE>
Rate
Equity Portfolio.......................................... .500%
Select Equity Portfolio................................... .500
Value Portfolio........................................... .500
Small Cap Value Portfolio................................. .750
Growth Portfolio.......................................... .500
Mid Cap Growth Portfolio.................................. .500
Mid Cap Value Portfolio................................... .750
Fixed Income Portfolio.................................... .375
Domestic Fixed Income Portfolio........................... .375
Fixed Income Portfolio II................................. .375
Special Purpose Fixed Income Portfolio.................... .375
High Yield Portfolio...................................... .375
Limited Duration Portfolio................................ .300
Intermediate Duration Portfolio........................... .375
Mortgage-Backed Securities Portfolio...................... .375
Balanced Portfolio........................................ .450
Multi-Asset-Class Portfolio............................... .450
International Equity Portfolio............................ .500
Emerging Markets Portfolio................................ .750
International Fixed Income Portfolio...................... .375
Advisory Foreign Fixed Income Portfolio................... .375
Advisory Mortgage Portfolio............................... .375
Global Fixed Income Portfolio............................. .375
Cash Reserves Portfolio................................... .250
Municipal Portfolio....................................... .375
PA Municipal Portfolio.................................... .375
In cases where a shareholder of any of the Portfolios has an investment
counseling relationship with the Adviser, the Adviser may, at its discretion,
reduce the shareholder's investment counseling fees by an amount equal to the
pro-rata advisory fees paid by the Fund. This procedure will be utilized with
clients having contractual relationships based on total assets managed by Miller
Anderson & Sherrerd to avoid situations where excess advisory fees might be paid
to the Adviser. In no event will a client pay higher total advisory fees as a
result of the client's investment in the Fund. In addition, the Adviser has
voluntarily agreed to waive its advisory fees to the extent necessary, if any,
to keep the Select Equity, Mid Cap Value, Domestic Fixed Income, High Yield,
Limited Duration, Intermediate Duration, Mortgage-Backed Securities,
Multi-Asset-Class, Emerging Markets, International Fixed Income, Advisory
Foreign Fixed Income, Advisory Mortgage, Global Fixed Income, Cash Reserves,
Municipal, and PA Municipal Portfolios' total annual operating expenses from
exceeding .610%, .880%, .500%, .525%, .420%, .520%, .500%, .580%, 1.180%, .600%,
.150%, .08%, .580%, .320%, .500%, and .500% of its average daily net assets,
respectively.
- 22 -
<PAGE>
For the fiscal years ended September 30, 1993 1994 and 1995, the Fund paid the
following advisory fees:
<TABLE>
<CAPTION>
====================================================================================================================================
Advisory Fees Paid (000) Advisory Fees Waived (000)
Fund
-------------------------------------------------------------------------------------
1993 1994 1995 1993 1994 1995
(000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Advisory Foreign Fixed Income Portfolio * * -0- * * 1,631
- ------------------------------------------------------------------------------------------------------------------------------------
Advisory Mortgage Portfolio * * -0- * * 1,711
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Portfolio * * 85 * * 52
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Portfolio 5,193 5,933 6,840 -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio * * * * * *
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Portfolio 3,434 5,412 5,437 -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Mid Cap Growth Portfolio * * 1,504 * * -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Mid Cap Value Portfolio * * -0- * * 14
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio 1,016 1,833 2,683 -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Value Portfolio 3,091 4,764 5,078 -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Reserves Portfolio 1 21 51 28 28 39
- ------------------------------------------------------------------------------------------------------------------------------------
Domestic Fixed Income Portfolio 354 187 75 -0- 13 23
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed Income Portfolio 3,351 3,997 4,893 -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed Income II Portfolio 307 457 567 -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Global Fixed Income Portfolio 17 193 190 15 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield Portfolio 97 503 764 29 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate Duration Portfolio * * 57 * * 17
- ------------------------------------------------------------------------------------------------------------------------------------
International Fixed Income Portfolio * 64 395 * 26 -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Limited Duration Portfolio 137 348 206 14 -0- 11
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-Backed Securities Portfolio 99 362 348 21 5 5
- ------------------------------------------------------------------------------------------------------------------------------------
Municipal Portfolio 22 112 110 25 22 37
- ------------------------------------------------------------------------------------------------------------------------------------
PA Municipal Portfolio 9 62 32 17 19 31
- ------------------------------------------------------------------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio 1,062 1,233 1,574 -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio 614 1,388 1,385 -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio * 16 220 * 22 100
- ------------------------------------------------------------------------------------------------------------------------------------
Select Equity Portfolio 1,273 885 86 -0- 12 31
====================================================================================================================================
</TABLE>
* Not in operation during the period.
- 23 -
<PAGE>
The Agreement continues for successive one year periods, only if each
renewal is specifically approved by a vote of the Fund's Board of Trustees,
including the affirmative votes of a majority of the Trustees who are not
parties to the agreement or "interested persons" (as defined in the 1940 Act, as
amended) of any such party in person at a meeting called for the purpose of
considering such approval. In addition, the question of continuance of the
Agreement may be presented to the shareholders of the Fund; in such event,
continuance shall be effected only if approved by the affirmative vote of a
majority of the outstanding voting securities of each Portfolio of the Fund. If
the holders of any Portfolio fail to approve the Agreement, the Adviser may
continue to serve as investment adviser to each Portfolio which approved the
Agreement, and to any Portfolio which did not approve the Agreement until new
arrangements have been made. The Agreement is automatically terminated if
assigned, and may be terminated by any Portfolio without penalty, at any time,
(1) by vote of the Board of Trustees or by vote of the outstanding voting
securities of the Portfolio (2) or sixty (60) days' written notice to the
Adviser, or (3) by the Adviser upon ninety (90) days' written notice to the
Fund.
The Fund bears all of its own costs and expenses, including but not
limited to: services of its independent accountants, its administrator and
dividend disbursing and transfer agent, legal counsel, taxes, insurance
premiums, costs incidental to meetings of its shareholders and Trustees, the
cost of filing its registration statements under Federal and State securities
laws, reports to shareholders, and custodian fees. These Fund expenses are, in
turn, allocated to each Portfolio, based on their relative net assets. Each
Portfolio bears its own advisory fees and brokerage commissions and transfer
taxes in connection with the acquisition and disposition of its investment
securities.
ADMINISTRATION
MAS also serves as Administrator to the Fund pursuant to an
Administration Agreement dated as of November 18, 1993. Chase Global Funds
Services (formerly Mutual Fund Services Company, or MFSC), an affiliate of Chase
Manhattan Bank, N.A., serves as transfer agent and provides fund accounting and
other services pursuant to a sub-administration agreement.
- 24 -
<PAGE>
For the fiscal years ended September 30, 1993, 1994 and 1995, the Fund paid the
following administrative fees:
<TABLE>
<CAPTION>
========================================================================================
Administrative Fees Paid (000)
Fund
----------------------------------------
1993 1994 1995
(000) (000) (000)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Advisory Foreign Fixed Income Portfolio * * 357
- ----------------------------------------------------------------------------------------
Advisory Mortgage Portfolio * * 374
- ----------------------------------------------------------------------------------------
Emerging Markets Portfolio * * 14
- ----------------------------------------------------------------------------------------
Equity Portfolio 635 949 1,094
- ----------------------------------------------------------------------------------------
Growth Portfolio * * *
- ----------------------------------------------------------------------------------------
International Equity Portfolio 440 875 870
- ----------------------------------------------------------------------------------------
Mid Cap Growth Portfolio * * 241
- ----------------------------------------------------------------------------------------
Mid Cap Value Portfolio * * 1
- ----------------------------------------------------------------------------------------
Small Cap Value Portfolio 92 207 286
- ----------------------------------------------------------------------------------------
Value Portfolio 374 762 812
- ----------------------------------------------------------------------------------------
Cash Reserves Portfolio 8 15 29
- ----------------------------------------------------------------------------------------
Domestic Fixed Income Portfolio 60 43 21
- ----------------------------------------------------------------------------------------
Fixed Income Portfolio 538 843 1,044
- ----------------------------------------------------------------------------------------
Fixed Income II Portfolio 53 99 121
- ----------------------------------------------------------------------------------------
Global Fixed Income Portfolio 5 41 41
- ----------------------------------------------------------------------------------------
High Yield Portfolio 21 108 163
- ----------------------------------------------------------------------------------------
Intermediate Duration Portfolio * * 16
- ----------------------------------------------------------------------------------------
International Fixed Income Portfolio * 27 84
- ----------------------------------------------------------------------------------------
Limited Duration Portfolio 32 93 58
- ----------------------------------------------------------------------------------------
Mortgage-Backed Securities Portfolio 22 80 75
- ----------------------------------------------------------------------------------------
Municipal Portfolio 12 37 31
- ----------------------------------------------------------------------------------------
PA Municipal Portfolio 8 24 13
- ----------------------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio 174 261 336
- ----------------------------------------------------------------------------------------
Balanced Portfolio 90 259 246
- ----------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio * 8 57
- ----------------------------------------------------------------------------------------
Select Equity Portfolio 165 153 19
========================================================================================
</TABLE>
* Not in operation during the period.
- 25 -
<PAGE>
DISTRIBUTOR FOR FUND
MAS Fund Distribution, Inc. (the "Distributor"), a wholly-owned
subsidiary of the Adviser, with its principal office at One Tower Bridge, West
Conshohocken, Pennsylvania 19428, distributes the shares of the Fund. Under the
Distribution Agreement, the Distributor, as agent of the Fund, agrees to use its
best efforts as sole distributor of the Fund's shares. The Distribution
Agreement which continues in effect so long as such continuance is approved at
least annually by the Fund's Board of Trustees, including a majority of those
Trustees who are not parties to such Distribution Agreement nor interested
persons of any such party. The Distribution Agreement provides that the Fund
will bear the costs of the registration of its shares with the SEC and various
states and the printing of its prospectuses, statements of additional
information and reports to shareholders.
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.
Morgan Stanley Trust Company is an affiliated person, as defined in the 1940
Act, of the Adviser and is compensated for its services as custodian on a per
account basis plus out of pocket expenses.
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for each of the Fund's Portfolios and directs the Adviser to use its
best efforts to obtain the best execution with respect to all transactions for
the Portfolios. In so doing, the Adviser will consider all matters it deems
relevant, including the following: the Adviser's knowledge of negotiated
commission rates and spreads currently available; the nature of the security or
instrument being traded; the size and type of the transaction; the nature and
character of the markets for the security or instrument to be purchased or sold;
the desired timing of the transaction; the activity existing and expected in the
market for the particular security or instrument; confidentiality; the
execution, clearance, and settlement capabilities of the broker or dealer
selected and other brokers or dealers considered; the reputation and perceived
soundness of the broker or dealer selected and other brokers or dealers
considered; the Adviser's knowledge of any actual or apparent operational
problems of a broker or dealer; and the reasonableness of the commission or its
equivalent for the specific transaction.
Although the Adviser generally seeks competitive commission rates and
dealer spreads, a Portfolio will not necessarily pay the lowest available
commission on brokerage transactions or markups on principal transactions.
Transactions may involve specialized services on the part of the broker or
dealer involved, and thereby justify higher commissions or markups than would be
the case with other transactions requiring more routine services. In addition, 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, pricing, and execution services provided by the broker
effecting the transaction. The Adviser does not attempt to put a specific dollar
value on the research services rendered or to allocate the relative costs or
benefits of those services among its clients, believing that the research it
receives will help the Adviser to fulfill its overall duty to its clients. The
Adviser uses research services obtained in this manner for the benefit of all of
its clients, though each particular research service may not be used to service
each client. As a result, the Fund may pay brokerage commissions that are used,
in part, to purchase research services that are not used to benefit the Fund.
It is not the Fund's practice to allocate brokerage or principal
business on the basis of sales of shares which may be made through intermediary
brokers or dealers. However, the Adviser may place portfolio orders with
qualified broker-dealers who recommend the Fund's Portfolios or who act as
agents in the purchase of shares of the Portfolios for their clients. During the
fiscal years ended September 30, 1993, 1994 and 1995, the Fund paid brokerage
commissions of $6,451,272, $8,785,671 and $13,457,075, respectively.
Some securities considered for investment by each of the Fund's
Portfolios may also be appropriate for other clients served by the Adviser. If
purchases or sales of securities consistent with the investment policies of a
Portfolio and one or more of these other clients serviced by the Adviser is
considered at or about the same time, transactions in such securities will be
allocated among the Portfolio and clients in a manner deemed fair and reasonable
by the Adviser. Although there is no specified formula for allocating such
transactions, the various allocation methods used by the Adviser, and the
results of such allocations, are subject to periodic review by the Fund's
Trustees.
On January 3, 1996, affiliates of Morgan Stanley Group Inc. acquired
the Adviser. As a result of this transaction, the Adviser became affiliated with
certain U.S.-registered broker-dealers and foreign broker-dealers, including
Morgan Stanley & Co. Incorporated, Morgan Stanley & Co. International Limited,
Morgan Stanley Securities Ltd., Morgan Stanley Japan Ltd., and Morgan Stanley
Asia Ltd. (collectively, "Morgan Stanley"). The Adviser may, in the exercise of
its discretion under its investment management agreement, effect transactions in
securities or other instruments for the Fund through Morgan Stanley.
- 26 -
<PAGE>
PORTFOLIO TURNOVER
The Portfolio turnover rate for each Portfolio for the past two fiscal
years ended September 30 was as follows:
================================================================================
Portfolio 1994 1995
- --------------------------------------------------------------------------------
Emerging Markets N/A 63%
- --------------------------------------------------------------------------------
Equity 41% 67%
- --------------------------------------------------------------------------------
Growth N/A N/A
- --------------------------------------------------------------------------------
International Equity 69% 112%
- --------------------------------------------------------------------------------
Mid Cap Growth 55% 129%
- --------------------------------------------------------------------------------
Mid Cap Value N/A 639%
- --------------------------------------------------------------------------------
Small Cap Value 162% 119%
- --------------------------------------------------------------------------------
Value 54% 56%
- --------------------------------------------------------------------------------
Domestic Fixed Income 78% 313%
- --------------------------------------------------------------------------------
Fixed Income 100% 140%
- --------------------------------------------------------------------------------
Fixed Income II 137% 153%
- --------------------------------------------------------------------------------
Global Fixed Income 117% 118%
- --------------------------------------------------------------------------------
High Yield 112% 96%
- --------------------------------------------------------------------------------
Intermediate Duration N/A 168%
- --------------------------------------------------------------------------------
International Fixed Income 31% 140%
- --------------------------------------------------------------------------------
Limited Duration 192% 119%
- --------------------------------------------------------------------------------
Mortgage-Backed Securities 220% 107%
- --------------------------------------------------------------------------------
Municipal 34% 58%
- --------------------------------------------------------------------------------
PA Municipal 69% 57%
- --------------------------------------------------------------------------------
Special Purpose Fixed Income 100% 143%
- --------------------------------------------------------------------------------
Balanced 75% 95%
- --------------------------------------------------------------------------------
Multi-Asset-Class 20% 112%
- --------------------------------------------------------------------------------
Select Equity 27% 73%
- --------------------------------------------------------------------------------
Advisory Mortgage N/A 110%
- --------------------------------------------------------------------------------
Advisory Foreign Fixed Income N/A 96%
================================================================================
N/A -- Portfolio has less than one year of operations.
GENERAL INFORMATION
Description of Shares and Voting Rights
The Declaration of Trust permits the Trustees to issue an unlimited
number of shares of beneficial interest, without par value, from an unlimited
number of series ("Portfolios") of shares. Currently the Fund is offering shares
of twenty-six Portfolios.
The shares of each Portfolio of the Fund are fully paid and
non-assessable, except as set forth below, and have no preference as to
conversion, exchange, dividends, retirement or other features. The shares of
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. A Shareholder of a Class is entitled to one vote for
each full Class Share held (and a fractional vote for each fractional Class
Share held), therestanding in the Shareholder's name on the books of the Fund.
Shareholders of a Class have exclusive voting rights regarding any matter
submitted to shareholders that relates solely to that Class of Shares (such as a
distribution plan or service agreement relating to that Class), and separate
voting rights on any other matter submitted to shareholders in which the
interests of the shareholders of that Class differ from the interests of holders
of any other Class.
- 27 -
<PAGE>
The Fund will continue without limitation of time, provided however
that:
1) Subject to the majority vote of the holders of shares of any Portfolio
of the Fund outstanding, the Trustees may sell or convert the assets of
such Portfolio to another investment company in exchange for shares of such
investment company, and distribute such shares, ratably among the
shareholders of such Portfolio;
2) Subject to the majority vote of shares of any Portfolio of the Fund
outstanding, the Trustees may sell and convert into money the assets of
such Portfolio and distribute such assets ratably among the shareholders of
such Portfolio; and
3) Without the approval of the shareholders of any Portfolio, unless
otherwise required by law, the Trustees may combine the assets of any two
or more Portfolios into a single Portfolio so long as such combination will
not have a material adverse effect upon the shareholders of such Portfolio.
Upon completion of the distribution of the remaining proceeds or the
remaining assets of any Portfolio as provided in paragraphs 1), 2), and 3)
above, that Portfolio shall terminate and the Trustees shall be discharged of
any and all further liabilities and duties hereunder and the right, title and
interest of all parties shall be canceled and discharged with regard to that
Portfolio.
Dividend and Capital Gains Distributions
The Fund's policy is to distribute substantially all of each
Portfolio's net investment income, if any, together with any net realized
capital gains in the amount and at the times that will avoid both income
(including capital gains) taxes on it and the imposition of the federal excise
tax on undistributed income and capital gains (see discussion under "Dividends,
Capital Gains Distributions and Taxes" in the Prospectus). The amounts of any
income dividends or capital gains distributions cannot be predicted.
Any dividend or distribution paid shortly after the purchase of shares
of a Portfolio by an investor may have the effect of reducing the per share net
asset value of that Portfolio by the per share amount of the dividend or
distribution, except for the Cash Reserves Portfolio. Furthermore, such
dividends or distributions, although in effect a return of capital, are subject
to income taxes as set forth in the Prospectus.
As set forth in the Prospectus, unless the shareholder elects otherwise
in writing, all dividends and capital gain distributions are automatically
received in additional shares of that Portfolio of the Fund at net asset value
(as of the business day following the record date). This will remain in effect
until the Fund is notified by the shareholder in writing at least three days
prior to the record date that either the Income Option (income dividends in cash
and capital gains distributions in additional shares at net asset value) or the
Cash Option (both income dividends and capital gain distributions in cash) has
been elected. An account statement is sent to shareholders whenever an income
dividend or capital gain distribution is paid.
Each Portfolio of the Fund is treated as a separate entity (and hence,
as a separate "regulated investment company") for federal tax purposes. Any net
capital gains recognized by a Portfolio are distributed to its investors without
need to offset (for federal income tax purposes) such gains against any net
capital losses of another Portfolio.
Shareholder and Trustee Liability
Under Pennsylvania law, shareholders of a trust such as the Fund may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. The Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Fund and
requires that notice of such disclaimer be given in each agreement, obligation,
or instrument entered into or executed by the Fund or the Trustees, but this
disclaimer may not be effective in some jurisdictions or as to certain types of
claims. The Declaration of Trust further provides for indemnification out of the
Funds property of any shareholder held personally liable for the obligations of
the Fund. The Declaration of Trust also provides that the Fund shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Fund and satisfy any judgment thereon. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations.
Pursuant to the Declaration of Trust, the Trustees may also authorize
the creation of additional series of shares (the proceeds of which would be
invested in separate, independently managed Portfolios with distinct investment
objectives and policies and share purchase, redemption and net asset valuation
procedures) with such preferences, privileges, limitations and voting and
dividend rights as the Trustees may determine. All consideration received by the
Fund for shares of any additional series or class, and all assets in which such
consideration is invested, would belong to that series or class (subject only to
the rights of creditors of the Fund) and would be subject to the liabilities
related thereto. Pursuant to the 1940 Act, as amended, shareholders of any
additional series or class of shares would normally have to approve the adoption
of any advisory contract relating to such series or class and of any changes in
the investment policies relating thereto.
- 28 -
<PAGE>
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of the
office.
PERFORMANCE INFORMATION
The Fund may from time to time quote various performance figures to
illustrate the past performance of its Portfolios. Performance quotations by
investment companies are subject to rules adopted by the Securities and Exchange
Commission ("SEC"), which require the use of standardized performance quotations
or, alternatively, that every non-standardized performance quotation furnished
by the Fund be accompanied by certain standardized performance information
computed as required by the SEC. An explanation of the methods for computing
performance follows.
Total Return
A Portfolio's average annual total return is determined by finding the
average annual compounded rates of return over 1, 5, and 10 year periods (or, if
shorter, the period since inception of the Portfolio) that would equate an
initial hypothetical $1,000 investment to its ending redeemable value. The
calculation assumes that all dividends and distributions are reinvested when
paid. The quotation assumes the amount was completely redeemed at the end of
each 1, 5, and 10 year period (or, if shorter, the period since inception of the
Portfolio) and the deduction of all applicable Fund expenses on an annual basis.
Average annual total return is calculated according to the following formula:
P (1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the stated period
- 29 -
<PAGE>
The average annual total return of each Portfolio of the Fund for the
periods noted is set forth below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years Inception
ended ended ended to Inception
9/30/95 9/30/95 9/30/95 9/30/95 Date
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Equity Portfolio 26.2% 17.9% 15.9% 11/14/84
- ----------------------------------------------------------------------------------------------------------------
Select Equity Portfolio 26.2% 18.1% 15.4% 02/26/88
- ----------------------------------------------------------------------------------------------------------------
Value Portfolio 32.6% 22.9% 16.7% 11/05/84
- ----------------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio 18.4% 26.8% 11.4% 07/01/86
- ----------------------------------------------------------------------------------------------------------------
Mid Cap Growth Portfolio 30.6% 23.7% 19.0% 03/30/90
- ----------------------------------------------------------------------------------------------------------------
Fixed Income Portfolio 14.2% 11.6% 11.2% 11/14/84
- ----------------------------------------------------------------------------------------------------------------
Domestic Fixed Income Portfolio 14.3% 12.1% 10.7% 09/30/87
- ----------------------------------------------------------------------------------------------------------------
Fixed Income Portfolio II 14.1% 10.8% 10.8% 08/31/90
- ----------------------------------------------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio 15.0% -- 9.9% 03/31/92
- ----------------------------------------------------------------------------------------------------------------
High Yield Portfolio 13.6% 18.8% 11.1% 02/28/89
- ----------------------------------------------------------------------------------------------------------------
Limited Duration Portfolio 8.0% -- 5.9% 03/31/92
- ----------------------------------------------------------------------------------------------------------------
Mortgage-Backed Securities Portfolio 12.5% -- 7.0% 01/31/92
- ----------------------------------------------------------------------------------------------------------------
Balanced Portfolio 21.4% -- 10.5% 12/31/92
- ----------------------------------------------------------------------------------------------------------------
International Equity Portfolio (3.4%) 10.1% 7.8% 11/25/88
- ----------------------------------------------------------------------------------------------------------------
Cash Reserves Portfolio 5.6% 4.5% 4.5% 08/29/90
- ----------------------------------------------------------------------------------------------------------------
Municipal Portfolio 13.4% -- 7.3% 10/01/92
- ----------------------------------------------------------------------------------------------------------------
PA Municipal Portfolio 13.7% -- 8.1% 10/01/92
- ----------------------------------------------------------------------------------------------------------------
Global Fixed Income Portfolio 15.5% -- 9.2% 4/30/93
- ----------------------------------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio 18.3% -- 15.1% 7/29/94
- ----------------------------------------------------------------------------------------------------------------
International Fixed Income Portfolio 16.4% -- 12.0% 4/29/94
- ----------------------------------------------------------------------------------------------------------------
Advisory Foreign Fixed Income Portfolio -- -- 12.1%* 10/07/94
- ----------------------------------------------------------------------------------------------------------------
Intermediate Duration Portfolio -- -- 11.4%* 10/3/94
- ----------------------------------------------------------------------------------------------------------------
Mid Cap Value Portfolio 34.5%* 12/30/94
- ----------------------------------------------------------------------------------------------------------------
Emerging Markets Portfolio 16.3%** 2/28/95
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Advisory Mortgages Portfolio 6.0%* 04/12/95
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* For portfolios which have been in operation for less than 1 year,
total return is not annualized.
- 30 -
<PAGE>
The Portfolios may also calculate total return on an aggregate basis
which reflects the cumulative percentage change in value over the measuring
period. The formula for calculating aggregate total return can be expressed as
follows:
Aggregate Total Return = [ ( ERV ) - 1 ]
---
P
The aggregate total return of each Portfolio for the periods noted is
set forth below. One year aggregate total return figures and Portfolio inception
dates are reflected under the annual total return figures provided above.
- --------------------------------------------------------------------------------
5 Years Inception
ended to
9/30/95 9/30/95
- --------------------------------------------------------------------------------
Equity Portfolio 128.0% 397.8%
- --------------------------------------------------------------------------------
Select Equity Portfolio 130.1% 196.8%
- --------------------------------------------------------------------------------
Value Portfolio 179.9% 439.3%
- --------------------------------------------------------------------------------
Small Cap Value Portfolio 227.8% 170.8%
- --------------------------------------------------------------------------------
Mid Cap Growth Portfolio 189.2% 160.4%
- --------------------------------------------------------------------------------
Fixed Income Portfolio 72.7% 218.2%
- --------------------------------------------------------------------------------
Domestic Fixed Income Portfolio 76.9% 125.9%
- --------------------------------------------------------------------------------
Fixed Income Portfolio II 66.8% 68.3%
- --------------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio N/A 39.2%
- --------------------------------------------------------------------------------
High Yield Portfolio 136.6% 99.9%
- --------------------------------------------------------------------------------
Limited Duration Portfolio N/A 22.0%
- --------------------------------------------------------------------------------
Mortgage-Backed Securities Portfolio N/A 28.2%
- --------------------------------------------------------------------------------
Balanced Portfolio N/A 31.7%
- --------------------------------------------------------------------------------
International Equity Portfolio 62.1% 67.0%
- --------------------------------------------------------------------------------
Cash Reserves Portfolio 24.3% 25.2%
- --------------------------------------------------------------------------------
Municipal Portfolio N/A 23.5%
- --------------------------------------------------------------------------------
PA Municipal Portfolio N/A 26.4%
- --------------------------------------------------------------------------------
Global Fixed Income Portfolio N/A 23.8%
- --------------------------------------------------------------------------------
Multi-Asset-Class Portfolio N/A 17.9%
- --------------------------------------------------------------------------------
International Fixed Income Portfolio N/A 17.5%
- --------------------------------------------------------------------------------
Advisory Foreign Fixed Income Portfolio N/A 12.1%
- --------------------------------------------------------------------------------
Intermediate Duration Portfolio N/A 11.4%
- --------------------------------------------------------------------------------
Mid Cap Value Portfolio N/A 34.5%
- --------------------------------------------------------------------------------
Emerging Markets Portfolio N/A 16.3%
- --------------------------------------------------------------------------------
The Portfolios may also calculate a total return gross of all expenses
which reflects the cumulative percentage change in value over the measuring
period prior to the deduction of all fund expenses. The formula for calculating
the total return gross of all expenses can be expressed as follows:
Total Return Gross of all Expenses = ((ERV + E)/P) -1)
E = Fund expenses deducted from the ending redeemable value during the
measuring period.
- 31 -
<PAGE>
The annualized since inception gross of fees returns of the Fund's
portfolios are set forth below:
- --------------------------------------------------------------------------------
Annualized Since
Inception
Period Ended:
9/30/94
Inception Date MAS EQUITY FUNDS (Gross of Fees)
- --------------------------------------------------------------------------------
11/14/84 Equity Portfolio
- --------------------------------------------------------------------------------
02/26/88 Select Equity Portfolio
- --------------------------------------------------------------------------------
11/05/84 Value Portfolio
- --------------------------------------------------------------------------------
07/01/86 Small Cap Value Portfolio
- --------------------------------------------------------------------------------
03/30/90 Mid Cap Growth Portfolio
- --------------------------------------------------------------------------------
11/25/88 International Equity Portfolio
- --------------------------------------------------------------------------------
12/30/94 Mid Cap Value
- --------------------------------------------------------------------------------
02/28/95 Emerging Markets Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MAS FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
11/14/84 Fixed Income Portfolio
- --------------------------------------------------------------------------------
09/30/87 Domestic Fixed Income Portfolio
- --------------------------------------------------------------------------------
03/31/92 Special Purpose Income Portfolio
- --------------------------------------------------------------------------------
03/31/92 Limited Duration Portfolio
- --------------------------------------------------------------------------------
01/31/92 Mortgage-Backed Portfolio
- --------------------------------------------------------------------------------
02/28/89 High Yield Portfolio
- --------------------------------------------------------------------------------
10/01/92 Municipal Portfolio
- --------------------------------------------------------------------------------
10/01/92 PA Municipal Portfolio
- --------------------------------------------------------------------------------
04/30/93 Global Fixed Income Portfolio
- --------------------------------------------------------------------------------
04/29/94 International Fixed Income Portfolio
- --------------------------------------------------------------------------------
10/07/94 Advisory Foreign Fixed Income Portfolio
- --------------------------------------------------------------------------------
10/03/94 Intermediate Duration Portfolio
- --------------------------------------------------------------------------------
04/12/95 Advisory Mortgage Portfolio
- --------------------------------------------------------------------------------
MAS BALANCED FUNDS
- --------------------------------------------------------------------------------
12/31/92 Balanced Portfolio
- --------------------------------------------------------------------------------
07/29/94 Multi-Asset-Class Portfolio
- --------------------------------------------------------------------------------
The Municipal Portfolio and the PA Municipal Portfolio may also
calculate a total return which reflects the cumulative percentage change in
value over the measuring period after the deduction of income taxes. The formula
for calculating the total after tax return can be expressed as follows:
Total After Tax Return = (((((ERV-M)/P) x T) + (M/P)) -1)
M = Portion of ending redeemable value which was derived from tax
exempt income. T = Applicable tax rate.
The after tax returns are as follows for the Municipal Portfolio and
the PA Municipal Portfolio for the period 10/1/92 (inception of the Funds)
through 9/30/94:
================================================================================
Pre-tax return Post-tax return
- --------------------------------------------------------------------------------
PA Municipal Portfolio 5.4% 4.6%
- --------------------------------------------------------------------------------
Municipal Portfolio 4.4 4.2
================================================================================
- 32 -
<PAGE>
The tax rates used were 31% federal and 2.8% Pennsylvania. All
Municipal Interest was considered exempt from federal taxes and interest from
treasuries was considered exempt from Pennsylvania.
Yield
In addition to total return, each portfolio of the Fund (except the
Cash Reserves Portfolio) may quote performance in terms of a 30-day yield. The
yield figures provided will be calculated according to a formula prescribed by
the Securities and Exchange Commission and can be expressed as follows:
Yield = [ 2 [ (a-b) + 1)b - 1] ] X cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
- 33 -
<PAGE>
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by a Portfolio at a discount or
premium, the formula generally calls for amortization of the discount or
premium; the amortization schedule will be adjusted monthly to reflect changes
in the market value of the debt obligations. The 30-day yield figures for each
of the Fund's fixed-income and equity portfolios is set forth below:
================================================================================
Period ending
09/30/95
- --------------------------------------------------------------------------------
Fixed Income Portfolio 7.58%
- --------------------------------------------------------------------------------
Domestic Fixed Income Portfolio 6.33%
- --------------------------------------------------------------------------------
Fixed Income Portfolio II 6.56%
- --------------------------------------------------------------------------------
High Yield Portfolio 11.33%
- --------------------------------------------------------------------------------
Limited Duration Portfolio 5.64%
- --------------------------------------------------------------------------------
Mortgage-Backed Securities Portfolio 7.26%
- --------------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio 7.88%
- --------------------------------------------------------------------------------
Balanced Portfolio 4.29%
- --------------------------------------------------------------------------------
Municipal Portfolio 5.57%
- --------------------------------------------------------------------------------
PA Municipal Portfolio 5.47%
- --------------------------------------------------------------------------------
Global Fixed Income Portfolio 6.05%
- --------------------------------------------------------------------------------
Multi-Asset-Class Portfolio 4.10%
- --------------------------------------------------------------------------------
International Fixed Income Portfolio 6.04%
- --------------------------------------------------------------------------------
Advisory Foreign Fixed Income Portfolio 6.64%
- --------------------------------------------------------------------------------
Intermediate Duration Portfolio 6.21%
- --------------------------------------------------------------------------------
Equity Portfolio 2.21%
- --------------------------------------------------------------------------------
Select Equity Portfolio 2.35%
- --------------------------------------------------------------------------------
Value Portfolio 2.39%
- --------------------------------------------------------------------------------
Select Value Portfolio --
- --------------------------------------------------------------------------------
Small Cap Portfolio 1.23%
- --------------------------------------------------------------------------------
Mid Cap Growth Portfolio 0%
- --------------------------------------------------------------------------------
Mid Cap Value Portfolio 1.38%
- --------------------------------------------------------------------------------
Emerging Markets Portfolio 3.08%
- --------------------------------------------------------------------------------
International Equity Portfolio 1.80%
- --------------------------------------------------------------------------------
Advisory Mortgage Portfolio 7.21%
================================================================================
As of the date of this Statement of Additional Information, the Growth
Portfolio, had not commenced operations.
- 34 -
<PAGE>
Yield of the Cash Reserves Portfolio
The current yield of the Cash Reserves Portfolio is calculated daily on
a base period return of a hypothetical account having a beginning balance of one
share for a particular period of time (generally 7 days). The return is
determined by dividing the net change (exclusive of any capital changes) in such
account by the value of the account at the beginning of the period and then
multiplying it by 365/7 to get the annualized current yield. The calculation of
net change reflects the value of additional shares purchased with the dividends
by the Portfolio, including dividends on both the original share and on such
additional shares. An effective yield, which reflects the effects of compounding
and represents an annualizing of the current yield with all dividends
reinvested, may also be calculated for the Portfolio by dividing the base period
return by 7, adding 1 to the quotient, raising the sum to the 365th power, and
subtracting 1 from the results.
Set forth below is an example, for purposes of illustration only, of
the current and effective yield calculations for the Cash Reserves Portfolio for
the 7 day base period ending September 30, 1994.
================================================================================
Period ending
9/30/95
- --------------------------------------------------------------------------------
Value at beginning of period 1.00000
- --------------------------------------------------------------------------------
Value at end of period 1.00106
- --------------------------------------------------------------------------------
Net change in account value 0.00106
- --------------------------------------------------------------------------------
Annualized current yield 5.51%
- --------------------------------------------------------------------------------
Effective yield 5.66%
================================================================================
The net asset value of the Cash Reserves Portfolio is $1.00 and has
remained at that amount since the initial offering of the Portfolio. The yield
of the Portfolio will fluctuate. The annualizing of a week's dividend is not a
representation by the Portfolio as to what an investment in the Portfolio will
actually yield in the future. Actual yields will depend on such variables as
investment quality, average maturity, the type of instruments the Portfolio
invests in, changes in interest rates on instruments, changes in the expenses of
the Fund and other factors. Yields are one basis investors may use to analyze
the Portfolios of the Fund and other investment vehicles; however, yields of
other investment vehicles may not be comparable because of the factors set forth
in the preceding sentence, differences in the time periods compared and
differences in the methods used in valuing portfolio instruments, computing net
asset value and calculating yield.
The performance of a Portfolio, as well as the composite performance of
all Fixed-Income Portfolios and all Equity Portfolios, may be compared to data
prepared by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.,
Morningstar, Inc., the Donoghue Organization, Inc. or other independent services
which monitor the performance of investment companies, and may be quoted in
advertising in terms of their rankings in each applicable universe. In addition,
the Fund may use performance data reported in financial and industry
publications, including Barron's, Business Week, Forbes, Fortune, Investor's
Daily, IBC/Donoghue's Money Fund Report, Money Magazine, The Wall Street Journal
and USA Today.
- 35 -
<PAGE>
Principal Holders of Securities
As of January 25, 1996, the following persons owned of record or
beneficially 5% or more of the shares of Portfolio:
Value Portfolio: Pennsylvania Public Schools Employee Retirement Fund,
Harrisburg, PA, 7.3%; New York State Common Retirement Fund, Albany, NY, 6.5%;
Charles Schwab & Co., Inc., San Francisco, CA, 5.5%.
Select Equity Potfolio: AT&T Savings Plans Group Trust II, Berkeley Heights,
NJ, 97.0%.
Small Cap Value Portfolio: J. Paul Getty Trust, Chicago, IL, 12.3%; American Red
Cross Retirement System, Falls Church, VA, 7.4%; Hearst Foundation, Boston, MA,
6.0%; The Hearst Corporation, New York, NY, 5.1%.
Mid Cap Growth Portfolio: J. Paul Getty Trust, Chicago, IL, 18.0%; New York
State Common Retirement Fund, Albany, NY, 7.7%; AT&T Salaried Retirement Plan,
Jersey City, NJ, 5.3%.
Domestic Fixed Income Portfolio: Forbes Health System, Philadelphia, PA, 29.6%;
The Philadelphia Orchestra Endowment, Philadelphia, PA, 17.0%; Fox Chase Cancer
Center, Philadelphia, PA, 8.6%; Paintmakers Money Accumulation, Portland, OR,
7.3%; Delta Dental Plan of NH, Inc., Concord, NH, 6.9%; Hartford Foundation For
Public Giving, Hartford, CT, 6.6%.
Cash Reserves Portfolio: Sun Company, Inc., Philadelphia, PA, 31.1%; Wolf
Revocable Trust, Palo Alto, CA, 14.7%; Roderick D. & Laura A. Marcoux, Incline
Village, NV, 5.3%.
International Equity Portfolio: Ministers & Missionaries Benefit Board, New
York, NY, 9.0%; Western Metal Industry, Seattle, WA, 8.1%.
Fixed Income Portfolio II: Johns Hopkins University Applied Physics Lab,
Baltimore, MD, 15.1%; Sheet Metal Workers #100 Pension Plan, Suitland, MD,
10.7%; Diocese of Camden, Camden, NJ, 8.4%; Northwestern Memorial Hospital,
Chicago, IL, 7.0%; Johns Hopkins University, Baltimore, MD, 6.8%; The Tinker
Foundation, New York, NY, 5.6%; Sarah Lawrence College, Bronxville, NY, 5.1%.
High Yield Securities Portfolio: Western Metal Industry, Seattle, WA, 10.6%;
Carnegie Corporation of New York, New York, NY, 10.2%; Ministers & Missionaries
Benefit Board, New York, NY, 8.7%; KPMG Peat Marwick, Montvale, NJ, 5.8%;
Williams College, Williamstown, MA, 5.2%.
Limited Duration Portfolio: Bankers Trust Company, New York, NY, 21.4%;
Fieldcrest Cannon Hourly Retirement Plan, Chicago, IL, 9.9%; Connecticut
Children's Medical Center Foundation, Newington, CT, 7.5%; Northern California
Bakery Drivers, San Francisco, CA, 7.2%; Johns Hopkins University, Baltimore,
MD, 5.7%; Benedictine Abbey of Newark, Newark, NJ, 5.3%.
Mortgage-Backed Securities Portfolio: Inglis House Foundation, Philadelphia,
PA, 29.1%; Northwestern University, Evanston, IL, 26.1%; Clves Corporation,
Roswell, GA, 13.4%; Paper Magic Group, Inc., Scranton, PA, 13.1%; Teamsters
Local 641 Pension Plan, Union, NJ, 11.5%.
International Fixed Income Portfolio: Armco Master Pension Trust, Pittsburgh,
PA, 21.9%; Western Metal Industry, Seattle, WA, 15.7%; Children's Hospital,
Philadelphia, PA, 14.4%; J. Paul Getty, Chicago, IL, 14.2%; Smithsonian
Institute, New York, NY, 9.1%; Williams College, Williamstown, MA, 6.1%.
Emerging Markets Portfolio: Ministers & Missionaries Benefit Board, New York,
NY, 59.6%; Smithsonian Institute, New York, NY, 23.5%; Williams College,
Williamstown, MA, 8.0%.
PA Municipal Portfolio: R. & S. Roberts, Philadelphia, PA, 25.1%; Kenneth Dunn,
West Conshohocken, PA, 21.7%; John J.F. Sherrerd, West Conshohocken, PA, 13.0%;
A. Morris Williams, West Conshohocken, PA, 10.5%, The Cook Family, West
Conshohocken, PA, 6.6%.
<PAGE>
Municipal Fixed Income Portfolio: Robert A. Fox, Meadowbrook, PA, 13.8%; Jesse
J. Thompson, Charlotte, NC, 13.8%; Union Electric Employees Benefit Trust,
Pittsburgh, PA, 6.5%; Bunkers Trust Company, New York, NY, 6.5%.
Balanced Potfolio: Fireman's Fund Incentive Savings Plan, New York, NY, 20.8%;
Murray Ohio Pension Trust Salaried, Nashville, TN, 10.3%; Murray Ohio Pension
Trust-Hourly, Nashville, TN, 6.4%; A & P Savings Plan, Chicago, IL, 5.0%.
Global Fixed Income Portfolio: Family Rosary, Inc., Albany, NY, 18.0%; Pitney
Bowes, Inc., Stamford, CT, 14.5%; Forest Oil Corporation, Boston, MA, 13.3%;
Rockefeller Family Fund, Inc., New York, NY, 11.7%; San Diego Transit
Corporation, San Diego, CA, 7.2%; American Philosophical Society, Philadelphia,
PA, 7.0%; Mid-Maine Medical Center Pension Plan, Waterville, ME, 5.7%; Mid-Maine
Medical Center Endowment, Waterville, ME, 5.2%.
Intermediate Duration Portfolio: Connecticut Children's Medical Center,
Newington, CT, 97.0%.
Multi-Asset-Class Portfolio: KPMG Peat Marwick, Montvale, NJ, 24.8%; Reed Smith
Shaw McClay, Pittsburgh, PA, 13.8%; Charlotte Newcombe Foundation, Princeton,
NJ, 12.0%; The Library Company of Philadelphia, PA, 7.5%; Milbank, Tweed, Hadley
& McCloy Retirement, Brooklyn, NY, 6.7%.
Advisory Foreign Fixed Income Portfolio: Kaiser Foundation, Oakland, CA, 9.4%;
Johns Hopkins University, Baltimore, MD, 7.0%.
Mid Cap Value Portfolio: United Power Association Master Trust, Minneapolis, MN,
21.2%; Automobile Club of Rochester, Inc., Wilmington, DE, 8.6%; American
Association of Neurological Surgeons, Park Ridge, IL, 5.7%.
Advisory Mortgage Portfolio: Children's Hospital of Philadelphia, Philadelphia,
PA, 8.1%; National Electrical Benefits Fund, Chicago, IL, 5.9%; The Duke
Endowment, Charlotte, NC, 5.7%.
<PAGE>
COMPARATIVE INDICES
Each portfolio of the Fund may from time to time use one or more of the
following unmanaged indices for performance comparison purposes:
Consumer Price Index
The Consumer Price Index is published by the US Department of Labor and is a
measure of inflation.
Financial Times Actuaries World Ex US Index
The FT-A World Ex US Index is a capitalization-weighted price index, expressed
in dollars, after dividend withholding taxes, of foreign stock prices. This
index is calculated daily and reflects price changes in 24 major foreign equity
markets. It is jointly compiled by the Financial Times, Ltd., Goldman, Sachs &
Co., and County NatWest/Wood Mackenzie in conjunction with the Institute of
Actuaries and the Faculty of Actuaries.
First Boston High Yield Index
The First Boston High Yield Index was constructed to mirror the public high
yield debt market. The index is a market weighted, trader priced index, tracked
by the First Boston Corporation. There are approximately 475 securities in the
index with a total market value of approximately $93 billion.
JP Morgan Traded Government Bond Index
The JP Morgan Traded Government Bond Index is designed to provide a
comprehensive measure of total return performance of the domestic Government
bond market of 13 countries. The index is maintained by JP Morgan Securities,
Inc. and includes only liquid issues.
Lehman Brothers Aggregate Index
The Lehman Brothers Aggregate Index is a fixed income market value-weighted
index that combines the Lehman Brothers Government/Corporate Index and the
Lehman Brothers Mortgage-Backed Securities Index. It includes fixed rate issues
of investment grade (BBB) or higher, with maturities of at least one year and
outstanding par values of at least $100 million for U. S. Government issues and
$25 million for others.
Lehman Brothers Government/Corporate Index
The Lehman Brothers Government/Corporate Index is a combination of the
Government and Corporate Bond Indices. The Government Index includes public
obligations of the U. S. Treasury, issues of Government agencies, and corporate
debt backed by the U. S. Government. The Corporate Bond Index includes
fixed-rate nonconvertible corporate debt. Also included are Yankee Bonds and
nonconvertible debt issued by or guaranteed by foreign or international
governments and agencies. All issues are investment grade (BBB) or higher, with
maturities of at least one year and an outstanding par value of at least $100
million for U. S. Government issues and $25 million for others. Any security
downgraded during the month is held in the index until month-end and then
removed. All returns are market value weighted inclusive of accrued income.
Lehman Brothers Intermediate Government/Corporate Index
The Lehman Brothers Intermediate Government/Corporate Index is a combination of
the Government and Corporate Bond Indices. All issues are investment grade (BBB)
or higher, with maturities of one to ten years and an outstanding par value of
at least $100 million for U. S. Government issues and $25 million for others.
The Government Index includes public obligations of the U. S. Treasury, issues
of Government agencies, and corporate debt backed by the U. S. Government. The
Corporate Bond Index includes fixed-rate nonconvertible corporate debt. Also
included are Yankee Bonds and nonconvertible debt issued by or guaranteed by
foreign or international governments and agencies. Any security downgraded
during the month is held in the index until month-end and then removed. All
returns are market value weighted inclusive of accrued income.
- 36 -
<PAGE>
Lehman Brothers Long Municipal Bond Index
The Lehman Brothers Long Municipal Bond Index is a total return for the
long-term, investment-grade tax-exempt bond market for bonds. The index includes
municipal bonds with maturities of 22 years or more.
Lehman Brothers Mortgage-Backed Securities Index
The Lehman Brothers Mortgage-Backed Securities Index includes fixed rate
mortgage securities backed by GNMA, FHLMC, and FNMA. Graduated Payment Mortgages
(GPM's) are included. All issues are AAA, with maturities of at least one year
and outstanding par values of at least $100 million. Returns are market value
weighted inclusive of accrued income.
Lipper Growth & Income Fund Index
The Lipper Growth & Income Fund Index is a net asset value weighted index of the
30 largest Funds within the Growth & Income investment objective. It is
calculated daily with adjustments for income dividends and capital gains
distributions as of the ex-dividend dates.
Lipper High Current Yield Fund Average
The Lipper High Current Yield Fund Average reports the average return of all the
Funds tracked by Lipper Analytical Services, Inc. classified as high yield
funds. The number of Funds tracked varies. As a result, reported returns for
longer time periods do not always match the linked product of shorter period
returns.
Salomon World Government Bond Index ex US
The Salomon World Government Bond Index ex US is designed to provide a
comprehensive measure of total return performance of the domestic government
bond markets of 12 countries outside the United States. The index has been
constructed with the aim of choosing "an inclusive" universe of institutionally
traded fixed rate bonds. The selection of security types to be included in the
index is made with the aim of being as comprehensive as possible, while
satisfying the criterion of reasonable availability to domestic and
international institutions and the existence of complete pricing and market
profile data.
International Finance Corporation Emerging Markets Index
The IFC Emerging Markets Index is an index designed to measure the total return
in either US or local currency terms of developing markets as defined by the
World Bank. The selection of stocks is made based on size, liquidity and
industry. The weight given to any stock is determined by its market
capitalization.
Lipper Money Market Average
The Lipper Money Market Average reports the average return of all the Funds
tracked by Lipper Analytical Services, Inc., classified as money market Funds
for any given period. The number of Funds tracked varies. As a result, reported
returns for longer time periods do not always match the linked product of
shorter period returns.
Merrill Lynch Corporate & Government Bond Index
The Merrill Lynch Corporate & Government Bond Index includes over 4,500 U.S.
Treasury, Agency and investment grade corporate bonds. The Index is calculated
daily and will be used from time to time in performance comparison for partial
month periods.
Morgan Stanley Capital International World ex USA Index
The Morgan Stanley Capital International World ex USA Index is a
capitalization-weighted price index expressed in dollars. The index reflects the
performance of over 1,100 companies in 19 foreign equity markets. The index
includes dividends, net of foreign withholding taxes.
Morgan Stanley Capital International EAFE Index
The Morgan Stanley Capital International EAFE Index is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
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<PAGE>
Morgan Stanley Capital International EAFE-GDP Weighted Index
The EAFE-GDP index is an arithmetic average of the performance of over 900
securities listed on the stock exchanges of countries in Europe, Australia and
the Far East. The index is weighted by the Grow Domestic Product of the various
countries in the index.
Morgan Stanley Capital International Emerging Markets Free Index
The MSCI Emerging Markets Free Index is a capitalization weighted index of over
800 stocks from 17 different emerging market countries.
NASDAQ Industrials Index
The NASDAQ Industrials Index is a measure of all NASDAQ National Market System
issues classified as industrial based on Standard Industrial Classification
codes relative to a company's major source of revenue. The index is exclusive of
warrants, and all domestic common stocks traded in the regular NASDAQ market
which are not part of the NASDAQ National Market System. The NASDAQ Industrials
Index is market value weighted.
Russell 1000
The Russell 1000 Index consists of the 1,000 largest of the 3,000 largest
stocks. Market capitalization is typically between $610 million and $85 billion.
The list is rebalanced each year on June 30. If a stock is taken over or goes
bankrupt, it is not replaced until rebalancing. Therefore, there can be fewer
than 1,000 stocks in the Russell 1000 Index. The index is an equity market
capitalization weighted index available from Frank Russell & Co. on a monthly
basis.
Russell 2000
The Russell 2000 Index consists of the 2,000 smallest of the 3,000 largest
stocks. Market capitalization is typically between $610 million and $57 million.
The list is rebalanced each year on June 30. If a stock is taken over or goes
bankrupt, it is not replaced until rebalancing. Therefore, there can be fewer
than 2,000 stocks in the Russell 2000 Index. The index is an equity market
capitalization weighted index available from Frank Russell & Co. on a monthly
basis.
Russell 2500
The Russell 2500 Index consists of the 2,500 smallest of the 3,000 largest
stocks. Market capitalization is typically between $1.7 billion and $57 million.
The list is rebalanced each year on June 30. If a stock is taken over or goes
bankrupt, it is not replaced until rebalancing. Therefore, there can be fewer
than 2,500 stocks in the Russell 2500 Index. The index is an equity market
capitalization weighted index available from Frank Russell & Co. on a monthly
basis.
Russell 3000
The Russell 3000 Index is a combination of the Russell 1000 Index and the
Russell 2000 Index.
Salomon 1-3 Year Treasury/Government Sponsored Index
The Salomon 1-3 Year Treasury/Government Sponsored Index includes U.S. Treasury
and agency securities with maturities one year or greater and less than three
years. Securities with amounts outstanding of at least $25 million are included
in the index.
Salomon 1-3 Year Treasury/Government Sponsored/Corporate Index
The Salomon 1-3 Year Treasury/Government Sponsored/Corporate Index includes U.S.
Treasury, agency and investment grade (BBB or better) securities with maturities
one year or greater and less than three years. Securities with amounts
outstanding of at least $25 million are included in the index.
Salomon Broad Index
The Salomon Broad Index, also known as the Broad Investment Grade (BIG) Index,
is a fixed income market capitalization-weighted index, including U. S.
Treasury, agency, mortgage and investment grade (BBB or better) corporate
securities with maturities of one year or longer and with amounts outstanding of
- 38 -
<PAGE>
at least $25 million. The government index includes traditional agencies; the
mortgage index includes agency pass-throughs and FHA and GNMA project loans; the
corporate index includes returns for 17 industry sub-sectors. Securities
excluded from the Broad Index are floating/variable rate bonds, private
placements, and derivatives (e. g., U. S. Treasury zeros, CMOs, mortgage
strips). Every issue is trader-priced at month-end and the index is published
monthly.
Salomon High-Yield Market Index
The Salomon High-Yield Market Index includes public, non-convertible corporate
bond issues with at least one year remaining to maturity and $50 million in par
amount outstanding which carry a below investment-grade quality rating from
either Standard & Poor's or Moody's rating services.
Salomon Mortgage Index
The Salomon Mortgage Index includes agency pass-throughs (GNMA, FHLMC, FNMA) and
FHA and GNMA project loans. Pools with remaining terms shorter than 25 years are
seasoned; pools with longer terms are classified as new. The index is published
monthly.
Salomon One To Three Year Treasury Index
The Salomon One To Three Year Treasury Index includes only U.S. Treasury Notes
and Bonds with maturities one year or greater and less than three years.
Salomon World Government Bond Index
The Salomon World Government Bond Index is designed to provide a comprehensive
measure of total return performance of the domestic Government bond market of
thirteen countries. The index has been constructed with the aim of choosing an
"all inclusive" universe of institutionally traded fixed-rate bonds. The
selection of security types to be included in the index is made with the aim of
being as comprehensive as possible, while satisfying the criterion of reasonable
availability to domestic and international institutions and the existence of
complete pricing and market profile data.
S&P 500
The S&P 500 is a portfolio of 500 stocks designed to mimic the overall equity
market's industry weightings. Most, but not all, large capitalization stocks are
in the index. There are also some small capitalization names in the index. The
list is maintained by Standard & Poor's Corporation. It is market capitalization
weighted. Unlike the Russell indices, there are always 500 names in the S&P 500.
Changes are made by Standard & Poor's as needed.
S&P/BARRA Mid Cap 400 Growth Index
The S&P/BARRA Mid Cap 400 Growth Index is constructed by dividing the stocks in
the S&P MidCap 400 Index according to a single attribute: price-to-book ratios.
The MidCap 400 Growth Index is composed of firms with higher price-to-book
ratios. Like the MidCap 400, the MidCap 400 Growth Index is
capitalization-weighted, meaning that each stock is weighted in the appropriate
index in proportion to its market value.
S&P 500 Ex South Africa
The S&P 500 Ex South Africa Index is the same as the S&P 500 Index excluding
companies that are on the Investor Responsibility Research Center (IRRC) list of
companies doing business in South Africa. This index is maintained by Wilshire
Associates.
Wilshire 5000 Equity Index
The Wilshire 5000 Equity Index measures performance of all US headquartered
equity securities with readily available price data. Approximately 6,000
capitalization weighted security returns are used to calculate the index.
FINANCIAL STATEMENTS
The Fund's Financial Statements for the fiscal year ended September 30, 1995,
including notes thereto and the report of Price Waterhouse LLP thereon are
incorporated herein by reference. A copy of the 1995 Annual Report accompany
the delivery of this Statement of Additional Information.
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<PAGE>
APPENDIX-DESCRIPTION OF SECURITIES AND RATINGS
I. Description of Bond Ratings
Excerpts from Moody's Investors Service, Inc.'s Corporate Bond Ratings:
- -----------------------------------------------------------------------
Aaa: judged to be the best quality; carry the smallest degree of
investment risk; Aa--judged to be of high quality by all standards; A: possess
many favorable investment attributes and are to be considered as higher medium
grade obligations; Baa: considered as lower medium grade obligations, i.e., they
are neither highly protected nor poorly secured; Ba: B: protection of interest
and principal payments is questionable.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest. Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. C: Bonds which are rated C are lowest rated class of bonds
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's may apply numerical modifiers, 1,2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Excerpts from Standard & Poor's Corporation's Corporate Bond Ratings:
- ---------------------------------------------------------------------
AAA: highest grade obligations; possess the ultimate degree of
protection as to principal and interest; AA: also qualify as high grade
obligations, and in the majority of instances differs from AAA issues only in
small degree; A: regarded as upper medium grade; have considerable investment
strength but are not entirely free from adverse effects of changes in economic
and trade conditions. Interest and principal are regarded as safe; BBB: regarded
as borderline between definitely sound obligations and those where the
speculative element begins to predominate; this group is the lowest which
qualifies for commercial bank investments.
BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. CI: The rating CI is reserved for income bonds on which no interest
is being paid. D: Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus(+) or Minus(-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
Excerpts from Fitch Investors Services, Inc. Corporate Bond Ratings:
- --------------------------------------------------------------------
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short term debt of these issuers is generally rated "-,+".
A: Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
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<PAGE>
BB: Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D: Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be valued on the basis
of their ultimate recovery value in liquidation or reorganization of the
obligor. "DDD" represents the highest potential for recovery on the these bonds,
and "D" represents the lowest potential for recovery.
Plus (+) Minus(-) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "DDD", "DD", or "D" categories.
Excerpts from Duff & Phelps Corporate Bond Ratings:
- ---------------------------------------------------
AAA: Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time of economic conditions.
A+, A, A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+,BBB, BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB-: Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection factors
fluctuate according to industry conditions or company fortunes. Overall quality
may move up or down frequently within this category.
B+, B, B-: Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.
CCC: Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred dividends.
Protections factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
DP: Preferred stock with dividend arrearage.
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<PAGE>
Description of Bond Ratings
---------------------------
Excerpts from Moody's Investors Service, Inc.'s Preferred Stock Ratings
- -----------------------------------------------------------------------
aaa: An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks. aa: An issue
which is rated aa is considered a high-grade preferred stock. This rating
indicates that there is reasonable assurance that earnings and asset protection
will remain relatively well maintained in the foreseeable future. a: An issue
which is rated a is considered to be an upper medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classifications, earnings and asset protection are, nevertheless expected to be
maintained at adequate levels. baa: An issue which is rated baa is considered to
be medium grade, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time. ba: an issue which is rated ba is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class. b: An
issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small. caa: An issue which is rated
caa is likely to be in arrears on dividend payments. This rating designation
does not purport to indicate the future status of payment. ca: An issue which is
rated ca is speculative in a high degree an is likely to be in arrears on
dividends with little likelihood of eventual payment. c: This is the lowest
rated class of preferred of preference stock. Issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's may apply numerical modifiers 1,2 and 3 in each rating
classification from "aa "through "b" in its preferred stock rating system. The
modifier 1 indicated that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range raking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
Excerpts from Standard & Poor's Corporation's Preferred Stock Ratings
- ---------------------------------------------------------------------
AAA: This is the highest rating that may be assigned by S&P's to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations. AA: A preferred stock issue rated AA also qualifies
as a high quality fixed income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues rated
AAA. A: An issue rated A is backed by a sound capacity to pay the preferred
stock obligations , although it is somewhat more susceptible to the adverse
effect of the changes in circumstances and economic conditions. BBB: An issue
rated BBB is regarded as backed by an adequate capacity to pay the preferred
stock obligations. Whereas it normally exhibits adequate protection parameter,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to make payments for a preferred stock in this category than
for issues in the A category. BB,B,CCC: Preferred stock rated BB, B, and CCC are
regarded, on balance, as predominantly speculative with respect to the issuer's
capacity to pay preferred stock obligations. Bb indicates the lowest degree of
speculation and CCC the highest degree of speculation. While such issues will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties of major risk exposures to adverse conditions. CC: The
rating CC is reserved for a preferred stock in arrears on dividends or sinking
fund payments but that is currently paying. C: A preferred stock rated C is a
non-paying issue. D: A preferred stock rated D is a non-paying issue with the
issuer in default on debt instruments.
Plus(+) or Minus(-): The ratings from "AA" for "B" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
Excerpts from Fitch Investors Services, Inc. Preferred Stock Ratings:
- ---------------------------------------------------------------------
AAA: Preferred stocks assigned this rating are the highest quality.
Strong asset protection, conservative balance sheet ratios, and positive
indications of continued protection of preferred dividend requirements are
prerequisites for an "AAA" rating.
AA: Preferred of preference issues assigned this rating are good
quality. Asset protection and coverages of preferred dividends are considered
adequate and are expected to be maintained.
A: Preferred of preference issues assigned this rating are good
quality. Asset protection and coverages of preferred dividends are considered
adequate and are expected to be maintained.
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<PAGE>
BBB: Preferred or preference issues assigned this rating are reasonably
safe but lack the protections of the "A" to "AAA" categories. Current results
should be watched for possible of deterioration.
BB: Preferred or preference issues assigned this rating are considered
speculative. The margin of protection is slim or subject to wide fluctuations.
The loner-term financial capacities of the enterprises cannot be predicted with
assurance.
B: Issues assigned this rating are considered highly speculative. While
earnings should normally cover dividends, directors may reduce or omit payment
due to unfavorable developments, inability to finance, or wide fluctuations in
earnings.
CCC: Issues assigned this rating are extremely speculative and should
be assessed on their prospects in a possible reorganization. Dividend payments
may be in arrears with the status of the current dividend uncertain.
CC: Dividends are not currently being paid and may be in arrears. The
outlook for future payments cannot be assured.
C: Dividends are not currently being paid and may be in arrears.
Prospects for future payments are remote.
D: Issuer is in default on its debt obligations and has filed for
reorganization or liquidation under the bankruptcy law.
Plus (+) Minus (-) Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "AAA", "CCC", "CC", "C", and "D"
categories.
- 43 -
<PAGE>
MAS FUNDS
PART C: OTHER INFORMATION
Post-Effective Amendment No. 41
Item 24. Financial Statements and Exhibits:
(a) Audited financial statements for the year ended September 30, 1995,
including Price Waterhouse's report thereon, are incorporated by
reference in the Statement of Additional Information, from the
Registrant's 1995 Annual Report which is included as an Exhibit to
Post-Effective Amendment No. 41 to the Registration Statement. The
financial statements included in the Annual Report are:
(a) Statements of Net Assets as of September 30, 1995;
(b) Statements of Operations for the fiscal year ended September 30,
1995, as applicable;
(c) Statements of Changes in Net Assets for the fiscal years ended
September, 1995 and 1994, as applicable;
(d) Selected Per Share Data and Ratios for the fiscal years ended
September 30, 1995, 1994, 1993, 1992 and 1991, as applicable
(b) Additional Exhibits
(1) Amended and Restated Declaration of Trust (incorporated
by reference to Exhibit 1 of the initial Registration
Statement as filed on March 1, 1984).
(1)(a) Amendment No. 1 to Amended and Restated Declaration of
Trust, dated May 20, 1992 (incorporated by reference to
Exhibit 2 of Post-Effective Amendment No. 25 as filed on
\ January 28, 1993).
(1)(b) Amended and Restated Declaration of Trust, dated November
18, 1993 (incorporated by reference to Exhibit 1 of Post-
Effective Amendment No. 29 as filed on December 27,
1993).
(2) By-Laws (incorporated by reference to Exhibit 2 of the
initial Registration Statement as filed on March 1,
1984).
(2)(a) By-Laws (incorporated by reference to Exhibit 2 of Post-
Effective Amendment No. 29 as filed on December 27,
1993).
(3) Not Applicable.
C-1
<PAGE>
(4) Specimen of Security for the Global Fixed Income
Portfolio and the Balanced Portfolio (incorporated by
reference to Exhibit 4 of Post-Effective Amendment No. 24
as filed on October 30, 1992).
(4)(a) Specimen of Security for the Growth Portfolio
(incorporated by reference to Exhibit 4 of Post-Effective
Amendment No. 26 as filed on June 28, 1993).
(5) Investment Advisory Agreement with Miller Anderson &
Sherrerd, LLP dated July 1, 1988 (incorporated by
reference to Exhibit 5 of Post-Effective Amendment No.
8).
(5)(a) Form of Investment Advisory Agreement with Miller
Anderson & Sherrerd, LLP is filed herewith.
(6) Distribution Agreement with MAS Fund Distribution, Inc.
dated April 13, 1993 (incorporated by reference to
Exhibit 6 of Post-Effective Amendment No. 26 as filed on
June 28, 1993).
(6)(a) Form of Distribution Agreement with MAS Fund
Distribution, Inc. is filed herewith.
(7) Not Applicable.
(8) Custodian Agreement with State Street Bank & Trust
Company (incorporated by reference to Exhibit 8 of the
initial Registration Statement as filed on March 1,
1984).
(8)(a) Custodian Agreement with Morgan Stanley Trust Company
dated September 1, 1993 as originally filed with
Post-Effective Amendment No. 29 as filed on December 27,
1993 is filed herewith.
(8)(b) Custodian Agreement with United States Trust Company of
New York dated July 22, 1994 is filed herewith.
(8)(c) Amendment dated January 3, 1966 between Morgan Stanley
Trust Company and MAS Funds is filed herewith.
(9) Administration Agreement with The Vanguard Group dated
September, 1984 (incorporated by reference to Exhibit 9
of Pre-Effective Amendment No. 3 as filed on August 27,
1984).
(9)(a) Administration Agreement with Miller Anderson & Sherrerd,
LLP dated November 18, 1993 (incorporated by reference to
Exhibit 9 of Post-Effective Amendment No. 29 as filed on
December 27, 1993).
(9)(b) Sub-Administration Agreement with United States Trust
Company of New York dated November 18, 1993 (incorporated
by reference to Exhibit 9 of Post-Effective Amendment
No. 29 as filed on December 27, 1993).
(9)(c) Transfer Agency Agreement with United States Trust
Company of New York dated November 18, 1993 (incorporated
by reference to Exhibit 9 of Post-Effective Amendment
No. 29 as filed on December 27, 1993).
(9)(d) Form of Administration Agreement with Miller Anderson &
Sherrerd, LLP is filed herewith.
C-2
<PAGE>
(10) Opinion and Consent of Counsel dated August 23, 1984
(incorporated by reference to Pre-Effective Amendment
No. 3 as filed on August 27, 1984).
(11) Consent of Independent Public Accountants is filed
herewith.
(12) Audited Financial Statements for fiscal year ended
September 30, 1995 are filed herewith.
(13) Not Applicable.
(14) Not Applicable.
(15) Distribution Plan Adviser Class Shares is filed
herewith.
(15)(a) Investment Class Shareholder Service Agreement is filed
herewith.
(15)(b) Investment Class Service Provider Agreement (incorporated
by reference to Post-Effective Amendment No. 40 as filed
on December 1, 1995).
(16) Performance Quotation Computation (incorporated by
reference to Post-Effective Amendment No. 21 as filed on
April 6, 1992).
(18) Rule 18f-3 Multiple Class Plan is filed herewith.
(24) Powers of Attorney (incorporated by reference to
Post-Effective Amendment No. 40 as filed on
December 1, 1995).
(27) Financial Data Schedules are filed herewith.
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant is not controlled by or under common control with any person.
Item 26. Number of Holders of Securities:
As of January 25, 1996, the number of record holders of each class of
securities of Registrant was as follows:
Number of
Title of Class Record Holders
-------------- --------------
Advisory Foreign Fixed Income............................ 62
Advisory Mortgage........................................ 51
Emerging Markets......................................... 100
Equity................................................... 765
Growth................................................... 0
International Equity..................................... 621
Mid Cap Growth........................................... 249
Mid Cap Value............................................ 162
Small Cap Value.......................................... 435
Value.................................................... 669
Cash Reserves............................................ 131
C-3
<PAGE>
Domestic Fixed Income.................................... 24
Fixed Income............................................. 547
Fixed Income II.......................................... 52
Global Fixed Income...................................... 73
High Yield............................................... 304
Intermediate Duration.................................... 5
International Fixed Income............................... 52
Limited Duration......................................... 136
Mortgage-Backed Securities............................... 21
Municipal................................................ 76
PA Municipal............................................. 26
Special Purpose Fixed Income............................. 240
Balanced................................................. 132
Multi-Asset-Class........................................ 86
Select Equity............................................ 5
Item 27. Indemnification:
Reference is made to Article V of Registrant's By-Laws dated November 18, 1993,
which is incorporated by reference. Registrant hereby also makes the undertaking
consistent with rule 484 under the Securities Act of 1933, as amended.
The Trust shall indemnify each of its Trustees and officers (including persons
who serve at the Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a shareholder, creditor or
otherwise) (hereinafter referred to as a "Covered Person") against all
liabilities and expenses, including but not limited to amounts paid in
satisfaction of judgements, in compromise or as fines and penalties, and counsel
fees reasonably incurred by any Covered Person in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
or whether by or in the right of the Trust, before any court or administrative
or legislative body, in which such Covered Person may be or may have been
involved as a party or otherwise or with which such person may be or may have
been threatened, while in office or thereafter, by reason of any alleged act or
omission as a Trustee or officer, except with respect to any matter as to which
such Covered Person shall have been finally adjudicated in any such action, suit
or other proceeding not to have acted in good faith in the reasonable belief
that such Covered Person's action was in the best interest of the Trust and
except that no Covered Person shall be indemnified against any liability to the
Trust or its Shareholders to which such Covered Person would otherwise be
subject by reason of self-dealing, willful misconduct or recklessness. Expenses,
including counsel fees so incurred by any such Covered Person, may be paid from
time to time by the Trust in advance of the final disposition of any such
C-4
<PAGE>
action, suit or proceeding on the condition that the amounts so paid shall be
repaid to the Trust if it is ultimately determined that indemnification of such
expenses is not authorized under this Article.
Item 28. Business and Other Connections of Investment Advisor:
Miller Anderson & Sherrerd, LLP (the "Adviser") is a Pennsylvania limited
liability partnership founded 1969. The Adviser provides investment services to
employee benefit plans, endowment funds, foundations and other institutional
investors.
The information required by this Item 28 with respect to each director, officer,
or partner of the Adviser together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated by reference
to Schedules B and D of Form ADV filed by the Adviser pursuant to the Investment
Advisers Act of 1940 (SEC file No. 801-10437).
Item 29. Principal Underwriters:
(a) MAS Fund Distribution, Inc., acts as sole distributor of the
Registrant's shares.
(b) The principal address for MAS Fund Distribution, Inc. and each partner
and officer listed below is One Tower Bridge, West Conshohocken, PA
19428.
Name and Principal Positions and Positions and
Business Address Offices with Underwriter Offices with Registrant
- ------------------ ------------------------ -----------------------
Lorraine Truten President Vice President
Ronald R. Reese Secretary & Treasurer N/A
Paul A. Frick Compliance Officer
Jon K. Speare Client Account Manager
Gary G. Schlarbaum Director N/A
Thomas L. Bennett Director Trustee
James D. Schmid Director President
(c) Not applicable
C-5
<PAGE>
Item 30. Location of Accounts and Records:
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:
Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, N.Y. 10081
(records relating to its function as custodian)
Morgan Stanley Trust Company
1 Pierrepont Plaza
Brooklyn, New York 11201
(records relating to its function as custodian)
Chase Global Funds Services
73 Tremont Street
Boston, MA 02108-3913
(records relating to its functions as sub-administrator,
transfer agent and dividend disbursing agent)
Miller Anderson & Sherrerd, LLP
One Tower Bridge
West Conshohocken, Pennsylvania 19428
(records relating to its function as investment adviser)
Item 31. Management Services
Not Applicable
Item 32. Undertakings:
(a) Not applicable
(b) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C-6
<PAGE>
(c) Registrant hereby undertakes to comply with the intent of the
provisions of Section 16(c) of the Investment Company Act of 1940 in
regard to shareholders' rights to call a meeting of shareholders for
the purpose of voting on the removal of trustees and to assist in
shareholder communications in such matters.
C-7
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post Effective Amendment No. 41 to Registration
Statement No. 2-89729 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of West Conshohocken, Commonwealth of Pennsylvania
on the 30th day of January, 1996.
MAS FUNDS
By: *
---------------------------
James D. Schmid, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment has been signed below by the following persons in the capacity on the
dates indicated.
* Trustee January 30, 1996
- -------------------------------------------
David P. Eastburn
* Trustee January 30, 1996
- -------------------------------------------
Joseph P. Healey
* Trustee January 30, 1996
- -------------------------------------------
Joseph J. Kearns
* Trustee January 30, 1996
- -------------------------------------------
C. Oscar Morong, Jr.
* Trustee January 30, 1996
- -------------------------------------------
Thomas L. Bennett
* President January 30, 1996
- -------------------------------------------
James D. Schmid
* Treasurer January 30, 1996
- -------------------------------------------
Douglas W. Kugler
*By: /s/
---------------------------
John H. Grady, Jr.
Attorney-in-Fact
C-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
- ------- ----
<S> <C> <C>
EX-99.B1 Amended and Restated Declaration of Trust (incorporated by
reference to Exhibit 1 of the initial Registration
Statement as filed on March 1, 1984).
EX-99.B1(a) Amendment No. 1 to Amended and Restated Declaration of Trust,
dated May 20, 1992 (incorporated by reference to Exhibit 2 of Post-
Effective Amendment No. 25 as filed on January 28, 1993).
EX-99.B1(b) Amended and Restated Declaration of Trust, dated November
18, 1993 (incorporated by reference to Exhibit 1 of
Post-Effective Amendment No. 29 as filed on December 27,
1993).
EX-99.B2 By-Laws (incorporated by reference to Exhibit 2 of the
initial Registration Statement as filed on March 1, 1984).
EX-99.B2(a) By-Laws (incorporated by reference to Exhibit 2 of Post-Effective
Amendment No. 29 as filed on December 27, 1993).
EX-99.B3 Not Applicable.
EX-99.B4 Specimen of Security for the Global Fixed Income Portfolio and the
Balanced Portfolio (incorporated by reference to Exhibit 4 of Post-
Effective Amendment No. 24 as filed on October 30, 1992).
EX-99.B4(a) Specimen of Security for the Growth Portfolio
(incorporated by reference to Exhibit 4 of Post-Effective
Amendment No. 26 as filed on June 28, 1993).
EX-99.B5 Investment Advisory Agreement with Miller Anderson &
Sherrerd, LLP dated July 1, 1988 (incorporated by
reference to Exhibit 5 of Post-Effective Amendment No. 8).
EX-99.B5(a) Form of Investment Advisory Agreement with Miller Anderson
& Sherrerd, LLP is filed herewith.
EX-99.B6 Distribution Agreement with MAS Fund Distribution, Inc. dated April 13,
1993 (incorporated by reference to Exhibit 6 of Post-Effective
Amendment No. 26 as filed on June 28, 1993).
EX-99.B6(a) Form of Distribution Agreement with MAS Fund Distribution, Inc. is
filed herewith.
EX-99.B7 Not Applicable.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
- ------- ----
<S> <C> <C>
EX-99.B8 Custodian Agreement with State Street Bank & Trust Company
(incorporated by reference to Exhibit 8 of the initial
Registration Statement as filed on March 1, 1984).
EX-99.B8(a) Custodian Agreement with Morgan Stanley Trust Company
dated September 1, 1993 as originally filed with
Post-Effective Amendment No. 29 as filed on December 27,
1993 is filed herewith.
EX-99.B8(b) Custodian Agreement with United States Trust Company of
New York dated July 22, 1994 is filed herewith.
EX-99.B8(c) Amendment dated January 3, 1996 between Morgan Stanley
Trust Company and MAS Funds is filed herewith.
EX-99.B9 Administration Agreement with The Vanguard Group dated
September, 1984 (incorporated by reference to Exhibit 9 of
Pre-Effective Amendment No. 3 as filed on August 27,
1984).
EX-99.B9(a) Administration Agreement with Miller Anderson & Sherrerd,
LLP dated November 18, 1993 (incorporated by reference to
Exhibit 9 of Post-Effective Amendment No. 29 as filed on
December 27, 1993).
EX-99.B9(b) Sub-Administration Agreement with United States Trust
Company of New York dated November 18, 1993 (incorporated
by reference to Exhibit 9 of Post-Effective Amendment No.
29 as filed on December 27, 1993).
EX-99.B9(c) Transfer Agency Agreement with United States Trust Company of New
York dated November 18, 1993 (incorporated by reference to Exhibit 9
of Post-Effective Amendment No. 29 as filed on December 27, 1993).
EX-99.B9(d) Form of Administration Agreement with Miller Anderson &
Sherrerd, LLP is filed herewith.
EX-99.B10 Opinion and Consent of Counsel dated August 23, 1984
(incorporated by reference to Pre-Effective Amendment No.
3 as filed on August 27, 1984).
EX-99.B11 Consent of Independent Public Accountants is filed herewith.
EX-99.B12 Audited Financial Statements for fiscal year ended September 30, 1995
are filed herewith.
EX-99.B13 Not Applicable.
EX-99.B14 Not Applicable.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
- ------- ----
<S> <C> <C>
EX-99.B15 Distribution Plan Adviser Class Shares is filed herewith.
EX-99.B15(a) Investment Class Shareholder Service Agreement is filed herewith.
EX-99.B15(b) Investment Class Service Provider Agreement (incorporated by reference
to Post-Effective Amendment No. 40 as filed on December 1, 1995).
EX-99.B16 Performance Quotation Computation (incorporated by reference to
Post-Effective Amendment No. 21 as filed on April 6, 1992).
EX-99.B18 Rule 18f-3 Multiple Class Plan is filed herewith.
EX-99.B24 Powers of Attorney (incorporated by reference to Post-Effective
Amendment No. 40 as filed on December 1, 1995).
EX-99.B27.1 Financial Data Schedules
EX-99.B27.2
EX-99.B27.3
EX-99.B27.4
EX-99.B27.5
EX-99.B27.6
EX-99.B27.7
EX-99.B27.8
EX-99.B27.9
EX-99.B27.10
EX-99.B27.11
EX-99.B27.12
EX-99.B27.13
EX-99.B27.14
EX-99.B27.15
EX-99.B27.16
EX-99.B27.17
EX-99.B27.18
EX-99.B27.19
EX-99.B27.20
EX-99.B27.21
EX-99.B27.22
EX-99.B27.23
EX-99.B27.24
EX-99.B27.25
</TABLE>
<PAGE>
EXHIBIT 99.B5a
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this day of , 19 , by and between MAS Funds (the
"Fund"), a business trust organized under the laws of the Commonwealth of
Pennsylvania, and Miller Anderson & Sherrerd, LLP (or any successor-in-interest
(by merger or otherwise) thereto or transferee thereof that does not involve
an "assignment" within the meaning of the Investment Company Act of 1940 and
that is a limited liability partnership or other entity wholly owned, directly
or indirectly, by Morgan Stanley Asset Management Holdings, Inc. and/or its
affiliates; Miller Anderson & Sherrerd, LLP or such successor-in-interest or
transferee being referred to herein as the "Adviser").
1. Duties of Adviser. The Fund hereby appoints the Adviser to act as
investment adviser to each of the Portfolios listed on Schedule A hereto (the
"Portfolios"), for the period and on such terms set forth in this Agreement. The
Fund employs the Adviser to manage the investment and reinvestment of the assets
of the Portfolios, to continuously review, supervise and administer the
investment program of each of the Portfolios, to determine in its discretion the
securities to be purchased or sold and the portion of each such Portfolio's
assets to be held uninvested, to provide the Fund with records concerning the
Adviser's activities which the Fund is required to maintain, and to render
regular reports to the Fund's officers and Board of Trustees concerning the
Adviser's discharge of the foregoing responsibilities. The Adviser shall
discharge the foregoing responsibilities subject to the control of the officers
and the Board of Trustees of the Fund, and in compliance with the objectives,
policies and limitations set forth in the Fund's prospectus and applicable laws
and regulations. The Adviser accepts such employment and agrees to render the
services and to provide, at its own expense, the office space, furnishings and
equipment and the personnel required by it to perform the services on the terms
and for the compensation provided herein.
2. Portfolio Transactions. The Adviser is authorized to select the brokers
or dealers that will execute the purchases and sales of securities for each of
the Portfolios and is directed to use its best efforts to obtain the best
available price and most favorable execution, except as prescribed herein.
Subject to policies established by the Board of Trustees of the Fund, the
Adviser may also be authorized to effect individual securities transactions at
commission rates in excess of the minimum commission rates available, if the
Adviser determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage or research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Adviser's overall responsibilities with respect to the Fund. The execution of
such transactions shall not be deemed to represent an unlawful act or breach of
any duty created by this Agreement or otherwise. The Adviser will promptly
communicate to the officers and Trustees of the Fund such information relating
to portfolio transactions as they may reasonably request.
A-1
<PAGE>
3. Compensation of the Adviser. For the services to be rendered by the
Adviser as provided in Section 1 of this Agreement, the Fund shall pay to the
Adviser at the end of each of the Fund's fiscal quarters, an advisory fee
calculated by applying a quarterly rate, based on the annual percentage rates
set forth opposite each Portfolio's name on Schedule A hereto, to each
Portfolio's average daily net assets for the quarter.
In the event of termination of this Agreement, the fee provided
under this Section shall be computed on the basis of the period ending on the
last business day on which this Agreement is in effect subject to a pro rata
adjustment based on the number of days elapsed in the current fiscal quarter as
a percentage of the total number of days in such quarter.
4. Other Services. At the request of the Fund, the Adviser, in its
discretion may make available to the Fund office facilities, equipment,
personnel and other services. Such office facilities, equipment, personnel and
services shall be provided for or rendered by the Adviser and billed to the Fund
at the Adviser's cost.
5. Reports. The Fund and the Adviser agree to furnish to each other current
prospectuses, proxy statements, reports to shareholders, certified copies of
their financial statements, and such other information with regard to their
affairs as each may reasonably request.
6. Status of Adviser. The services of the Adviser to the Fund are not to be
deemed exclusive, and the Adviser shall be free to render similar services to
others so long as its services to the Fund are not impaired thereby.
7. Liability of Adviser. In the absence of (i) willful misfeasance, bad
faith or gross negligence on the part of the Adviser in performance of its
obligations and duties hereunder, (ii) reckless disregard by the Adviser of its
obligations and duties hereunder, or (iii) a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services (in
which case any award of damages shall be limited to the period and the amount
set forth in Section 36(b)(3) of the Investment Company Act, the Adviser shall
not be subject to any liability whatsoever to the Fund, or to any shareholder of
the Fund, for any error or judgment, mistake of law or any other act or omission
in the course of, or connected with, rendering services hereunder including,
without limitation, for any losses that may be sustained in connection with the
purchase, holding, redemption or sale of any security on behalf of any Portfolio
of the Fund.
8. Permissible Interests. Subject to and in accordance with the Declaration
of Trust of the Fund and the Partnership Agreement (or other governing or
organizational documents) of the Adviser, Trustees, agents and shareholders of
the Fund are or may be interested in the Adviser (or any successor thereof) as
A-2
<PAGE>
officers or partners, or otherwise; officers, agents and partners of the Adviser
are or may be interested in the Fund as Trustees, officers, shareholders or
otherwise; and the Adviser (or any successor) is or may be interested in the
Fund as a shareholder or otherwise. The effect of any such interrelationships
shall be governed by said Declaration of Trust or Partnership Agreement (or
other governing or organizational documents) and provisions of the Investment
Company Act.
9. Declaration of Trust. The Adviser is hereby expressly put on notice of
the limitation of shareholder liability as set forth in Article VIII of the
Declaration of Trust of the Fund and agrees that the obligations assumed by the
Fund pursuant to this Agreement shall be limited in all cases to the Fund and
its assets, and the Adviser shall not seek satisfaction of any such obligation
from the shareholders or any shareholder of the Fund. Nor shall the Adviser
seek satisfaction of any such obligations from the Trustees or any individual
Trustee.
10. Duration and Termination. This Agreement, unless sooner terminated as
provided herein, shall continue until ,
and thereafter for additional periods of one year from the anniversary thereof,
but only so long as such continuance is specifically approved at least annually
(a) by the vote of a majority of those members of the Board of Trustees of the
Fund who are not parties to this Agreement or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Board of Trustees of the Fund or by vote of a majority
of the outstanding voting securities of each Portfolio of the Fund; provided,
however, that if the holders of any Portfolio fail to approve the Agreement as
provided herein, the Adviser may continue to serve in such capacity in the
manner and to the extent permitted by the Investment Company Act and Rules
thereunder. This Agreement may be terminated by any Portfolio of the Fund at any
time, without the payment of any penalty, by vote of a majority of the entire
Board of Trustees of the Fund or by vote of a majority of the outstanding voting
securities of the Portfolio on 60 days' written notice to the Adviser. This
Agreement may be terminated by the Adviser at any time, without the payment of
any penalty, upon 90 days' written notice to the Fund. This Agreement will
automatically and immediately terminate in the event of its assignment. Any
notice under this Agreement shall be given in writing, addressed and delivered
or mailed postpaid, to the other party at any office of such party.
As used in this Section 10, the terms "assignment," "interested
persons," and "a vote of a majority of the outstanding voting securities" shall
have the respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and
Section 2(a)(42) of the Investment Company Act.
11. Amendment of Agreement. This Agreement may be amended by mutual
consent, but the consent of the Fund must be approved (a) by a vote of a
majority of those members of the Board of Trustees of the Fund who are not
parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such amendment, and (b)
by vote of a majority of the outstanding voting securities of each Portfolio of
the Fund.
A-3
<PAGE>
12. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of this day of , 19 .
MILLER ANDERSON & SHERRERD, LLP MAS FUNDS
By By
--------------------------------- ----------------------------
Title: Title:
----------------------------- -------------------------
A-4
<PAGE>
Schedule A
Portfolio Rate
- --------- ----
Advisory Foreign Fixed Income .375%
Advisory Mortgage .375%
Balanced .450%
Cash Reserves .250%
Domestic Fixed Income .375%
Emerging Markets .750%
Equity .500%
Fixed Income .375%
Fixed Income II .375%
Global Fixed Income .375%
Growth .500%
High Yield .375%
Intermediate Duration .375%
International Fixed Income .375%
International Equity .500%
Limited Duration .300%
Mid Cap Growth .500%
Mid Cap Value .750%
Mortgage-Backed Securities .375%
Multi-Asset-Class .450%
Municipal .375%
PA Municipal .375%
Select Equity .500%
Small Cap Value .750%
Special Purpose Fixed Income .375%
Value .500%
<PAGE>
EXHIBIT 99.B6a
DISTRIBUTION AGREEMENT
THIS AGREEMENT entered into as of the day of
, 19 by and between MAS FUNDS, a Pennsylvania business trust
located at One Tower Bridge, West Conshohocken, Pennsylvania 19428 (the "Fund"),
and MAS FUND DISTRIBUTION, INC., a Pennsylvania corporation located at One
Tower Bridge, West Conshohocken, Pennsylvania 19428 (the "Distributor").
W I T N E S S E T H :
In consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereto, intending to be legally bound hereby,
mutually covenant and agree as follows:
1. The Fund hereby appoints the Distributor as agent of the
Fund to effect the continuous sale and public distribution of shares of
beneficial interest of the Fund.
2. The Distributor shall be the exclusive agent for the Fund
for the sale of its shares and the Fund agrees that it will not sell any shares
to any person except to fill orders for the shares received through the
Distributor; provided, however, that the foregoing exclusive right shall not
apply: (a) to shares issued or sold in connection with the merger or
consolidation of any other investment company with the Fund or the acquisition
by purchase or otherwise of all or substantially all of the outstanding shares
of any such company by the Fund; (b) to shares which may be offered by the Fund
to its shareholders for reinvestment of cash distributed from capital gains or
net investment income of the Fund; (c) to shares which may be issued to
shareholders of a Portfolio of the Fund who exercise any exchange privilege set
forth in a Prospectus of the Fund; (d) to shares issued to existing shareholders
as the result of a stock split; or (e) to shares which the Fund otherwise may
issue directly to registered shareholders pursuant to authority of its Board of
Trustees.
3. The Fund hereby authorizes the Distributor to use its best
efforts to solicit orders for the sale of its shares in accordance with the
following schedule of prices:
The applicable price will be the net asset value per share
next calculated after receipt and acceptance by the Fund of a
proper offer to purchase, determined in accordance with the
Declaration of Trust, By-Laws, Registration Statement and
Prospectus of the Fund.
4. Orders for the purchase of shares placed by the Distributor
shall be subject to the provisions of Section 26 of the Rules of Fair Practice
of the National Association of Securities Dealers, Inc., the provisions of which
are hereby incorporated by reference.
<PAGE>
5. The Fund agrees to prepare and file Registration Statements
with the Securities and Exchange Commission and the Securities Departments of
the various states and other jurisdictions in which the shares may be offered,
at its own expense, and do such other things and to take such other actions as
may be mutually agreed upon by and between the parties as shall be reasonably
necessary in order to effect the registration and the sale of the Fund's shares.
The Distributor shall cooperate with the Fund in the preparation and filing of
applications for registration and qualification of the shares under applicable
law.
6. At its own expense, the Fund shall print and provide the
Distributor with such quantities of its current Prospectuses, Statement of
Additional Information (hereinafter collectively, the "Prospectus") and reports
to shareholders as the Distributor may reasonably request in connection with the
registration of the Fund's shares under federal and state laws, and all
applicable federal or state filing requirements.
7. Normally, the Fund shall not direct or exercise any control
over the time and place of solicitation, the persons to be solicited, or the
manner of solicitation; but the Distributor agrees that solicitations shall be
in a form acceptable to the Fund and shall be subject to such terms and
conditions as may be prescribed from time to time by the Fund, the Registration
Statement, the Prospectus, the Declaration of Trust, and By-Laws of the Fund,
and shall not violate any provision of the laws of the United States or of any
other jurisdiction to which solicitations are subject, or violate any rule or
regulation promulgated by any lawfully constituted authority to which the Fund
or Distributor may be subject.
8. (a) The Fund appoints and designates the Distributor as
agent of the Fund and the Distributor accepts such appointment and agrees to
transmit any orders received by it for purchase or redemption of Fund shares to
the Fund's transfer and dividend disbursing agent, or any other party of which
the Fund has notified the Distributor in writing.
(b) In connection with such purchases and redemptions, the
Fund authorizes and designates the Distributor to take any action, and to make
any arrangements for the collection of purchase monies or for the payment of
redemption proceeds authorized or permitted to be taken or made in accordance
with the Investment Company Act of 1940 (the "1940 Act") and as set forth in the
Declaration of Trust, By-Laws and the then-current Prospectus of the Fund.
2
<PAGE>
(c) The authority of the Distributor under this
paragraph 8 may, with the consent of the Fund, be redelegated in whole or in
part to another person or firm. If, consistent with this paragraph, the
Distributor enters into selling agreements with other brokers or dealers as
selling agents or selected dealers, it agrees to do so on a form approved by the
Fund's officers.
(d) The authority granted in this paragraph 8 may be
suspended by the Fund at any time or from time to time pursuant to the
provisions of its Declaration of Trust until further notice to the Distributor.
The President or any Vice President of the Fund shall have the power granted by
said provisions. After any such suspension, the authority granted to the
Distributor by this paragraph 8 shall be reinstated only pursuant to a written
instrument executed by the Fund's President or any Vice President.
9. The Distributor shall keep and maintain adequate records
in respect of its activities which further the sale of shares.
10. The Distributor agrees that it will not place orders for
more shares than are required to fill the requests received by it as agent of
the Fund and that it will expeditiously transmit all such orders to the Fund.
The Distributor further agrees that it will act only on its own behalf as
principal should it choose to enter into selling agreements with selected
dealers or others.
11. This Agreement shall become effective as of the date first
written above and shall continue in effect for a period of ( ) years
from its effective date and shall continue each year thereafter provided such
continuance is approved, at least annually, by the Board of Trustees of the
Fund, including a majority of those Trustees who are not "interested persons"
of any party to this Agreement voting in person at a meeting called for the
purpose of voting on such approval. This Agreement may be terminated by either
party hereto without penalty upon sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment, unless the SEC has issued an order exempting the Fund and the
Distributor from the provisions of the 1940 Act, as amended, which would
otherwise have effected the termination of this Agreement.
12. No amendment to this Agreement shall be executed or become
effective unless its terms have been approved: (a) by a majority of the Trustees
of the Fund or by the vote of a majority of the outstanding voting securities of
the Fund, and (b) by a majority of those Trustees who are not interested persons
of the Fund or of any party to this Agreement.
13. The Fund and the Distributor hereby each agree that all
literature and publicity issued by either of them referring directly or
indirectly to the Fund or to the Distributor shall be submitted to and receive
the approval of the Fund and the Distributor before the same may be used by
either party.
3
<PAGE>
14. The Distributor agrees to use its best efforts with
respect to its duties under this Agreement; provided that nothing contained in
this Agreement shall make the Distributor or any of its officers and directors
or shareholders liable for any loss sustained by the Fund or the Fund's
officers, Trustees or shareholders, or by any other person on account of any act
done or omitted to be done by the Distributor under this Agreement; and provided
further, that nothing herein contained shall protect the Distributor against any
liability to the Fund or to any of its shareholders to which the Distributor
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties as Distributor or by reason of its
reckless disregard of its obligations or duties as Distributor under this
Agreement. Nothing in this Agreement shall protect the Distributor from any
liabilities which it may have under the Securities Act of 1933 or the 1940 Act.
15. It is understood and expressly stipulated that none of the
Trustees, officers, agents or shareholders of the Fund shall be held personally
liable hereunder for any obligations entered into on behalf of the Fund, and
further, that all persons dealing with the Fund must look solely to the property
of the Fund for the enforcement or satisfaction of any claims against the Fund.
No Portfolio of the Fund shall be liable for any claims against any other series
or portfolio of the Fund.
16. As used in this Agreement the terms "interested persons,"
"assignment," and "majority of the outstanding voting securities" shall have the
respective meanings specified in the 1940 Act, as currently in effect.
17. This Agreement shall be construed in accordance with the
laws of the Commonwealth of Pennsylvania, except to the extent such laws are
preempted by the 1940 Act.
18. Any notice required to be delivered hereunder shall be
sent via first class mail to the address of the party as set forth above.
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their duly authorized officers on the day and year above written.
Attest: MAS FUNDS
- --------------------------- ---------------------------------
By:
Title:
Attest: MAS FUND DISTRIBUTION, INC.
- ---------------------------- ----------------------------------
By:
Title:
5
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EXHIBIT 99.B8a
CUSTODY AGREEMENT
This Custody Agreement is dated September 1, 1993 between MORGAN
STANLEY TRUST COMPANY, a New York State chartered trust company (the
"custodian"), and MAS Funds ("customer").
1. The Customer hereby appoints the Custodian as a custodian of
securities, cash and other property owned or under the control of the Customer
which are delivered to the Custodian, or any Subcustodian as appointed below,
from time to time to be held in custody for the benefit of the Customer. The
Customer instructs the Custodian to establish on the books and records of the
Custodian an account (the "Account") in the name of the Customer. The custodian
shall record in the Account and shall have general responsibility for the
safekeeping of all domestic or foreign securities ("Securities"), cash and other
property (all such Securities, cash and other Property are referred to
hereinafter collectively as the "Property") of the Customer so delivered for
custody. It is understood that the specific procedures the Custodian will use in
carrying out its responsibilities under this Agreement are set forth in the
procedures manual (the "Procedures Manual") prepared by the Custodian and
delivered to the Customer, as such Procedures Manual may be amended from time to
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time by the Custodian by written notice to the Customer. To the extent that the
terms of the Procedures Manual are inconsistent with the terms of this
Agreement, this Agreement shall govern. Subject to the immediately preceding
sentence, the Customer acknowledges that the Procedures Manual constitutes an
integral part of this Agreement.
2. The Property may be held in custody and deposit accounts that have
been established by the Custodian with one or more domestic or foreign banks, or
through the facilities of one or more clearing agencies or central securities
depositories, as listed on Exhibit A hereto (the "Subcustodians"), as such
Exhibit may be amended from time to time by the Custodian by written notice to
the Customer, provided that the Custodian may only appoint Subcustodians which
qualify as "Eligible Foreign Custodians" under Rule 17f-5(c)(2) promulgated
under the Investment Company Act of 1940. Furthermore, the Custodian shall
continuously monitor the eligibility of the Subcustodians and if, at any time,
the Custodian determines that any Subcustodian no longer satisfies the
requirements of Rule 17f-5(c)(2), the Custodian shall promptly give written
notice to the Customer and will act upon Authorized Instructions (as defined in
Section 9). The Custodian may hold Property for all of its customers with a
Subcustodian in a single account on the books and records of such Subcustodian
that is identified as belonging to the Custodian for the benefit of its
customers (a "Subcustodian Account"). Any Subcustodian may hold Property in a
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securities depository and may utilize a clearing agency. The Custodian shall not
be liable for any loss resulting from cases of force majeure including, but not
limited to, losses resulting from nationalization, expropriation, exchange
controls or acts of war or terrorism. Except as provided in the immediately
preceding sentence, the liability of the Custodian for losses incurred by the
Customer in respect of Securities shall not be affected by the Custodian's use
of Subcustodians.
3. With respect to Property held by a Subcustodian pursuant to Section 2:
(a) The Custodian will identify on its books as belonging to the
Customer any Property held by a Subcustodian for the Custodian's
account;
(b) The Custodian will hold Property through a Subcustodian only if (i)
such Subcustodian and any securities depository or clearing agency in
which such Subcustodian holds Property, or any of their creditors, may
not assert any right, charge, security interest, lien, encumbrance or
claim of any kind to such Property except a claim of payment for its
safe custody or administration and (ii) beneficial ownership of such
Property may be freely transferred without the payment of money or
value other than for safe custody or administration;
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<PAGE>
(c) The Custodian shall require that Property held by the Subcustodian
for the Custodian's account be identified in the Subcustodian Account
on the Subcustodian's books as separate from any property held by the
Subcustodian other than property of the Custodian's customers and as
held solely for the benefit of customers of the Custodian; and (d) In
the event that the Subcustodian holds Property in a securities
depository or clearing agency, such Subcustodian will be required by
its agreement with the Custodian to identify on its books such Property
as being held for the account of the Custodian as a custodian for its
customers.
4. The Custodian shall allow the Customer's accountants reasonable
access to the Custodian's records relating to the Property held by the Custodian
as such accountants may reasonably require in connection with their examination
of the Customer's affairs. The Custodian shall also obtain from any Subcustodian
(and will require each Subcustodian to use reasonable efforts to obtain from any
securities depository or clearing agency in which it deposits Property) an
undertaking, to the extent consistent with customary local practice and the
laws of the jurisdiction or jurisdictions to which such Subcustodian, securities
depository or clearing agency is subject, to permit independent public
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<PAGE>
accountants such reasonable access to the records of such Subcustodian,
securities depository or clearing agency as may be reasonably required in
connection with the examination of the Customer's affairs or to take such other
action as the Custodian in its judgment may deem sufficient to ensure such
reasonable access.
5. The Custodian shall provide monthly reports with respect to the
safekeeping of the Property including, at a minimum, notification of any
transfer to or from the Account or any transfer of Property to or from a
Subcustodian Account, and such other reports and other information to the
Customer and to such persons as the Customer directs as the Custodian and the
Customer may agree from time to time.
6. The Custodian shall make or cause any Subcustodian to make payments
from monies being held in the Account only:
(a) upon the purchase of Securities and then, to the extent consistent
with practice in the jurisdiction in which settlement occurs, upon the
delivery of such Securities;
(b) for payments to be made in connection with the conversion, exchange
or surrender of Securities;
(c) upon a request of the Customer that the Custodian return monies
being held in the Account;
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(d) upon a request of the Customer that monies be exchanged for or used
to purchase monies denominated in a different currency;
(e) as provided in Section 8 and 12 hereof;
(f) upon termination of this Custody Agreement as hereinafter set
forth; and
(g) for any other purpose upon receipt of Authorized Instructions.
Except as provided in the last two sentences of this Section 6 and as
provided in Section 8, all payments pursuant to this Section 6 will be made only
upon receipt by the Custodian of Authorized Instructions. In the event that it
is not possible to make a payment in accordance with Authorized Instructions of
the Customer, the Custodian shall proceed in accordance with the procedures set
forth in the Procedures Manual. Any payment pursuant to subsection (f) of this
Section 6 will be made in accordance with Section 16.
7. The Custodian shall make or cause any Subcustodian to make
transfers, exchanges or deliveries of Securities only:
(a) upon sale of such Securities and then, to the extent consistent
with standard practice in the jurisdiction in which settlement occurs,
upon receipt of payment therefor;
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(b) upon exercise of conversion, subscription, purchase, exchange or
other similar rights pertaining to such Securities and, if applicable
to such exercise and if consistent with practice in the applicable
jurisdiction, only on receipt of substitute or additional securities to
be received upon such exercise;
(c) as provided in Section 8 hereof;
(d) upon the termination of this Custody Agreement as hereinafter set
forth; and
(e) for any other purpose upon receipt of Authorized Instructions.
Except as provided in the last two sentences of this Section 7 and as
provided in Section 8, all transfers, exchanges or deliveries of Securities
pursuant to this Section 7 will be made only upon receipt by the Custodian of
Authorized Instructions. In the event that it is not possible to transfer
Securities in accordance with Authorized Instructions of the Customer,
the'Custodian shall proceed in accordance with the procedures set forth in the
Procedures Manual. Any transfer or delivery pursuant to subsection (d) of this
Section 7 will be made in accordance with Section 16.
8. In the absence of Authorized Instructions from the Customer to the
contrary, the Custodian may, and may authorize any Subcustodian to:
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<PAGE>
(a) make payments to itself or others for expenses of handling Property
or other similar items reasonably relating to its duties under this
Agreement, provided that all such payments shall be accounted for to
the Customer;
(b) receive and collect all income and principal with respect to
Securities and to credit cash receipts to the Account;
(c) exchange Securities when the exchange is purely ministerial
(including, without limitation, the exchange of interim receipts or
temporary securities for securities in definitive form and the exchange
of warrants, or other documents of entitlement to securities, for the
securities themselves);
(d) surrender Securities at maturity or when called for redemption upon
receiving payment therefor;
(e) execute in the Customer's name such ownership and other
certificates as may be required to obtain the payment of income from
Securities;
(f) pay or cause to be paid, from the Account, any and all taxes and
levies in the nature of taxes imposed on Property by any governmental
authority in connection with custody of and transactions in such
Property;
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(g) endorse for collection, in the name of the Customer, checks, drafts
and other negotiable instruments; and
(h) in general, attend to all nondiscretionary details in connection
with the custody, sale, purchase, transfer and other dealings with the
Property.
9. "Authorized Instructions" of the Customer shall mean instructions
received by telecopy, tested telex, electronic link or other electronic means or
by such other means as may be agreed in writing in advance between the Customer
and the Custodian. The Custodian shall be entitled to act, and shall have no
liability for acting, in accordance with the terms of this Agreement or upon any
instructions, notice, request, consent, certificate or other instrument or paper
believed by it to be genuine and to have been properly executed by or on behalf
of the Customer.
10. Securities which must be held in registered form may be registered,
to the extent permitted by law or regulation, in the name of the Custodian's
nominee or, in the case of Securities in the custody of an entity other than the
Custodian, in the name of such entity's nominee. The Customer agrees to hold the
Custodian and Subcustodians and any such nominee harmless from any liability
arising out of any such person acting as a holder of record of such Securities.
The Custodian may without notice to the Customer cause any Securities to cease
to be registered in the name of any such nominee and to be registered in the
name of the Customer.
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11. All cash received by the Custodian for the Account shall be held by
the Custodian as a short-term credit balance in favor of the Customer and, if
the Custodian and the Customer have agreed in writing in advance that such
credit balances shall bear interest, the Customer shall earn interest at the
rates and times as agreed between the Custodian and the Customer. The Customer
understands that any such credit balances will not be accompanied by the benefit
of any governmental insurance.
12. From time to time, the Custodian may arrange or extend short-term
credit for the Customer which is (i) necessary in connection with payment and
clearance of securities and foreign exchange transactions or (ii) pursuant to an
agreed schedule, as and if set forth in the Procedures Manual, of credits for
dividends and interest payments on Securities. All such extensions of credit
shall be repayable by the Customer on demand. The Custodian shall be entitled to
charge the Customer interest for any such credit extension at rates to be agreed
upon from time to time. In addition to any other remedies available, the
Custodian shall be entitled to a right of set-off against the Property to
satisfy the repayment of such credit extensions and the payment of accrued
interest thereon. The Custodian may act as the Customer's agent or act as a
principal in foreign exchange transactions at such rates as are agreed from
time to time between the Customer and the Custodian.
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13. The Customer represents that (i) the execution, delivery and
performance of this Agreement (including, without limitation, the ability to
obtain the short-term extensions of credit in accordance with Section 12) are
within the Customer's power and authority and have been duly authorized by all
requisite action (corporate or otherwise) and (ii) this Agreement and each
extension of short-term credit extended or arranged for the benefit of the
Customer in accordance with Section 12 will at all times constitute a legal,
valid and binding obligation of the Customer and be enforceable against the
Customer in accordance with their respective terms, except as may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors, rights in general and subject to the effect of general principles of
equity (regardless of whether considered in a proceeding in equity or at law).
The Custodian represents that the execution, delivery and performance
of this Agreement is within the Custodian's power and authority and has been
duly authorized by all requisite action of the Custodian. This Agreement
constitutes the legal, valid and binding obligation of the Custodian enforceable
against the Custodian in accordance with its terms, except as may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors, rights in general and subject to the effect of general principles of
equity (regardless of whether considered in a proceeding in equity or at law).
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14. The Custodian shall be responsible for the performance of only such
duties as are set forth in this Agreement or the Procedures Manual or contained
in Authorized Instructions given to the Custodian which are not contrary to the
provisions of any relevant law or regulation. The Custodian shall not be liable
to the Customer or to any other person for any action taken or omitted to be
taken by it in connection with this Agreement in the absence of negligence or
willful misconduct on the part of the Custodian. Upon the request of the
Custodian, the Customer agrees to deliver to the Custodian a duly executed power
of attorney, in form and substance satisfactory to the Custodian, authorizing
the Custodian to take any action or execute any instrument on behalf of the
Customer as necessary or advisable to accomplish the purposes of this Agreement.
15. The Customer agrees to pay to the Custodian from time to time such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon from time to time and the Custodian's out-of-pocket or incidental
expenses reasonably related to the Custodian's performance of services under
this Agreement and the Procedures Manual. The Customer hereby agrees to hold the
Custodian harmless from any liability or loss resulting from any taxes or other
governmental charges, and any expenses related thereto, which may be imposed or
assessed with respect to the Account or any Property held therein. The
Custodian is and any Subcustodians are authorized to charge the Account for
such items and the Custodian shall have a lien, charge and security interest on
any and all Property for any amount owing to the Custodian from time to time
under this Agreement.
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If the Customer is a U.S. person as defined in Rule 902 promulgated by
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
as amended (the "Act"), the Customer recognizes that, in connection with the
Customer's election from time to time to participate in distributions of
securities (whether pursuant to rights offerings, warrant subscriptions,
mergers, reorganizations or otherwise) which have not been registered pursuant
to the Act, the Custodian may inform the issuer and its agents that the acquiror
of the securities is a U.S. person. The Custodian shall not be responsible to
the Customer for the consequences of any issuer's or agent's refusal to permit
the Customer to acquire such securities, and the Customer shall hold the
Custodian harmless from liability to the issuer and its agents in connection
with any such election by the Customer.
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16. This Agreement may be terminated by the Customer or the Custodian
by 90 days written notice to the other, sent by registered mail. If notice of
termination is given, the Customer shall, within 90 days following the giving of
such notice, deliver to the Custodian a statement in writing specifying the
successor custodian or other person to whom the Custodian shall transfer the
Property. In either event the Custodian, subject to the satisfaction of any lien
on any Property it may have, will transfer the Property to the person so
specified. If the Custodian does not receive such statement the Custodian, at
its election, may transfer the Property to a bank or trust company established
under the laws of the United States or any state thereof to be held and disposed
of pursuant to the provisions of this Agreement or may continue to hold the
Property until such a statement is delivered to the Custodian. In such event the
Custodian shall be entitled to fair compensation for its services during such
period as the Custodian remains in possession of any Property and the provisions
of this Agreement relating to the duties and obligations of the Custodian shall
remain in full force and effect; provided, however, that the Custodian shall no
longer settle any transactions in securities for the Account.
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17. The Custodian, its agents and employees will maintain the
confidentiality of information concerning the Property held in the Account
("Confidential Information"), including maintaining such confidentiality in any
dealings between the Custodian and affiliates of the Custodian. In the event the
Custodian or any Subcustodian is requested or required to disclose any
Confidential Information concerning the Property, the Custodian shall to the
extent practicable and legally permissible, promptly notify the Customer of such
request or requirement so that the Customer may seek a protective order or
waive the Custodian's or such Subcustodian's compliance with this Section 16. In
the absence of such a waiver, if the Custodian or such Subcustodian is compelled
by law, regulation or standard practice, in the opinion of its counsel, to
disclose any Confidential Information, the Custodian or such Subcustodian may
disclose such information to such persons as, in the opinion of counsel, is so
required.
18. Any notice or other communication from the Customer to the
Custodian, unless otherwise provided by this Agreement, shall be sent by
certified or registered mail to Morgan Stanley Trust Company, One Pierrepont
Plaza, Brooklyn, New York, 11201, Attention: President, and any notice from the
Custodian to the Customer is to be mailed postage prepaid, addressed to the
Customer at the address appearing below, or as it may hereafter be changed on
the Custodian's records in accordance with notice from the Customer.
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19. The Custodian may assign all of its rights and obligations
hereunder to any other entity which is qualified to act as custodian under the
terms of this Agreement and majority-owned, directly or indirectly, by Morgan
Stanley Group Inc., and upon the assumption of the rights and obligations
hereunder by such entity, such entity shall succeed to all of the rights and
obligations of, and be substituted for, the Custodian hereunder as if such
entity had been originally named as custodian herein. The Custodian shall give
prompt written notice to the Customer upon the effectiveness of any such
assignment.
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This Agreement shall bind the successors and assigns of the Customer
and the Custodian and shall be governed by the laws of the State of New York
applicable to contracts executed in and to be performed in that state.
MAS FUNDS
By /s/ Lorraine Truten
--------------------------------
Name: Lorraine Truten
Title: Vice President
Address for record: ONE TOWER BRIDGE
P. O. BOX 868
WEST CONSHOHOCKEN, PA 19428
Accepted:
MORGAN STANLEY TRUST COMPANY
By /s/ Daniel Roccato
------------------------------
Name: Daniel Roccato
Title: Vice President
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MUTUAL FUND CUSTODY AGREEMENT
MAS FUNDS
UNITED STATES TRUST COMPANY OF NEW YORK
July 22, 1994
<PAGE>
MUTUAL FUND CUSTODY AGREEMENT
MAS FUNDS
Table of Contents
Section/Paragraph Page
1. Appointment 1
2. Delivery of Documents 1
3. Definitions 2
4. Delivery and Registration of the Property 3
5. Voting Rights 4
6. Receipt and Disbursement of Money 4
7. Receipt of Securities 5
8. Use of Securities Depository or the Book-Entry System 5
9. Foreign Sub-Custody Arrangements 6
10. Instructions Consistent With The Charter, etc. 7
11. Transactions Not Requiring Instructions 8
12. Transactions Requiring Instructions 11
13. Repurchase Agreement Transactions 12
14. Purchase of Securities 12
15. Sales of Securities 13
16. Records 13
17. Cooperation with Accountants 14
18. Confidentiality 14
19. Equipment Failures 14
<PAGE>
MUTUAL FUND CUSTODY AGREEMENT
MAS FUNDS
Table of Contents continued
Section/Paragraph Page
20. Right to Receive Advice 14
21. Compliance with Governmental Rules and Regulations 15
22. Compensation 15
23. Indemnification 15
24. Responsibility of U.S. Trust 17
25. Collection 18
26. Duration and Termination 18
27. Notices 18
28. Further Actions 19
29. Amendments 19
30. Miscellaneous 19
Signatures 20
Attachment A - Portfolios Covered by This Agreement
Attachment B - Fees and Expenses
Attachment C - Authorized Persons
Attachment D - Authorized Brokers
ii
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MUTUAL FUND CUSTODY AGREEMENT
THIS AGREEMENT is made as of July 22, 1994, by and between MAS FUNDS on
behalf of certain of its portfolio series, a Pennsylvania business trust (the
"Fund"), and UNITED STATES TRUST COMPANY OF NEW YORK, a New York State chartered
bank and trust company ("U.S. Trust").
WITNESSETH:
WHEREAS, the Fund is registered as an investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund desires to retain U.S. Trust to serve as the Fund's
custodian for the assets of the portfolios of the Fund listed in Attachment A
hereto, and to retain U.S. Trust to arrange for Morgan Stanley Trust Company
("Morgan Stanley") or its successor to serve as the Fund's sub-custodian for
its assets held outside the United States pursuant to an agreement between U.S.
Trust and Morgan Stanley, and U.S. Trust is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints U.S. Trust to act as custodian
of its portfolio securities, cash and other property on the terms set forth in
this Agreement. U.S. Trust accepts such appointment and agrees to furnish the
services herein set forth in return for the compensation as provided in
Paragraph 20 of this Agreement.
2. Delivery of Documents. The Fund will promptly furnish to U.S. Trust
such copies, properly certified or authenticated, of contracts, documents and
other related information as U.S. Trust may request or require to properly
discharge its duties, including but not limited to the following:
(a) Resolutions of the Fund's Board of Trustees ("Board") authorizing
the appointment of U.S. Trust as Custodian of the portfolio securities, cash and
other property of the Fund and approving this Agreement;
(b) Incumbency and signature certificates identifying and containing
the signatures of the Fund's officers and/or the persons authorized to sign
Written Instructions, as hereinafter defined, on behalf of the Fund;
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(c) The Fund's Declaration of Trust and all amendments thereto (such
Declaration of Trust, as currently in effect and as they shall from time to time
be amended, are herein called the "Charter");
(d) The Fund's By-Laws and all amendments thereto (such By-Laws, as
currently in effect and as they shall from time to time be amended, are herein
called the "By-Laws");
(e) Resolutions of the Fund's Board and/or the Fund's shareholders
approving the Investment Advisory and Management Agreement between the Fund and
the Fund's investment adviser (the "Advisory Agreement");
(f) The Advisory Agreement; and
(g) The Fund's Registration Statement on Form N-1A under the 1940 Act
and the Securities Act of 1933, as amended ("the 1933 Act"), as filed with, and
declared effective by, the Securities and Exchange Commission (the "SEC") and
all exhibits, amendments and supplements thereto, including any opinion of
counsel for the Fund with respect to the validity of the shares of the Fund (the
"Shares") and the status of such Shares under the 1933 Act as registered with
the SEC and under any other applicable federal law or regulation.
3. Definitions.
(a) "Authorized Person". As used in this Agreement, the term
"Authorized Person" means the Fund's President, Vice-President Treasurer and any
other person, whether or not any such person is an officer or employee of the
Fund, duly authorized by the Board to give Written Instructions on behalf of the
Fund and listed on Attachment B hereto, which may be amended from time to time.
(b) "Book-Entry System". As used in this Agreement, the term
"Book-Entry System" means the Federal Reserve/Treasury book-entry system for
United States and federal agency securities, its successor or successors and its
nominee or nominees.
(c) "Property". The term "Property", as used in this Agreement, means:
(i) any and all securities, cash, and other property of the Fund
which the Fund may from time to time deposit, or cause to be
deposited, with U.S. Trust, or a subcustodian, which U.S. Trust, or
the subcustodian, may from time to time hold for the Fund;
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(ii) all income in respect of any such securities or other
property;
(iii) all proceeds of the sales of any of such securities or
other property; and
(iv) all proceeds of the sale of securities issued by the Fund,
which are received by U.S. Trust, or a subcustodian, from time to
time from or on behalf of the Fund.
(d) "Securities Depository". As used in this Agreement the term
"Securities Depository" shall mean The Depository Trust Company, a clearing
agency registered with the SEC, or its successor or successors and its nominee
or nominees; and shall also mean any other registered clearing agency, its
successor or successors, specifically identified in a certified copy of a
resolution of the Fund's Board approving deposits by U.S. Trust therein.
(e) U.S. Trust "Asset Management System" (AMS) means U.S. Trust's
recordkeeping and reporting system.
(f) "Written Instructions". Means instructions
(i) delivered by mail, tested telegram, cable, telex or facsimile
sending device, and received by U.S. Trust, signed by an Authorized
Person or by a person reasonably believed by U.S. Trust to be an
Authorized Person; or
(ii) transmitted electronically through the U.S. Trust Asset
Management System or any similar electronic instruction system
acceptable to U.S. Trust.
4. Delivery and Registration of the Property. The Fund will deliver or
cause to be delivered to U.S. Trust all Property owned by it which is held
within the United States, including cash received for the issuance of its
Shares, at all times during the period of this Agreement, except for securities
and monies to be delivered to any subcustodian appointed pursuant to Paragraph 7
hereof. U.S. Trust will not be responsible for such securities and such monies
until actually received by U.S. Trust or by any subcustodian. All securities
delivered to U.S. Trust or to any such subcustodian (other than in bearer form)
shall be registered in the name of the Fund or in the name of a nominee of the
Fund or in the name of U.S. Trust or any nominee of U.S. Trust (with or without
indication of fiduciary status) or in the name of any subcustodian or any
nominee of such subcustodian appointed pursuant to Paragraph 7 hereof or shall
be properly endorsed and in form for transfer satisfactory to U.S. Trust.
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5. Voting Rights. With respect to all securities owned by the Fund,
however registered. it is understood that the voting and other rights and powers
of such securities shall be exercised bv the Fund. U.S. Trust's only duty shall
be to mail to the Fund any documents received, including proxy statements and
offering circulars, with any proxies for securities registered in a nominee name
executed by such nominee. Where warrants, options, tenders or other securities
have fixed expiration dates, the Fund understands that in order for U.S. Trust
to act, U.S. Trust must receive the Fund's instructions at its offices in New
York City, addressed as U.S. Trust may from time to time request, by no later
than noon (New York City time) at least one business day prior to the last
scheduled date to act with respect thereto (or such earlier date or time as
permits the Fund a reasonable period of time in which to respond after U.S.
Trust notifies the Fund of such date or time). Absent U. S. Trust's timely
receipt of such instructions, such instruments will expire without liability to
U.S. Trust.
6. Receipt and Disbursement of Money.
(a) U.S. Trust shall open and maintain a custody account for the Fund
(the "Account") subject only to draft or order by U.S. Trust acting pursuant to
the terms of this Agreement, and shall hold in such Account, subject to the
provisions hereof, all cash received by it from or for the Fund. U.S. Trust
shall make payments of cash to, or for the account of, the Fund from such cash
only (i) for the purchase of securities for the Fund as provided in paragraph 12
hereof, (ii) upon receipt of Written Instructions for the payment of dividends
or other distributions of shares, or for the payment of interest, taxes,
administration, distribution or advisory fees or expenses which are to be borne
by the Fund under the terms of this Agreement, any Advisory Agreement, or any
administration agreement of the Fund; (iii) upon receipt of Written Instructions
for payments in connection with the conversion, exchange or surrender of
securities owned or subscribed to by the Fund and held by or to be delivered to
U.S. Trust; (iv) to a subcustodian pursuant to Paragraph 7 hereof; or (v) upon
receipt of Written Instructions for other Fund business purposes.
(b) U.S. Trust is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received as custodian for the
Fund.
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7. Receipt of Securities.
(a) Except as provided by Paragraph 8 hereof, U.S. Trust shall hold all
securities and non-cash Property received by it for the Fund. All such
securities and non-cash Property are to be held or disposed of by U.S. Trust for
the Fund pursuant to the terms of this Agreement. In the absence of Written
Instructions accompanied by a certified resolution authorizing the specific
transaction by the Fund's Board, U.S. Trust shall have no power or authority to
withdraw, deliver, assign, hypothecate, pledge or otherwise dispose of any such
securities and non-cash Property, except in accordance with the express terms
provided for in this Agreement. In connection with its duties under this
Paragraph 7, U.S. Trust may, at its own expense, enter into subcustodian
agreements with other U.S. banks or trust companies for the receipt of certain
securities and cash to be held by U.S. Trust for the account of the Fund
pursuant to this Agreement; provided that each such bank or trust company has an
aggregate capital, surplus and undivided profits, as shown by its last published
report, of not less than twenty million dollars ($20,000,000) and that such bank
or trust company agrees with U.S. Trust to comply with all relevant provisions
of the 1940 Act and applicable rules and regulations thereunder.
(b) Promptly after the close of business on each day, U.S. Trust shall
furnish the Fund with confirmations and a summary of all transfers to or from
the account of the Fund during said day. Where securities are transferred to the
account of the Fund established at a Securities Depository or the Book Entry
System pursuant to Paragraph 8 hereof, U.S. Trust shall also by book-entry or
otherwise identify as belonging to the Fund the quantity of securities that
belong to the Fund that are part of a fungible bulk of securities registered in
the name of U.S. Trust (or its nominee) or shown in U.S. Trust's account on the
books of a Securities Depository or the Book-Entry System. From time to time,
and at least once monthly, U.S. Trust shall furnish the Fund with a detailed
statement of the Property held for the Fund under this Agreement. U.S. Trust
shall provide such other periodic reports as the Fund may reasonably request.
8. Use of Securities Depository or the Book-Entry System. The Fund
authorizes U.S. Trust, on a continuous and ongoing basis until instructed to the
contrary by Written Instructions actually received by U.S. Trust (i) to deposit
in a Securities Depository or the Book-Entry System all securities of the Fund
eligible for deposit therein and (ii) to utilize a Securities Depository or the
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Book-Entry System to the extent possible in connection with the performance of
its duties hereunder, including without limitation, settlements of purchases
and sales of securities by the Fund, and deliveries and returns of securities
collateral in connection with borrowings. Without limiting the generality of
such use, it is agreed that the following provisions shall apply thereto:
(a) Securities and any cash of the Fund deposited in a Securities
Depository or the Book-Entry System will at all times be segregated from any
assets and cash controlled by U.S. Trust in other than a fiduciary or custodian
capacity but may be commingled with other assets held in such capacities. U.S.
Trust will effect payment for securities and receive and deliver securities in
accordance with accepted industry practices in the place where the transaction
is settled, unless the Fund has given U.S. Trust Written Instructions to the
contrary.
(b) All Books and records maintained by U.S. Trust which relate to the
Fund's participation in a Securities Depository or the Book-Entry System will at
all times during U,.S. Trust's regular business hours be open to the inspection
of the Fund's duly authorized employees or agents, and the Fund will be
furnished with all information in respect of the services rendered to it as it
may require.
(c) U.S. Trust shall be liable to the Fund for any loss or damage to
the Fund resulting from errors of which the Book-Entry System informs U.S. Trust
or its agents or employees.
9. Foreign Sub-Custody Arrangements, U.S. Trust has entered into a
separate international custodian agreement with Morgan Stanley governing the
custody of the foreign securities of the Fund (the "International Custodian
Agreement"). Under the International Custodian Agreement, Morgan Stanley will
serve as custodian and will receive, safeguard and deliver the Fund's foreign
securities which U.S. Trust causes to be deposited with Morgan Stanley from time
to time. U.S. Trust agrees that, as a precondition to the deposit of each
foreign security of the Fund with Morgan Stanley pursuant to the International
Custody Agreement, U.S. Trust must ascertain that Morgan Stanley has entered
into a written contract with each foreign subcustodian to be used thereunder
which provides in substance that, as a "Customer" under the International
Custodian Agreement:
(a) the Fund will be adequately insured or indemnified in the event of
loss;
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(b) the Fund's assets will not be subject to any claim by the foreign
subcustodian or its creditors except a claim for payment for
custody or administrative services;
(c) beneficial ownership of the Fund's assets will be freely
transferable;
(d) adequate records will be maintained identifying the assets as
belonging to the Fund;
(e) the Fund's independent public accountants will be given access to
those records; and
(f) the Fund will receive periodic reports with respect to the
safekeeping of its assets.
10. Instructions Consistent With The Charter, etc. U.S. Trust may
assume that any Written Instructions received hereunder are not in any way
inconsistent with any provision of the Charter or By-Laws of the Fund or any
vote or resolution of the Fund's Board, or any committee thereof. U.S. Trust
shall be entitled to rely upon any Written Instructions actually received by
U.S. Trust pursuant to this Agreement. The Fund agrees that U.S. Trust shall
incur no liability in acting in good faith upon Written Instructions given to
U.S. Trust. In accord with instructions from the Fund, as required by accepted
industry practice or as U.S. Trust may elect in effecting the execution of Fund
instructions, any advance of cash or other Property made by U.S. Trust, arising
from the purchase, sale, redemption, transfer or other disposition of Property
of the Fund, or in connection with the disbursement of funds to any party, or in
payment of fees, expenses, claims or liabilities owed to U.S. Trust by the Fund
or to any other party which has secured judgment in a court of law against the
Fund, which creates an overdraft in the accounts or over-delivery of Property
shall be deemed a loan by U.S. Trust to the Fund, payable on demand, bearing
interest at such rate as is customarily charged by U.S. Trust for similar loans.
The Fund agrees that test arrangements, authentication methods or other security
devices to be used with respect to instructions which the Fund may give by
telephone, telex, TWX, facsimile transmission, bank wire or through an
electronic instruction system, shall be processed in accordance with terms and
conditions for the use of such arrangements, methods or devices as U.S. Trust
may put into effect and modify from time to time. The Fund shall safeguard any
test keys, identification codes or other security devices which U.S. Trust makes
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<PAGE>
available to the Fund and agrees that the Fund shall be responsible for any
loss, liability or damage incurred by U.S. Trust or by the Fund as a result of
U.S. Trust's acting in accordance with instructions from any unauthorized person
using the proper security device, unless such loss, liability or damage was
incurred as a result of U.S. Trust's negligence or misconduct. U.S. Trust may
electronically record, but shall not be obligated to so record, any instructions
given bv telephone and any other telephone discussions with respect to the
Account. In the event that the Fund uses U.S. Trust's Asset Management System
("AMS"), the Fund agrees that U.S. Trust will not be responsible for the
consequences of the failure of the AMS to perform for any reason beyond the
reasonable control of U.S. Trust, or the failure of any communications carrier,
utility or communications network. In the event the AMS is inoperable, the Fund
agrees that it will accept the communication of transaction instructions by
telephone, facsimile transmission on equipment compatible to U.S. Trust's
facsimile receiving equipment or by letter, at no additional charge to the Fund.
11. Transactions Not Requiring Written Instructions. U.S. Trust is
authorized and (unless expressly indicated to the contrary) instructed to take
the following actions without Written Instructions:
(a) Collection of Income and Other Payments. U.S. Trust shall:
(i) collect and receive for the account of the Fund, all income
and other payments and distributions, including (without limitation)
stock dividends, rights, warrants and similar items included or to be
included in the Property of the Fund, and promptly advise the Fund of
such receipt and shall credit such income, as collected, to the Fund.
From time to time, U.S. Trust may elect, but shall not be so obligated,
to credit the Account with interest, dividends or principal payments on
payable or contractual settlement dates, in anticipation of receiving
same from a payor, central depository, broker or other agent employed
by the Fund or U.S. Trust. Any such crediting and posting shall be at
the Fund's sole risk, and U.S. Trust shall be authorized to reverse any
such advance posting in the event U.S. Trust does not receive good
funds from any such payor, central depository, broker or agent of the
Fund. U.S. Trust will take any reasonable action which may be necessary
and proper in connection with the collection of such interest,
dividends or principal payments, provided the Fund will reimburse U.S.
Trust for any reasonable attorneys' fees in connection therewith.
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(ii) with respect to securities of foreign issuers held in custody
by U.S. Trust hereunder, if any, effect collection of dividends,
interest and other income, and notify the Fund of any call for
redemption, offer of exchange, right of subscription, reorganization,
or other proceedings affecting such securities, or any default in
payments due thereon. It is understood, however, that U.S. Trust shall
be under no responsibility for any failure or delay in effecting such
collections or giving such notice with respect to securities of foreign
issuers unless such failure or delay is due to its negligence or
misconduct; provided that this sub-paragraph (ii) shall not be
construed as creating any such responsibility with respect to
securities of non-foreign issuers. Collections of income in foreign
currency are, to the extent possible, to be converted into United
States Dollars, unless the Fund instructs U.S. Trust otherwise in
writing, and in effecting such conversion U.S. Trust may use such
methods or agencies as it may see fit, including the facilities of its
own foreign division, at customary rates. All risk and expense incident
to such conversion is for the account of the Fund and U.S. Trust shall
have no responsibility for fluctuations in exchange rates affecting any
such conversion, provided such conversion is performed promptly.
(iii) endorse and deposit for collection in the name of the Fund,
checks, drafts, or other orders for the payment of money on the same
day as received.
(iv) receive and hold for the account of the Fund all securities
received by the Fund as a result of a stock dividend, share split-up or
reorganization, recapitalization, readjustment or other rearrangement
or distribution of rights or similar securities issued with respect to
any portfolio securities of the Fund held by U.S. Trust hereunder.
(v) present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed or retired, or
otherwise become payable on the date such securities become payable.
(vi) take any action which may be necessary and proper in
connection with the collection and receipt of Fund income and other
payments and the endorsement for collection of checks, drafts and other
negotiable instruments.
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(vii) with respect to domestic securities, exchange securities in
temporary form for securities in definitive form, effect an exchange of
the shares where the par value of stock is changed, and surrender
securities at maturity or when advised of earlier call for redemption
against payment therefor in accordance with accepted industry practice.
U.S. Trust shall not be liable for failure to redeem any called bond or
to take other action if notice of such call or action was not provided
by any service to which it subscribes, provided that U.S. Trust shall
have acted in good faith without being negligent and in accordance with
"street practice" (as is customary in industry). U.S. Trust shall have
no duty to notify the Fund of any rights, duties, limitations,
conditions or other information set forth in any security (including
mandatory or optional put, call and similar provisions), but U.S. Trust
shall forward to the Fund any notices or other documents received with
regard to any such security. When fractional shares of stock of a
declaring corporation are received as a stock distribution, unless
specifically instructed to the contrary in writing, U.S. Trust is
authorized to sell the fraction received and credit the Fund's account.
Unless specifically instructed to the contrary in writing, U.S. Trust
is authorized to exchange securities in bearer form for securities in
registered form. If any Property registered in the name of a nominee of
U.S. Trust is called for partial redemption by the issuer of such
Property, U.S. Trust is authorized to allot the called portion to the
respective beneficial holders of the Property in such manner as is
deemed by U.S. Trust to be fair and equitable.
(b) Miscellaneous Transactions. U.S. Trust is authorized to deliver or
cause to be delivered Property against payment or other consideration or
written receipt therefor in the following cases:
(i) for examination by a broker selling for the account of the Fund
in accordance with street delivery custom;
(ii) for the exchange of interim receipts or temporary securities
for definitive securities; and
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(iii) for transfer of securities into the name of the Fund or U.S.
Trust or a nominee of either, or for exchange of securities for a
different number of bonds, certificates, or other evidence,
representing the same aggregate face amount or number of units bearing
the same interest rate, maturity date and call provisions, if any;
provided that, in any such case, the new securities are to be delivered
to U.S. Trust.
12. Transactions Requiring Instructions. Upon receipt of Written
Instructions and not otherwise, U.S. Trust, directly or through the use of a
Securities Depository or the Book-Entry System, shall:
(a) Execute and deliver to such persons as may be designated in such
Written Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any securities may be
exercised;
(b) Deliver any securities held for the Fund against receipt of other
securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(c) Deliver any securities held for the Fund to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or sale of
assets of any corporation, against receipt of such certificates of deposit,
interim receipts or other instruments or documents as may be issued to it to
evidence such delivery;
(d) Make such transfers or exchanges of the assets of the Fund and take
such other steps as shall be stated in said instructions to be for the purpose
of effectuating any duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund;
(e) Release securities belonging to the Fund to any bank or trust
company for the purpose of pledge or hypothecation to secure any loan incurred
by the Fund; provided, however, that securities shall be released only upon
payment to U.S. Trust of the monies borrowed, except that in cases where
additional collateral is required to secure a borrowing already made, subject to
proper prior authorization, further securities may be released for that purpose;
and pay such loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or notes evidencing the
loan;
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(f) Deliver any securities held for the Fund upon the exercise of a
covered call option written by the Fund on such securities; and
(g) Deliver securities held for the Fund pursuant to separate security
lending and repurchase agreements concerning the lending of the Fund's
securities into which the Fund may enter, from time to time.
13. Repurchase Agreement Transactions. U.S. Trust is authorized to make
temporary short-term investments of the Fund's excess cash (as presented to U.S.
Trust by Mutual Funds Service Company) pursuant to the standing instructions set
forth in this section 13. U.S. Trust shall invest excess cash in repurchase
agreements with maturities of not more than 7 days entered into with banks or
dealers approved by the Fund's Board of Trustees, as set forth in Attachment D
to this Agreement. The collateral must be segregated from the assets of the
seller of the repurchase agreement and held in a separate account with a third
party custodian in the name of U.S. Trust on behalf of the Fund. U.S. Trust is
responsible for ensuring that the underlying collateral consists of only U.S.
Government securities, certificates of deposit and bankers' acceptances. If the
underlvlng collateral has a maturity of two years or less, the market value of
the collateral shall equal at least 101% of the cash value of the repurchase
agreement. If the underlying collateral has a maturity of greater than two
years, the market value of the collateral shall equal at least 102% of the cash
value of the repurchase agreement. U.S. Trust will be liable to the Fund if it
acts beyond the authority granted to it by the Fund pursuant to this standing
instruction.
14. Purchase of Securities. Promptly after each purchase of securities
by the Investment Adviser (or any sub-adviser), the Fund shall deliver to U.S.
Trust (as Custodian) Written Instructions specifying with respect to each such
purchase: (a) the name of the issuer and the title of the securities, (b) the
number of shares or the principal amount purchased and accrued interest, if any,
(c) the dates of purchase and settlement, (d) the purchase price per unit, (e)
the total amount payable upon such purchase and (f) the name of the person from
whom or the broker through whom the purchase was made. U.S. Trust shall upon
receipt of securities purchased by or for the Fund pay out of the monies held
for the account of the Fund the total amount payable to the person from whom or
the broker through whom the purchase was made, provided that the same conforms
to the total amount payable as set forth in such Written Instructions.
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In each case where payment for purchase of securities is made by U.S.
Trust in advance of receipt of the securities purchased in the absence of
specific Written Instructions from the Fund to so pay in advance, U.S. Trust
shall be liable to the Fund for such securities to the same extent as if the
securities had been received by U.S. Trust, unless the custom of the individual
country is to make payment for the securities in advance of receipt of the
securities.
15. Sales of Securities. Promptly after each sale of securities by the
Investment Adviser, the Fund shall deliver to U.S. Trust (as Custodian) Written
Instructions, specifying with respect to each such sale: (a) the name of the
issuer and the title of the security, (b) the number of shares or principal
amount sold, and accrued interest, if any, (c) the date of sale, (d) the sale
price per unit, (e) the total amount payable to the Fund upon such sale and (f)
the name of the broker through whom or the person to whom the sale was made.
U.S. Trust shall deliver the securities upon receipt of the total amount payable
to the Fund upon such sale, provided that the same conforms to the total amount
payable as set forth in such Written Instructions. Subject to the foregoing,
U.S. Trust may accept payment in such form as shall be satisfactory to it, and
may deliver securities and arrange for payment in accordance with the customs
prevailing among dealers in securities.
16. Records. U.S. Trust shall keep and maintain appropriate books and
records with respect to its duties hereunder for the Fund. The books and records
pertaining to the Fund which are in the possession of U.S. Trust shall be
prepared and maintained as required by the 1940 Act and other applicable
securities laws and regulations. The books and records pertaining to the Fund
which are in the possession of U.S. Trust shall be the property of the Fund.
The Fund, or the Fund's authorized representatives, shall have access to such
books and records at all times during U.S. Trust's normal business hours, and
such books and records shall be surrendered to the Fund promptly upon request.
Upon reasonable request of the Fund, copies of any such books and records shall
be provided by U.S. Trust to the Fund or the Fund's authorized representative at
the Fund's expense.
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17. Cooperation with Accountants. U.S. Trust shall cooperate with the
Fund's independent certified public accountants and shall take all reasonable
action in the performance of its obligations under this Agreement to assure that
the necessary information is made available to such accountants for the
expression of their unqualified opinion, including but not limited to the
opinion included in the Fund's semiannual report on Form N-SAR.
18. Confidentiality. U.S. Trust agrees on behalf of itself and its
employees to treat confidentially and as the proprietary information of the Fund
all records and other information relative to the Fund and its prior, present or
potential shareholders and relative to the Investment Adviser and its prior,
present or potential customers, and not to use such records and information for
any purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Fund, which
approval shall not be unreasonably withheld and may not be withheld where U.S.
Trust may be exposed to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Fund. Nothing contained herein,
however, shall prohibit U.S. Trust from advertising or soliciting the public
generally with respect to other products or services, regardless of whether such
advertisement or solicitation may include prior, present or potential
shareholders of the Fund.
19. Equipment Failures. In the event of equipment failures beyond U.S.
Trust's control, U.S. Trust shall, at no additional expense to the Fund, take
reasonable steps to minimize service interruptions but shall not have liability
with respect thereto. U.S. Trust shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provision for
back up emergency use of electronic data processing equipment to the extent
appropriate equipment is available.
20. Right to Receive Advice.
(a) Advice of Fund. If U.S. Trust shall be in doubt as to any action to
be taken or omitted by it, it may request, and shall receive, from the Fund
clarification or advice.
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(b) Advice of Counsel. if U.S. Trust shall be in doubt as to any
question of law involved in any action to be taken or omitted by U.S. Trust, it
may request advice at its own cost from counsel of its own choosing (who may be
counsel for the Fund or U.S. Trust, at the option of U.S. Trust).
(c) Conflicting Advice. In case of conflict between directions or
advice received by U.S. Trust pursuant to subparagraph (a) of this paragraph and
advice received by U.S. Trust pursuant to subparagraph (b) of this paragraph,
U.S. Trust shall be entitled to rely on and follow the advice received pursuant
to the latter provision alone.
(d) Protection of U.S. Trust. U.S. Trust shall be protected in any
action or inaction which it takes or omits to take in reliance on any directions
or advice received pursuant to subparagraph (a) of this section which U.S.
Trust, after receipt of any such directions or advice, in good faith believes to
be consistent with such directions or advice. However, nothing in this paragraph
shall be construed as imposing upon U.S. Trust any obligation (i) to seek such
directions or advice, or (ii) to act in accordance with such directions or
advice when received, unless, under the terms of another provision of this
Agreement, the same is a condition to U.S. Trust's properly taking or omitting
to take such action. Nothing in this subparagraph shall excuse U.S. Trust when
an action or omission on the part of U.S. Trust constitutes willful misfeasance,
bad faith, negligence or reckless disregard by U.S. Trust of its duties under
this Agreement.
21. Compliance with Governmental Rules and Regulations. The Fund
assumes full responsibility for insuring that the contents of its registration
statement on Form N-1A, as filed with, and declared effective by, the SEC, and
all amendments thereto, comply with all applicable requirements of the 1933 Act,
the 1940 Act, and any laws, rules and regulations of governmental authorities
having jurisdiction.
22. Compensation. As compensation for the services described within
this Agreement and rendered by U.S. Trust during the term of this Agreement, the
Fund will pay to U.S. Trust, in addition to reimbursement of its out-of-pocket
expenses, monthly fees as outlined in Attachment B.
23. Indemnification. The Fund, as sole owner of the Property, agrees to
indemnify and hold harmless U.S. Trust and its nominees from all taxes, charges,
expenses, assessments, claims, and liabilities (including, without limitation,
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<PAGE>
liabilities arising under the 1933 Act, the Securities Exchange Act of 1934, the
1940 Act, and any state and foreign securities and blue sky laws, all as amended
from time to time) and expenses, including (without limitation) reasonable
attorneys' fees and disbursements, arising directly or indirectly (a) from the
fact that securities included in the Property are registered in the name of any
such nominee or (b) without limiting the generality of the foregoing clause (a)
from any action or thing which U.S. Trust takes or does or omits to take or do
(i) at the request or on the direction of or in reliance on the advice of the
Fund, or (ii) upon Written Instructions; provided, that neither U.S. Trust nor
any of its nominees or subcustodians shall be indemnified against any liability
to the Fund or to its Shareholders (or any expenses incident to such liability)
arising out of (x) U.S. Trust's or such nominee's or subcustodian's willful
misfeasance, bad faith, negligence or reckless disregard of its duties under
this Agreement or (y) U.S. Trust's own or its subcustodian's negligent failure
to perform its duties under this Agreement. In order that the indemnification
provisions contained in this Section 23 shall apply, however, it is understood
that if in any case the Fund may be asked to indemnify or save U.S. Trust
harmless, the Fund shall be fully and promptly advised of all pertinent facts
concerning the situation in question, and it is further understood that U.S.
Trust will use all reasonable care to identify and notify the Fund promptly
concerning any situation which presents the probability of such a claim for
indemnification against the Fund. The Fund shall have the option to defend U.S.
Trust against any claim in an amount exceeding $50,000 which may be the subject
of this indemnification, and in the event that the Fund so elects it will so
notify U.S. Trust and thereupon the Fund shall take over complete defense of the
claim, and U.S. Trust shall in such situations initiate no further legal or
other expenses for which it shall seek indemnification under this Section 23.
U.S. Trust shall in no case confess any claim or make any compromise in any case
in which the Fund will be asked to indemnify U.S. Trust except with the Fund's
prior written consent. In the event of any advance of cash for any purpose made
by U.S. Trust resulting from orders or Written Instructions of the Fund, or in
the event that U.S. Trust or its nominee or subcustodian shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Agreement, except such as may arise from
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<PAGE>
its or its nominee's or subcustodian's willful misfeasance, bad faith,
negligence or reckless disregard of its duties under this Agreement or any
agreement between U.S Trust and any nominee or subcustodian, the Fund shall
promptly reimburse U.S. Trust for such advance of cash or such taxes, charges,
expenses, assessments, claims or liabilities.
24. Responsibility of U.S. Trust. U.S. Trust shall be under no duty to
take any action on behalf of the Fund except as specifically set forth herein or
as may be specifically agreed to by U.S. Trust in writing. In the performance of
its duties hereunder, U.S. Trust shall be obligated to exercise care and
diligence and to act in good faith and to use its best efforts within reasonable
limits to insure the accuracy of all services performed under this Agreement.
U.S. Trust shall be responsible for its own negligent failure or that of any
subcustodian it shall appoint to perform its duties under this Agreement
(including but not limited to any subcustodian appointed pursuant to a
repurchase agreement transaction under section 13 of this Agreement) but to the
extent that duties, obligations and responsibilities are not expressly set forth
or referenced in this Agreement, U.S. Trust shall not be liable for any act or
omission which does not constitute willful misfeasance, bad faith, or negligence
on the part of U.S. Trust or reckless disregard of such duties, obligations and
responsibilities. Without limiting the generality of the foregoing or of any
other provision of this Agreement, U.S. Trust in connection with its duties
under this Agreement shall not be under any duty or obligation to inquire into
and shall not be liable for or in respect of (a) the validity or invalidity or
authority or lack thereof of any advice, direction, notice or other instrument
which conforms to the applicable requirements of this Agreement, if any, and
which U.S. Trust believes to be genuine, (b) the validity of the issue of any
securities purchased or sold by the Fund, the legality of the purchase or sale
thereof or the propriety of the amount paid or received therefor, (c) the
legality of the issue or sale of any Shares, or the sufficiency of the amount to
be received therefor, (d) the legality of the redemption of any Shares, or the
propriety of the amount to be paid therefor, (e) the legality of the declaration
or payment of any dividend or distribution on Shares, or (f) delays or errors or
loss of data occurring by reason of circumstances beyond U.S. Trusts control,
including acts of civil or military authority, national emergencies, labor
difficulties, fire, mechanical breakdown (except as provided in Paragraph 19),
flood or catastrophe, acts of God, insurrection, war, riots, or failure of the
mail, transportation systems, communication systems or power supply.
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<PAGE>
25. Collection. All collections of monies or other property in respect,
or which are to become part, of the Property (but not the safekeeping thereof
upon receipt by U.S. Trust) shall be at the sole risk of the Fund. In any case
in which U.S. Trust does not receive any payment due the Fund within a
reasonable time after U.S. Trust has made proper demands for the same, it shall
so notify the Fund in writing, including copies of all demand letters, any
written responses thereto, and memoranda of all oral responses thereto, and to
telephonic demands, and await instructions from the Fund. U.S. Trust shall not
be obliged to take legal action for collection unless and until reasonably
indemnified to its satisfaction. U.S. Trust shall also notify the Fund as soon
as reasonably practicable whenever income due on securities is not collected in
due course.
26. Duration and Termination. This Agreement shall be effective as of
the date hereof and shall continue until termination by the Fund or by U.S.
Trust on 90 days' written notice. Upon any termination of this Agreement,
pending appointment of a successor to U.S. Trust or a vote of the Shareholders
of the Fund to dissolve or to function without a custodian of its cash,
securities or other property, U.S. Trust shall not deliver cash, securities or
other property of the Fund to the Fund, but may deliver them to a bank or trust
company of its own selection, having aggregate capital, surplus and undivided
profits, as shown by its last published report of not less than twenty million
dollars ($20,000,000) as a successor custodian for the Fund to be held under
terms similar to those of this Agreement, provided, however, that U.S. Trust
shall not be required to make any such delivery or payment until full payment
shall have been made by the Fund of all liabilities constituting a charge on or
against the properties then held by U.S. Trust or on or against U.S. Trust and
until full payment shall have been made to U.S. Trust of all of its fees,
compensation, costs and expenses, subject to the provisions of Paragraph 22 of
this Agreement.
27. Notices. All notices and other communications (collectively
referred to as "Notice" or "Notices" in this paragraph) hereunder shall be in
writing or by confirm in telegram, cable, telex, or facsimile sending device.
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<PAGE>
Notices shall be addressed (a) if to U.S. Trust, at U.S. Trust's address, 114 W.
47th Street, New York, New York, 10036; (b) if to the Fund. at the address of
the Fund, One Tower Bridge, West Conshohocken, Pennsylvania 19428; or (c) if to
neither of the foregoing, at such other address as shall have been notified to
the sender of any such Notice or other communication. If the location of the
sender of a Notice and the address of the addressee thereof are, at the time of
sending, more than 100 miles apart, the Notice may be sent by first-class mail,
in which case it shall be deemed to have been given three days after it is sent,
or if sent by confirming telegram, cable, telex or facsimile sending device, it
shall be deemed to have been given immediately, and, if the location of the
sender of a Notice and the address of the addressee thereof are, at the time of
sending, not more than 100 miles apart, the Notice may be sent by first-class
mail, in which case it shall be deemed to have been given two days after it is
sent, or if sent by messenger, it shall be deemed to have been given on the day
it is delivered, or if sent by confirming telegram, cable, telex or facsimile
sending device, it shall be deemed to have been given immediately. All postage,
cable, telegram, telex and facsimile sending device charges arising from the
sending of a Notice hereunder shall be paid by the sender.
28. Further Actions. Each party agees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
29. Amendments. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
30. Miscellaneous. This Agreement embodies the entire Agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the parties hereto. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in New York and
governed by New York law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
MAS FUNDS
Attest: Lorraine Truten By: /s/ James D. Schmid
---------------------- ---------------------------
Name: James D. Schmid
---------------------------
Title: President
---------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
Attest: Jacqueline Bender By: /s/ Peter C. Arrighetti
---------------------- ---------------------------
Name: Peter C. Arrighetti
---------------------------
Title: Senior Vice President
---------------------------
<PAGE>
MUTUAL FUND CUSTODY AGREEMENT
MAS FUNDS
July 22, 1994
ATTACHMENT A
Portfolios Covered by This Agreement
1. Equity Portfolio
2. Value Portfolio
3. Small Capitalization Value Portfolio
4. Growth Portfolio
5. Emerging Growth Portfolio
6. Fixed Income Portfolio
7. Fixed Income II Portfolio
8. Special Purpose Fixed Income Portfolio
9. High Yield Securities Portfolio
10. Limited Duration Fixed Income Portfolio
11. Intermediate Duration Fixed Income Portfolio
12. Mortgage-Backed Securities Portfolio
13. Balanced Portfolio
14. Cash Reserves Portfolio
15. Select Value Portfolio
16. Select Equity Portfolio
17. Select Fixed Income Portfolio
18. Municipal Fixed Income Portfolio
19. Pennsylvania Municipal Fixed Income Portfolio
20. Global Balanced Portfolio
A-1
<PAGE>
MUTUAL FUND CUSTODY AGREEMENT
MAS FUNDS
July 22, 1994
ATTACHMENT B
Fees and Expenses
The Fund will be billed monthly for fees and out-of-pocket expenses
under its Mutual Fund Custody Agreement with U.S. Trust. Billings for fees and
expenses will be due to U.S. Trust upon receipt and are based on the following
schedules:
For the services rendered pursuant to the Mutual Fund Custody
Agreement, the Fund shall pay to U.S. Trust, net of any securities lending
revenue due the Fund, a custody safekeeping fee and custody transaction fee
computed and payable monthly as follows:
Domestic Custody Safekeeping Fees
.8 Basis Points on the first $1 billion in assets in each Portfolio, plus
.7 Basis Points on assets in excess of $1 billion in each Portfolio
Domestic Custody Transaction Fees
$ 8.00 per DTC or Fed Book Entry transaction
$15.00 per PTC transaction
$28.00 per Physical transaction
$40.00 per Future or Option Wire
$ 8.00 per outgoing Wire Transfer
Global Custody Fees for Euroclear Eligible Securities
4.0 Basis Points on the Funds' average net assets.
$35.00 per Euroclear transaction
B-1
<PAGE>
MUTUAL FUND CUSTODY AGREEMENT
MAS FUNDS
July 22, 1994
Global Custody Fees for non-Euroclear Eligible Securities - Country Dependent
Safekeeping Fee Transaction Fee
Argentina 32.0 basis points $175
Australia 11.0 75
Austria 10.0 75
Belgium 10.0 75
Brazil 32.0 125
Canada 7.0 35
Denmark 11.0 35
Finland 11.0 35
France 9.0 75
Germany 9.0 35
Greece 62.0 125
Hong Kong 10.0 75
Indonesia 22.0 125
Ireland 12.0 75
Italy 11.0 35
Japan 8.0 30
Malaysia 17.0 125
Mexico 14.0 75
Netherlands 11.0 35
New Zealand 12.0 75
Norway 11.0 35
Philippines 22.0 175
Portugal 27.0 175
South Africa 14.0 75
Singapore 12.0 75
Spain 14.0 50
Sweden 11.0 35
Switzerland 11.0 50
Thailand 17.0 125
United Kingdom 7.0 35
Venezuela 47.0 175
Other Countries 10.0 55
B-2
<PAGE>
MUTUAL FUND CUSTODY AGREEMENT
MAS FUNDS
July 22, 1994
ATTACHMENT B
Fees and Expenses
Balance Credits on Mutual Fund Custody
Credit on overnight cash balances, less required reserves, will be paid
to the Fund at a rate equal to 75% of the 90 day Treasury bill rate.
Out-of-Pocket Expenses
Out-of-pocket expenses including but not limited to the cost of
reregistration of foreign securities will be billed to the Fund on a monthly
basis.
B-3
<PAGE>
MUTUAL FUND CUSTODY AGREEMENT
MAS FUNDS
July 22, 1994
ATTACHMENT D
Authorized Brokers
United States Trust Company of New York
J.P Morgan Securities
Goldman Sachs & Co.
Merrill Lynch & Co. Inc.
D-1
<PAGE>
AMENDMENT DATED AS OF JANUARY 3, 1996
BETWEEN MORGAN STANLEY TRUST COMPANY (THE "CUSTODIAN")
AND MAS FUNDS (THE "CLIENT")
WHEREAS, the Custodian and the Client have entered into a Custody
Agreement dated as of September 1, 1993 (the "Agreement") for the
safekeeping of securities and cash received by the Custodian for the
account of the Client;
WHEREAS, the Client and the Custodian wish to amend the manner in
which the Custodian holds any of the Client's cash;
NOW, THEREFORE, in consideration of the premises, the parties
hereto agree as follows:
1. Terms defined in the Agreement are used herein with their
defined meanings.
2. Section 11 of the Custody Agreement is hereby amended in
its entirety to read as follows:
"11. Unless the Client and the Custodian otherwise
agree, all cash received by the Custodian for the
Account shall be placed in deposit accounts
maintained by the Custodian for the benefit of its
clients with Subcustodians. The Client understands
that such deposit accounts may not be accompanied by
the benefit of any governmental insurance. If the
Custodian and the Client have agreed in writing in
advance that certain cash in the Account shall bear
interest, the Custodian shall be responsible for
crediting the Account with interest on such cash at
the rates and times as agreed between the Client and
the Custodian from time to time and such rates may be
greater than or less than the rates paid on deposits
by the Subcustodian. Any difference between the
interest so paid to the Client and the interest so
paid by the Subcustodians shall be for the account of
the Custodian."
<PAGE>
3. Except as expressly amended hereby, all terms and
provisions of the Agreement are and shall continue to be in full
force and effect. This Amendment shall be construed in accordance
with the applicable laws of the State of New York. This Amendment
may be executed by one or both of the parties hereto on any
number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective authorized officers as of the
day and year first above written.
MORGAN STANLEY TRUST COMPANY
By: /s/
---------------------------
Name:
Title:
MAS FUNDS
By: /s/
---------------------------
Name: Lorraine Truten
Title: Vice President
<PAGE>
EX-99.B9(d)
FUND ADMINISTRATION AGREEMENT
MAS Funds
AGREEMENT made as of _____________, 1996 by and between MAS
Funds, a Pennsylvania business trust (the "Fund"), and Miller Anderson &
Sherrerd, LLP, a limited liability partnership organized under the laws of the
Commonwealth of Pennsylvania (the "Administrator").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund wishes to retain the Administrator to
provide administration, fund accounting, dividend disbursing and shareholder
communication services with respect to the Fund and the Administrator is willing
to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto as follows:
1. Appointment.
(a) The Fund hereby appoints the Administrator to provide
administration, fund accounting, dividend disbursing and shareholder
communication services to each series of the Fund identified on Schedule A
hereto (each a "Portfolio" and, collectively, the "Portfolios"), subject to the
supervision of the Board of Trustees of the Fund (the "Board"), for the period
<PAGE>
and on the terms set forth in this Agreement. The Administrator accepts such
appointment and agrees to furnish the services herein set forth in return for
compensation as provided in Paragraph 5 of this Agreement and Schedule B,
hereto. The Fund shall notify the Administrator in writing of each additional
Portfolio established by the Fund. Each new Portfolio shall be subject to the
provisions of this Agreement, except to the extent that the provisions
(including those relating to the compensation and expenses payable by the Fund)
may be modified with respect to such new Portfolio in writing by the Fund and
the Administrator at the time of the addition of the new Portfolio.
(b) The parties hereby agree that the Administrator is
authorized to provide the services to be performed hereunder, directly, or
through the services of one or more third parties (each a "sub-administrator"
and, collectively, "sub-administrators"); provided, however, that, the
Administrator shall be solely responsible for all fees and expenses of such
sub-administrators except as otherwise provided in Paragraph 5 of this Agreement
and, provided further, that the use of a sub-administrator shall in no way
limit the Administrator's contractual rights and obligations hereunder.
References to "the Administrator" hereunder shall be deemed to include any
sub-administrator.
2. Representations and Warranties.
(a) The Administrator represents and warrants to the Fund
that:
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<PAGE>
(i) it is a limited partnership duly organized and
existing under the laws of the Commonwealth of Pennsylvania;
(ii) it is duly qualified to carry on its business in
the Commonwealth of Pennsylvania;
(iii) it is empowered under applicable laws and by its
organizational documents to enter into and perform this Agreement;
(iv) it is authorized to enter into and perform this
Agreement;
(v) it has, and will continue to maintain access to
the facilities, personnel and equipment required to fully perform its duties and
obligations hereunder;
(vi) no legal or administrative proceedings have been
instituted or threatened which would impair its ability to perform its duties
and obligations under this Agreement; and
(vii) its entrance into this Agreement will not cause
a material breach of or be in material conflict with any other agreement or
obligation of the Administrator or any law or regulation applicable to it.
(b) The Fund represents and warrants to the Administrator
that:
(i) it is a business trust duly
organized and in good standing under the laws of the Commonwealth
of Pennsylvania;
-3-
<PAGE>
(ii) it is empowered under applicable laws and by its
Declaration of Trust and By-Laws ("By-Laws") to enter into and perform this
Agreement;
(iii) all requisite proceedings have been taken to
authorize the Fund to enter into and perform this Agreement;
(iv) it is an investment company currently registered
under the 1940 Act, and its units of beneficial interest ("shares") are
registered under the Securities Act of 1933, as amended (the "1933 Act");
(v) a registration statement under the 1933 Act and
1940 Act on Form N-1A is currently effective and is expected to remain
effective; and all necessary filings under the laws of the states have been made
and are current;
(vi) no legal or administrative proceedings have been
instituted or threatened which would impair its ability to perform its duties
and obligations under this Agreement; and
(vii) its entrance into this Agreement will not cause
a material breach of or be in material conflict with any other agreement or
obligation of the Fund or any law or regulation applicable to it.
3. Delivery of Documents. The Fund has furnished the
Administrator with copies, properly certified or authenticated, of each of the
following in their most current form:
(a) Resolutions of the Fund's Board authorizing the
-4-
<PAGE>
appointment of the Administrator to provide administration, fund accounting,
dividend disbursing and shareholder communication services to the Fund and
approving this Agreement;
(b) The Fund's Declaration of Trust;
(c) The Fund's By-Laws;
(d) The Fund's Notification of Registration on Form N-8A
under the 1940 Act, as filed with the Securities and Exchange Commission
("SEC");
(e) The Fund's registration statement on Form N-1A under
the 1933 Act and the 1940 Act, and all pre- and post-effective amendments
thereto, as filed with the SEC (the "Registration Statement"); and
(f) A copy of all custodial agreements with the Fund's
approved domestic and foreign custodians (collectively referred to herein as the
"Custodian");
(g) The Fund's most recent prospectuses and Statement of
Additional Information relating to all Portfolios and all amendments and
supplements thereto (such prospectuses and Statement of Additional Information,
and supplements thereto, as presently in effect and as from time to time
hereafter amended and supplemented, are herein called the "prospectuses"); and
(h) Such other agreements as the Fund may have entered into
from time to time including, without limitation, securities lending agreements,
foreign exchange transaction agreements, options agreements and futures
agreements.
The Fund will furnish the Administrator from time to time with
-5-
<PAGE>
copies, properly certified or authenticated, of all amendments of or supplements
to the foregoing.
4. Services provided by the Administrator. The Administrator
shall provide the following services, subject to the control, direction and
supervision of the Board, in compliance with the objectives, policies and
limitations set forth in the Fund's Registration Statement, Declaration of Trust
and By-Laws, and in accordance with all applicable laws and regulations; and all
resolutions and policies adopted by the Board:
(a) Administration. The Administrator shall perform the
administration services described in Schedule C, hereto.
(b) Fund Accounting. The Administrator shall provide the
Fund accounting services described in Schedule D, hereto.
(c) Dividend Disbursing. In connection with its services as
dividend disbursing agent for the Fund, the Administrator shall prepare and mail
checks, place wire transfers or credit income and capital gain payments to
shareholders. The Fund shall advise the Administrator of the declaration of any
dividend or distribution and the record and payable date thereof at least five
(5) days prior to the record date. The Administrator shall, on or before the
payment date of any such dividend or distribution, notify the Fund's Custodian
of the estimated amount required to pay any portion of said dividend or
-6-
<PAGE>
distribution payable in cash, and on or before the payment date of such
distribution, the Fund shall instruct its Custodian to make available to the
Administrator sufficient funds for the cash amount to be paid out. If a
shareholder is entitled to receive additional shares by virtue of any such
distribution or dividend, appropriate credits will be made to his account and/or
certificates delivered where requested. A shareholder not electing issuance of
certificates will receive a confirmation from the Administrator indicating the
number of shares credited to his account.
(d) The Administrator shall also:
(i) provide office facilities with respect to the
provision of the services contemplated herein (which may be in the offices of
the Administrator or a corporate affiliate of the Administrator);
(ii) provide the services of individuals to serve as
officers of the Fund who will be designated by the Administrator and elected by
the Board;
(iii) provide or otherwise obtain personnel
sufficient, in the Administrator's sole discretion, for provision of the
services contemplated herein;
-7-
<PAGE>
(iv) furnish materials, including telecommunications
equipment, which the Administrator, in its sole discretion, believes are
necessary or desirable for provision of shareholder communication services and
the other services contemplated herein; and
(v) keep records relating to the services provided
hereunder in such form and manner as set forth in this Agreement and the
Schedules hereto, and as the Administrator may otherwise deem appropriate or
advisable, all in accordance with the 1940 Act. To the extent required by
Section 31 of the 1940 Act and the rules thereunder, the Administrator agrees
that all such records prepared or maintained by it relating to the services
provided hereunder are the property of the Fund and will be preserved for the
periods prescribed under Rule 31a-2 under the 1940 Act, maintained at the Fund's
expense, and made available in accordance with such Section and rules. The
Administrator further agrees to surrender promptly to the Fund upon its request
and cease to retain in its records and files those records and documents created
and maintained by the Administrator pursuant to this Agreement.
5. Fees; Expenses; Expense Reimbursement.
(a) As compensation for the services rendered to the Fund
pursuant to Paragraph 4 of this Agreement and Schedules C and D, hereto, the
Fund shall pay the Administrator fees determined as set forth in Schedule B to
this Agreement. Such fees are to be computed daily and paid monthly on the
second business day of the month following provision of the services. Upon any
-8-
<PAGE>
termination of this Agreement before the end of any month, the fee for the part
of the month before such termination shall be prorated according to the
proportion which such part bears to the full monthly period and shall be payable
upon the date of termination of this Agreement.
(b) For the purposes of determining any fees calculated as a
function of the Fund's assets, the value of the Fund's assets and net assets
shall be computed as required by its Prospectuses, generally accepted accounting
principles and resolutions of the Board.
(c) The Administrator will from time to time employ or
associate with such person or persons as may be appropriate to assist the
Administrator in the performance of this Agreement. Such persons or persons may
be officers and employees who are employed or designated as officers by both the
Administrator and the Fund. The compensation of such person or persons for such
employment shall be paid by the Administrator and no obligation will be incurred
by or on behalf of the Fund in such respect.
(d) The Administrator will generally bear all of its own
expenses in connection with the performance of its services under this
Agreement. The Fund agrees to promptly reimburse the Administrator for any
equipment and supplies specially ordered by or for the Fund through the
Administrator and for any other expenses not contemplated by this Agreement that
the Administrator may incur on the Fund's behalf at the Fund's request or as
-9-
<PAGE>
consented to by the Fund. Such other expenses to be incurred in the operation of
the Fund and to be borne by the Fund, include, but are not limited to: taxes,
interest, brokerage fees and commissions; salaries and fees of officers and
directors who are not officers, directors, shareholders or employees of the
Administrator or its affiliates; SEC and state blue sky registration and
qualification fees, levies, fines and other charges; advisory fees; charges and
expenses of custodians; insurance premiums including fidelity bond premiums;
auditing and legal expenses; costs of maintenance of corporate existence;
expenses of typesetting and printing of prospectuses for regulatory purposes and
for distribution to current shareholders of the Fund (the Fund's distributor to
bear the expense of all other printing, production, and distribution of
Prospectuses, statements of additional information, and marketing materials);
expenses of printing and production costs of shareholders' reports and proxy
statements and materials; costs and expenses of Fund stationery and forms; costs
and expenses of special telephone and data lines and devices; costs associated
with corporate, shareholder and Board meetings; and any extraordinary expenses
and other customary Fund expenses. In addition, the Administrator may utilize
one or more independent pricing services, approved from time to time by the
Board, to obtain securities prices and to act as backup to the primary pricing
services, in connection with determining the net asset values of the Fund, and
the Fund will reimburse the Administrator for the Fund's share of the cost of
-10-
<PAGE>
such services based upon the actual usage, or a pro rata estimate of the use, of
the services for the benefit of the Fund.
6. Proprietary and Confidential Information. The Administrator
agrees on behalf of itself, its partners and its employees to treat
confidentially and as proprietary information of the Fund all records and other
information relating to the Fund's prior, present or potential shareholders, and
further agrees not to use such records and information for any purpose other
than performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Fund, which approval shall
not be unreasonably withheld and may not be withheld where the Administrator may
be exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by the Fund.
-11-
<PAGE>
7. Duties, responsibilities and limitation of liability of
Administrator.
(a) In the performance of its duties hereunder, the
Administrator shall be obligated to exercise the due care and diligence of a
mutual fund accounting service agent, dividend disbursing agent, and
administrator, and to act in good faith in performing the services provided for
under this Agreement. In performing its services hereunder, the Administrator
shall be entitled to rely on any oral or written instructions, notices or other
communications which it reasonably believes to be genuine, valid and authorized.
(b) Subject to the foregoing, the Administrator shall not
be liable for any error of judgment or for any loss or expense suffered by the
Fund in connection with the matters included in this Agreement or to which it
relates, except for a loss or expense resulting from willful misfeasance, bad
faith or negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this agreement.
8. Term. The Agreement will be effective for a period of 2
years from ___ _________, 1996. Thereafter, unless sooner terminated as provided
herein, the Agreement shall continue in effect from year to year, provided that
-12-
<PAGE>
such continuance is specifically approved at least annually by the Fund's Board.
This Agreement is terminable, without penalty, by the Fund's Board or by the
Administrator on not less than ninety (90) days' notice.
9. Force Majeure. The Administrator shall not be responsible
or liable for any failure or delay in performance of its obligations under this
Agreement arising out of or caused, directly or indirectly, by circumstances
beyond its reasonable control, including without limitation, acts of God,
earthquakes, fires, floods, wars, civil or military authority, or governmental
actions, nor shall any such failure or delay give the Fund the right to
terminate this Agreement, unless such failure or delay shall result in the
Fund's inability to comply with the requirements of state and federal law.
10. Notice. Any notice required or permitted hereunder shall
be in writing and shall be deemed to have been given when delivered in person or
by certified mail, return receipt requested, to the parties at the following
address (or such other address as a party may specify by notice to the other):
If to the Fund:
One Tower Bridge
P.O. Box 868
West Conshohocken, PA 19428-0868
Attention: Mr. Douglas Kugler
-13-
<PAGE>
If to MA&S:
Miller Anderson & Sherrerd, LLP
One Tower Bridge
P.O. Box 868
West Conshohocken, PA 19428-0868
Attention: Ms. Lorraine Truten
11. Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver nor shall it deprive such party of the right thereafter to insist upon
strict adherence to that term or any term of this Agreement. Any waiver must be
in writing signed by the waiving party.
12. Severability. If any provision of this Agreement is
invalid or unenforceable, the balance of the Agreement shall remain in effect,
and if any provision is inapplicable to any person or circumstance it shall
nevertheless remain applicable to all other persons and circumstances.
13. Successor and Assigns. The covenants and conditions herein
contained shall, subject to the provisions as to assignment, apply to and bind
the successors and assigns of the parties hereto.
14. Governing Law. This Agreement shall be governed by
Pennsylvania law.
15. Amendments. This Agreement may be modified or amended from
time to time by mutual written agreement between the parties. No provision of
this Agreement may be changed, discharged, or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below as of the date
indicated above.
MAS FUNDS
By:____________________________________
Title:_________________________________
MILLER ANDERSON & SHERRERD, LLP
By:____________________________________
Title:_________________________________
-15-
<PAGE>
SCHEDULE A
LISTING OF PORTFOLIOS SUBJECT TO THIS AGREEMENT
Equity
Select Equity
Value
Small Cap Value
Mid Cap Value
Growth
Mid Cap Growth
Fixed Income
Domestic Fixed Income
Fixed Income II
Special Purpose Fixed Income
High Yield
Limited Duration
Intermediate Duration
Mortgage-Backed Securities
Balanced
International Equity
Emerging Markets
Global Fixed Income
International Fixed Income
Advisory Foreign Fixed Income
Cash Reserves
Municipal
PA Municipal
Multi-Asset-Class
Advisory Mortgage
-16-
<PAGE>
SCHEDULE B
FEE SCHEDULE
The Administrator shall be compensated at the annual rate of
.08%, paid monthly, based on the average monthly net assets of all Portfolios
listed on Schedule A.
-17-
<PAGE>
SCHEDULE C
GENERAL DESCRIPTION OF FUND ADMINISTRATION SERVICES
I. Financial and Tax Reporting
A. Prepare agreed upon management reports and Board materials
such as unaudited financial statements, distribution
summaries, and deviations of mark-to-market valuation and the
amortized cost for money market funds.
B. Report Fund performance to outside services as directed
by Fund management.
C. Calculate dividend and capital gain distributions in
accordance with distribution policies detailed in the
Fund's prospectuses. Assist Fund management in making
final determinations of distribution amounts.
D. Estimate and recommend year-end dividend and capital gain
distributions necessary to establish the Fund's status as a
regulated investment company ("RIC") under Section 4982 of the
Internal Revenue Code of 1986, as amended (the "Code")
regarding minimum distribution requirements.
E. Prepare and file Fund's Federal tax return on Form
1120-RIC along with all state and local tax returns
where applicable. Prepare and file Federal Excise Tax
Return (Form 8613).
F. Prepare and file the Fund's semi-annual reports on Form
N-SAR with the SEC.
-18-
<PAGE>
G. Prepare and coordinate printing of Fund's semi-annual
and annual reports to shareholders.
H. File copies of every financial report to shareholders
with the SEC under Rule 30b2-1 under the 1940 Act.
I. Notify shareholders as to what portion, if any, of the
distributions made by the Fund during the prior fiscal
year were exempt-interest dividends under Section
852(b)(5)(A) of the Code.
J. Provide Form 1099-MISC to persons other than
corporations (i.e., Trustees) to whom the Fund paid
more than $600 during the year.
K. Prepare and file State Expense Limitation Report(s) (if
applicable).
L. Provide financial information for Fund proxies and
prospectuses (Expense Table).
II. Portfolio Compliance
A. Assist with monitoring each Portfolio's compliance with
investment restrictions (e.g., issuer or industry
diversification, etc.) listed in the current
Prospectuses and Statement of Additional Information.
B. Assist with monitoring each Portfolio's compliance with
the requirements of the Code Section 851 for
qualification as RICs.
C. Assist with monitoring investment manager's compliance
with Board directives such as "Approved Issuers
Listings for Repurchase Agreements," Rule 2a-7
-19-
<PAGE>
procedures for money market funds and Rule 12d3-1, Rule 17a-7
and Rule 17e-1 procedures.
D. Mail quarterly requests for "Securities Transaction
Reports" to the Fund's Board, and Officers and "access
persons" under the terms of the Fund's Code of Ethics
and SEC regulations.
III. Registration and Corporate Governance
A. Coordinate the preparation and filing of annual,
financial update post-effective amendments to the Fund's
registration statement on Form N-1A and supplements as needed.
B. Coordinate the preparation and filing of proxy
materials and the administration of shareholder
meetings.
C. Coordinate the preparation and filing of Rule 24f-2
Notices.
D. Coordinate the preparation and filing of all state
registrations of the Fund's securities, including
annual renewals, registering new Portfolios, preparing
and filing sales reports, the filing of copies of the
registration statement and final prospectus and
statement of additional information, and any actions to
increase the amount of securities registered in
individual states.
-20-
<PAGE>
IV. General Administration
A. Furnish officers of the Fund, subject to reasonable
Board approval.
B. Prepare Fund or Portfolio expense projections, establish
accruals and review on a periodic basis, including expenses
based on a percentage of the Fund's average daily net assets
(advisory and administrative fees) and expenses based on
actual charges annualized and accrued daily (audit fees,
registration fees, directors' fees, etc.).
C. For new Portfolios, obtain Employer Identification
Number and CUSIP number. Estimate organization
(offering) costs and monitor against actual
disbursements.
D. Coordinate all communications and data collection
pertaining to any regulatory examinations and yearly
audits by independent accountants.
-21-
<PAGE>
SCHEDULE D
DESCRIPTION OF FUND ACCOUNTING SERVICES
I. General Description
The Administrator shall provide the following accounting
services to the Fund:
A. Maintenance of the books and records and accounting
controls for the Fund's assets, including records of
all securities transactions;
B. Calculation and transmission of each Portfolio's net
asset value to the NASD source for publication of
prices in accordance with the Prospectuses and to such
other entities as directed by the Fund;
C. Accounting for dividends and interest received and
distributions made by the Fund;
D. Preparation and filing of the Fund's tax returns and
semi-annual reports on Form N-SAR;
E. Production of transaction data, financial reports and
such other periodic and special reports as the Board
may reasonably request;
F. Preparation of financial statements for the semi-annual
and annual reports and other shareholder
communications;
G. Liaison with the Fund's independent auditors;
H. Monitoring and administration of arrangements with the
Fund's custodian and depository banks and
-22-
<PAGE>
I. Preparing such daily and monthly reports as are agreed
upon by the Fund's Officers and the Administrator.
-23-
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 41 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated November 21, 1995, relating to the financial
statements and financial highlights appearing in the September 30, 1995 Annual
Reports to Shareholders of MAS Funds, which are also incorporated by reference
into the Registration Statement. We also consent to the references to us under
the headings "Financial Highlights" and "Reports" in the Prospectuses and under
the heading "Financial Statements" in the Statement of Additional Information.
PRICE WATERHOUSE LLP
Boston, Massachusetts
January 30, 1996
<PAGE> 1
FINANCIAL STATEMENTS
MAS FUNDS
ANNUAL REPORT
1995
<PAGE> 2
TABLE OF CONTENTS
Statement of Net Assets
<TABLE>
<S> <C>
Value Portfolio.......................... 1
Equity Portfolio......................... 3
Small Cap Value Portfolio................ 8
Select Equity Portfolio.................. 11
International Equity Portfolio........... 15
Mid Cap Growth Portfolio................. 19
Mid Cap Value Portfolio.................. 21
Emerging Markets Portfolio............... 22
Fixed Income Portfolio................... 25
Domestic Fixed Income Portfolio.......... 30
High Yield Portfolio..................... 34
Cash Reserves Portfolio.................. 37
Fixed Income Portfolio II................ 39
Mortgage-Backed Securities Portfolio..... 43
Limited Duration Portfolio............... 47
Special Purpose Fixed Income Portfolio... 50
Municipal Portfolio...................... 55
PA Municipal Portfolio................... 58
Global Fixed Income Portfolio............ 61
International Fixed Income Portfolio..... 63
Intermediate Duration Portfolio.......... 65
Balanced Portfolio....................... 68
Multi-Asset-Class Portfolio.............. 76
Statement of Operations..................... 86
Statement of Changes in Net Assets.......... 91
Selected Per Share Data and Ratios.......... 99
Notes to Financial Statements............... 107
Report of Independent Accountants........... 121
MAS Investment Services Team................ 123
</TABLE>
THIS ANNUAL REPORT CONTAINS CERTAIN INVESTMENT RETURN INFORMATION. IT SHOULD BE
NOTED THAT PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS AND THE
INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH EITHER MORE OR LESS THAN THEIR
ORIGINAL COST.
<PAGE> 3
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
VALUE
PORTFOLIO
STATEMENT OF NET ASSETS
COMMON STOCKS (85.2%)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
VALUE
SEPTEMBER 30, 1995 SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
BANKS (8.8%)
Bank of Boston Corp. 283,396 $ 13,497
Boatmen's Bancshares,
Inc. 149,300 5,524
Capital One Financial
Corp. 392,442 11,528
Chemical Banking Corp. 229,800 13,989
Citicorp 114,100 8,072
Crestar Financial Corp. 111,800 6,247
First Fidelity Bancorp 47,100 3,179
First of America Bank
Corp. 230,764 9,923
First Union Corp. 66,700 3,402
Northern Trust Corp. 88,800 4,085
PNC Bank Corp. 333,300 9,291
Shawmut National Corp. 280,800 9,442
Signet Banking Corp. 265,976 6,982
TCF Financial Corp. 114,560 6,673
- ---------------------------------------------------------
GROUP TOTAL 111,834
- ---------------------------------------------------------
BASIC RESOURCES (5.8%)
Boise Cascade Corp. 101,000 4,078
Cyprus Amax Minerals Co. 393,100 11,056
Dexter Corp. 338,900 8,642
EI DuPont de
Nemours & Co. 183,500 12,616
Lubrizol Corp. 249,700 8,146
Olin Corp. 202,200 13,901
Rohm & Haas Co. 140,300 8,471
Weyerhaeuser Co. 151,800 6,926
- ---------------------------------------------------------
GROUP TOTAL 73,836
- ---------------------------------------------------------
BEVERAGE & PERSONAL PRODUCTS (1.0%)
Anheuser-Busch Cos., Inc. 205,900 12,843
- ---------------------------------------------------------
CONSUMER DURABLES (7.0%)
Armstrong World
Industries, Inc. 319,300 17,721
Brunswick Corp. 265,800 5,382
Eaton Corp. 268,500 14,231
General Motors Corp. 307,436 14,411
Goodyear Tire &
Rubber Co. 369,020 14,530
Premark International,
Inc. 284,300 14,464
Whirlpool Corp. 131,900 7,617
- ---------------------------------------------------------
GROUP TOTAL 88,356
- ---------------------------------------------------------
CONSUMER SERVICES (0.4%)
Standard Register Co. 263,500 5,665
- ---------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
CREDIT & FINANCE/INVESTMENT COMPANIES (2.1%)
Federal Home Loan
Mortgage Corporation 106,050 $ 7,331
Federal National Mortgage
Association 105,000 10,867
Great Western Financial
Corp. 372,200 8,840
- ---------------------------------------------------------
GROUP TOTAL 27,038
- ---------------------------------------------------------
ENERGY (7.4%)
Amoco Corp. 146,900 9,420
Atlantic Richfield Co. 93,000 9,986
British Petroleum plc ADR 197,200 17,723
Cabot Oil & Gas Corp.,
Class A 123,600 6,566
El Paso Natural Gas Co. 381,400 10,489
MAPCO, Inc. 292,100 15,043
Ultramar Corp. 417,500 9,916
Williams Cos., Inc. 210,300 8,202
YPF SA ADR 369,400 6,649
- ---------------------------------------------------------
GROUP TOTAL 93,994
- ---------------------------------------------------------
FOOD, TOBACCO & OTHER (4.2%)
Archer Daniels Midland
Co. 711,585 10,941
Philip Morris Cos., Inc. 287,900 24,040
RJR Nabisco Holdings
Corp. 391,460 12,673
Universal Corp. 143,800 5,015
- ---------------------------------------------------------
GROUP TOTAL 52,669
- ---------------------------------------------------------
HEALTH CARE (8.2%)
Bard (C.R.), Inc. 166,300 5,072
Beckman Instruments, Inc. 555,400 16,801
Bergen Brunswig Corp.,
Class A 400,500 8,561
Bristol-Myers Squibb Co. 172,800 12,593
* Foundation Health Corp. 321,200 12,246
Mallinckrodt Group, Inc. 392,000 15,533
* PacifiCare Health
Systems, Inc., Class B 126,300 8,588
Rhone-Poulenc Rorer, Inc. 270,500 12,308
* Tenet Healthcare Corp. 693,500 12,049
- ---------------------------------------------------------
GROUP TOTAL 103,751
- ---------------------------------------------------------
HEAVY INDUSTRY/TRANSPORTATION (16.3%)
Allied Signal, Inc. 163,800 7,228
Burlington Northern, Inc. 204,500 14,826
CSX Corp. 135,615 11,409
Caterpillar, Inc. 151,600 8,622
Cummins Engine Co., Inc. 284,500 10,953
Deere & Co. 147,200 11,978
* Federal Express Corp. 123,900 10,284
* FMC Corp. 113,420 8,620
ITT Corp. 48,600 6,026
Lockheed Martin Corp. 172,667 11,590
PHH Corp. 275,100 12,380
Raytheon Corp. 151,700 12,895
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
<PAGE> 4
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
VALUE
PORTFOLIO
<TABLE>
<CAPTION>
VALUE
(CONT'D) SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
Rockwell International
Corp. 246,200 $ 11,633
Ryder System, Inc. 417,000 10,581
Tecumseh Products Co.,
Class A 246,100 11,813
Tenneco, Inc. 140,000 6,475
Textron, Inc. 262,110 17,889
Trinova Corp. 396,500 13,382
United Technologies Corp. 102,420 9,051
- ---------------------------------------------------------
GROUP TOTAL 207,635
- ---------------------------------------------------------
INSURANCE (5.3%)
Allstate Corp. 243,717 8,621
American General Corp. 364,300 13,616
Providian Corp. 529,400 21,970
SAFECO Corp. 156,400 10,264
St. Paul Cos., Inc. 164,040 9,576
Torchmark Corp. 86,300 3,635
- ---------------------------------------------------------
GROUP TOTAL 67,682
- ---------------------------------------------------------
RETAIL (5.3%)
Bob Evans Farms, Inc. 186,700 3,594
Dayton-Hudson Corp. 133,000 10,091
Dillard Department
Stores, Inc., Class A 258,100 8,227
Melville Corp. 263,470 9,090
Reebok International Ltd. 127,700 4,390
Sears, Roebuck & Co. 262,900 9,694
Springs Industries, Inc.,
Class A 215,600 8,462
V. F. Corp. 275,940 14,073
- ---------------------------------------------------------
GROUP TOTAL 67,621
- ---------------------------------------------------------
TECHNOLOGY (7.1%)
* Compaq Computer Corp. 251,600 12,171
International Business
Machines Corp. 163,300 15,412
* National Semiconductor
Corp. 554,000 15,304
Scitex Corp., Ltd. 607,900 11,474
* Seagate Technology 317,300 13,366
Texas Instruments, Inc. 148,000 11,822
* Western Digital Corp. 684,100 10,860
- ---------------------------------------------------------
GROUP TOTAL 90,409
- ---------------------------------------------------------
UTILITIES (6.3%)
Central Maine Power Co. 569,700 7,477
Entergy Corp. 349,866 9,140
General Public Utilities
Corp. 296,360 9,224
Long Island Lighting Co. 422,460 7,288
MCI Communications Corp. 513,000 13,370
New York State Electric &
Gas Corp. 282,582 7,418
<CAPTION>
<PAGE>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
PECO Energy Co. 474,600 $ 13,585
Sprint Corp. 343,800 12,033
- ---------------------------------------------------------
GROUP TOTAL 79,535
- ---------------------------------------------------------
TOTAL COMMON STOCKS (Cost $880,578) 1,082,868
- ---------------------------------------------------------
CASH EQUIVALENTS (17.3%)
- ---------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
-------
<S> <C> <C>
Short-term Investments
Held as Collateral for
Loaned Securities (1.7%) $ 22,320 22,320
- ---------------------------------------------------------
COMMERCIAL PAPER (11.6%)
Alabama Power Co. 5.73%,
10/13/95 11,000 10,979
American General Corp.,
5.74%, 10/13/95 11,000 10,979
Bell South Corp. 5.71%,
10/10/95 11,000 10,984
Cargill Inc. 5.75%,
10/20/95 12,000 11,964
Commercial Credit Co.
5.70%, 11/10/95 12,000 11,924
Exxon Corp. 5.69%,
10/27/95 11,000 10,955
General Electric Capital
Corp., 5.72%, 11/7/95 12,000 11,930
Household Finance Co.
5.71%, 11/10/95 12,000 11,924
Norwest Financial Corp.
5.72%, 11/3/95 11,000 10,942
PHH Corp. 5.72%, 10/6/95 11,000 10,991
Philip Morris:
5.71%, 10/24/95 11,000 10,960
5.71%, 10/18/95 11,000 10,970
Raytheon 5.73%, 10/5/95 12,000 11,992
- ---------------------------------------------------------
GROUP TOTAL 147,494
- ---------------------------------------------------------
REPURCHASE AGREEMENT (4.0%)
Chase Manhattan Bank,
N.A. 6.20%, dated
9/29/95 due 10/2/95, to
be repurchased at
$50,856, collateralized
by $51,051 of various
U.S. Government and
Agency Obligations, due
10/3/95-7/7/97, valued
at $51,338 (Cost
$50,830) 50,830 50,830
- ---------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $220,644) 220,644
- ---------------------------------------------------------
TOTAL INVESTMENTS (102.5%) (Cost $1,101,222)1,303,512
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
2
<PAGE> 5
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
(000)+
- ---------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (-2.5%)
Dividends Receivable $ 1,553
Interest Receivable 18
Receivable for Fund Shares Sold 4,677
Receivable for Investments Sold 10,456
Other Assets 3
Payable for Fund Shares Redeemed (5,692)
Payable for Investments Purchased (18,973)
Payable for Administrative Fees (87)
Payable for Investment Advisory Fees (1,496)
Collateral on Securities Loaned, at
Value (22,320)
Other Liabilities (65)
----------
(31,926)
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 85,391,038 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $1,271,586
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 14.89
- ---------------------------------------------------------
</TABLE>
+ See Note A1 to Financial Statements.
* Non-income producing security.
ADR American Depositary Receipt.
EQUITY
PORTFOLIO
STATEMENT OF NET ASSETS
COMMON STOCKS (92.2%)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
VALUE
SEPTEMBER 30, 1995 SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
BANKS (4.6%)
Chemical Banking Corp. 357,100 $ 21,738
Citicorp 265,000 18,749
First Fidelity Bancorp 51,300 3,463
First of America Bank
Corp. 85,100 3,659
First Union Corp. 104,300 5,319
NationsBank Corp. 299,535 20,144
- ---------------------------------------------------------
GROUP TOTAL 73,072
- ---------------------------------------------------------
BASIC RESOURCES (4.4%)
Champion International
Corp. 29,600 $ 1,595
EI DuPont de
Nemours & Co. 443,500 30,491
Georgia Pacific Corp. 104,200 9,117
Inco, Ltd. 1 --
Scott Paper Co. 216,300 10,491
Temple-Inland, Inc. 148,300 7,897
W R Grace & Co. 159,000 10,613
- ---------------------------------------------------------
GROUP TOTAL 70,204
- ---------------------------------------------------------
BEVERAGE & PERSONAL PRODUCTS (3.8%)
Anheuser Busch Cos., Inc. 128,800 8,034
Avon Products, Inc. 116,900 8,388
PepsiCo, Inc. 576,950 29,424
Procter & Gamble Co. 186,300 14,345
- ---------------------------------------------------------
GROUP TOTAL 60,191
- ---------------------------------------------------------
CONSUMER DURABLES (3.8%)
Armstrong World
Industries, Inc. 41,900 2,325
Chrysler Corp. 114,500 6,069
Eastman Kodak Co. 186,944 11,076
Eaton Corp. 137,800 7,304
General Motors Corp. 461,118 21,615
Goodyear Tire & Rubber Co. 297,600 11,718
- ---------------------------------------------------------
GROUP TOTAL 60,107
- ---------------------------------------------------------
<PAGE>
CONSUMER SERVICES (2.8%)
Capital Cities ABC, Inc. 73,800 8,681
News Corp. Limited ADR 356,200 7,080
Service Corp.
International 213,300 8,345
* Tele-Communications,
Inc., Class A 392,826 6,874
* Tele-Communications-Liberty
Media Group, Class A 195,107 5,219
Time Warner, Inc. 202,600 8,053
- ---------------------------------------------------------
GROUP TOTAL 44,252
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
3
<PAGE> 6
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
EQUITY
PORTFOLIO
<TABLE>
<CAPTION> VALUE
(CONT'D) SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
CREDIT & FINANCE/INVESTMENT COMPANIES (2.1%)
Federal Home Loan
Mortgage Corp. 101,700 $ 7,030
Federal National Mortgage
Association 160,420 16,604
Transamerica Corp. 141,125 10,055
- ---------------------------------------------------------
GROUP TOTAL 33,689
- ---------------------------------------------------------
ENERGY (8.0%)
Amoco Corp. 219,800 14,095
Atlantic Richfield Co. 154,500 16,589
British Petroleum plc ADR 164,600 14,793
Burlington Resources,
Inc. 184,000 7,130
Chevron Corp. 171,088 8,319
Coastal Corp. 280,300 9,425
El Paso Natural Gas Co. 115,900 3,187
Mobil Corp. 192,150 19,143
Norsk Hydro A.S. 102,600 4,425
Royal Dutch Petroleum Co.
ADR 180,190 22,118
Unocal Corp. 302,921 8,634
- ---------------------------------------------------------
GROUP TOTAL 127,858
- ---------------------------------------------------------
FOOD, TOBACCO & OTHER (5.1%)
Archer Daniels Midland
Co. 489,340 7,524
Campbell Soup Co. 155,000 7,789
Philip Morris Cos., Inc. 407,290 34,009
RJR Nabisco Holdings
Corp. 474,340 15,356
Unilever N.V. ADR 81,800 10,634
UST, Inc. 222,538 6,370
- ---------------------------------------------------------
GROUP TOTAL 81,682
- ---------------------------------------------------------
HEALTH CARE (7.3%)
Allergan, Inc. 196,200 6,548
American Home Products
Corp. 154,300 13,096
Baxter International,
Inc. 241,600 9,936
Becton, Dickinson & Co. 186,200 11,707
Bristol-Myers Squibb Co. 319,786 23,304
Columbia HCA Healthcare
Corp. 317,428 15,435
* Humana, Inc. 258,700 5,206
Johnson & Johnson 175,500 13,009
U.S. Healthcare, Inc. 212,700 7,525
Warner Lambert Co. 123,490 11,763
- ---------------------------------------------------------
GROUP TOTAL 117,529
- ---------------------------------------------------------
HEAVY INDUSTRY/TRANSPORTATION (9.2%)
* AMR Corp. 107,500 7,753
Burlington Northern, Inc. 177,583 12,875
CSX Corp. 44,625 3,754
Cummins Engine Co., Inc. 183,800 7,076
General Electric Co. 450,755 28,736
ITT Corp. 67,650 8,389
MEDA, Inc. 125 --
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
Minnesota Mining &
Manufacturing Co. 56,088 $ 3,169
Tenneco, Inc. 264,400 12,228
Textron, Inc. 132,600 9,050
Union Pacific Corp. 352,450 23,350
United Technologies Corp. 247,500 21,872
WMX Technologies, Inc. 287,300 8,188
- ---------------------------------------------------------
GROUP TOTAL 146,440
- ---------------------------------------------------------
INSURANCE (2.1%)
Aetna Life & Casualty Co. 134,700 9,884
AFLAC, Inc. 165,600 6,872
Exel Ltd. 285,900 16,618
- ---------------------------------------------------------
GROUP TOTAL 33,374
- ---------------------------------------------------------
MID CAP GROWTH (4.6%)
Adobe Systems, Inc. 21,200 1,097
* Airgas, Inc. 40,700 1,084
* American Mobile Satellite
Corp. 45,000 1,077
* Boca Research, Inc. 14,300 347
* Boston Chicken, Inc. 42,600 1,113
* Broderbund Software, Inc. 17,200 1,309
Cardinal Health, Inc. 23,500 1,301
* Cellstar Corp. 33,700 1,053
* Cellular Communications,
Inc., Class A 17,400 948
* Ceridian Corp. 29,900 1,327
* CIDCO, Inc. 20,600 726
Cintas Corp. 32,200 1,417
Citicasters, Inc. 19,600 654
* CNS, Inc. 33,400 438
Comcast Corp., Class A
Special 49,800 996
* Comcast UK Cable Partners 36,100 564
Computron Software, Inc. 28,800 497
* Cordis Corp. 11,100 941
Cott Corp. 88,700 843
Danaher Corp. 33,500 1,097
* Eckerd Corp. 28,500 1,140
* Electronics for Imaging,
Inc. 12,900 924
Firefox Communications,
Inc. 16,500 408
* Fiserv, Inc. 23,550 680
Frontier Corp. 67,400 1,795
* Gartner Group, Inc.,
Class A 37,800 1,238
General Cable plc ADR 27,100 434
* Glenayre Technologies,
Inc. 21,000 1,512
Globalstar
Telecommunications Ltd. 52,200 1,116
* Health Management
Association, Class A 84,287 2,708
* Healthcare Compare Corp. 16,500 639
HFS, Inc. 25,500 1,336
HighwayMaster
Communications, Inc. 8,300 108
* International Cabletel,
Inc. 51,200 1,434
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
4
<PAGE> 7
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
* Inter-Tel, Inc. 20,300 $ 358
* Kemet Corp. 6,800 233
Kent Electronics Corp. 16,600 728
La Quinta Motor Inns,
Inc. 38,000 1,064
Lin Television Corp. 15,100 468
* Lincare Holdings, Inc. 49,500 1,275
* LSI Logic Corp. 15,400 889
Maxis, Inc. 14,700 647
* McAfee Associates, Inc. 10,200 525
* Millicom International
Cellular S.A. 21,400 687
Mylan Labs, Inc. 27,000 540
* National Education Corp. 40,500 324
Nokia Corp. ADR 14,900 1,039
* North American
Biologicals, Inc. 25,100 207
OfficeMax, Inc. 38,100 924
* OrNda Healthcorp 37,800 803
* Paging Network, Inc. 36,000 1,728
Palmer Wireless, Inc. 32,200 716
PanAmSat Corp. 52,300 798
Papa John's
International, Inc. 22,100 994
Paychex, Inc. 35,650 1,649
P-Com, Inc. 10,500 470
PMI Group, Inc. 12,600 597
Post Properties, Inc. 16,700 518
Project Software &
Development, Inc. 9,300 242
* Qualcomm, Inc. 13,600 624
* Robert Mondavi Corp.,
Class A 34,500 880
* Rotech Medical Corp. 34,000 846
Security Capital
Industrial Trust 28,200 458
Security Capital Pacific
Trust 30,400 578
Sinclair Broadcast
Group, Inc. 20,100 578
Sirrom Capital Corp. 42,700 774
Softkey International,
Inc. 11,300 500
Stewart Enterprises,
Inc., Class A 20,800 754
Stratacom, Inc. 11,700 646
* Sunglass Hut
International, Inc. 16,100 805
Tanger Factory Outlet
Center 19,000 473
* Tele-Communications,
Inc., Class A 135,090 2,364
Tele-Communications
International, Inc.,
Class A 44,800 834
* Tele-Communications-Liberty
Media Group, Class A 40,972 1,096
* Tellabs, Inc. 18,000 758
* Tommy Hilfiger Corp. 36,800 1,196
Transaction Systems
Architect, Inc., Class A 24,400 653
U.S. Robotics Corp. 8,400 716
* United International
Holdings, Inc., Class A 37,000 684
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
* United Video Satellite
Group 22,300 $ 663
USA Detergents, Inc. 38,600 801
Videotron Holdings plc
ADR 15,700 261
* Viking Office Products,
Inc. 34,200 1,428
* Vivra, Inc. 26,200 832
Wolverine World Wide,
Inc. 19,900 545
- ---------------------------------------------------------
GROUP TOTAL 73,471
- ---------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (0.6%)
Colonial Properties Trust 41,600 1,035
DeBartolo Realty Corp. 135,500 1,897
Developers Diversified
Realty Corp. 66,400 2,001
Security Capital Pacific
Trust 284,755 5,410
- ---------------------------------------------------------
GROUP TOTAL 10,343
- ---------------------------------------------------------
RETAIL (5.3%)
Circuit City Stores, Inc. 201,800 6,382
* Federated Department
Stores, Inc. 296,100 8,402
Home Depot, Inc. 277,126 11,050
* Kroger Co. 249,500 8,514
* Office Depot, Inc. 176,800 5,326
OfficeMax, Inc. 226,100 5,483
Sears, Roebuck & Co. 480,400 17,716
Wal-Mart Stores, Inc. 488,895 12,161
Wendy's International,
Inc. 464,400 9,810
- ---------------------------------------------------------
GROUP TOTAL 84,844
- ---------------------------------------------------------
TECHNOLOGY (6.3%)
* Compaq Computer Corp. 291,600 14,106
Intel Corp. 296,800 17,845
International Business
Machines Corp. 144,900 13,675
Motorola, Inc. 95,784 7,316
* National Semiconductor
Corp. 427,700 11,815
* Oracle System Corp. 122,220 4,690
* Seagate Technology 339,600 14,305
Texas Instruments, Inc. 203,100 16,223
- ---------------------------------------------------------
GROUP TOTAL 99,975
- ---------------------------------------------------------
UTILITIES (10.3%)
* AirTouch Communications,
Inc. 219,200 6,713
Consolidated Edison Co.
of New York 114,800 3,487
Entergy Corp. 329,500 8,608
Florida Progress Corp. 115,300 3,733
Frontier Corp. 337,300 8,981
GTE Corp. 517,100 20,296
Houston Industries, Inc. 100,500 4,435
MCI Communications Corp. 407,900 10,631
Ohio Edison Co. 328,100 7,464
Pacific Gas & Electric
Co. 256,800 7,672
PECO Energy Co. 232,200 6,647
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
5
<PAGE> 8
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
EQUITY
PORTFOLIO
<TABLE>
<CAPTION> VALUE
(CONT'D) SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
Public Service Enterprise
Group, Inc. 132,300 $ 3,936
SBC Communications, Inc. 330,600 18,183
Sprint Corp. 411,100 14,389
U.S. West, Inc. 396,900 18,704
Unicom Corp. 336,700 10,184
Vodafone Group plc ADR 275,374 11,290
- ---------------------------------------------------------
GROUP TOTAL 165,353
- ---------------------------------------------------------
VALUE (11.9%)
Allied Signal, Inc. 30,000 1,324
Allstate Corp. 37,081 1,312
American General Corp. 72,000 2,691
Amoco Corp. 22,300 1,430
Anheuser Busch Cos., Inc. 34,300 2,139
Archer Daniels Midland
Co. 118,440 1,821
Armstrong World
Industries, Inc. 48,200 2,675
Atlantic Richfield Co. 16,100 1,729
Bank of Boston Corp. 44,033 2,097
Bard (C.R.), Inc. 38,000 1,159
Beckman Instruments, Inc. 90,700 2,744
Bergen Brunswig Corp.,
Class A 63,100 1,349
Boatmen's Bancshares,
Inc. 21,400 792
Boise Cascade Corp. 12,900 521
Bristol-Myers Squibb Co. 36,300 2,645
British Petroleum plc ADR 32,100 2,885
Brunswick Corp. 32,800 664
Burlington Northern, Inc. 44,500 3,226
Cabot Oil & Gas Corp.,
Class A 20,600 1,094
Capital One Financial
Corp. 83,000 2,438
Caterpillar, Inc. 23,500 1,337
Central Maine Power Co. 79,900 1,049
Chemical Banking Corp. 38,200 2,325
Citicorp 32,100 2,271
* Compaq Computer Corp. 41,900 2,027
Crestar Financial Corp. 60,939 3,405
CSX Corp. 26,000 2,188
Cummins Engine Co., Inc. 55,400 2,133
Cyprus Amax Minerals Co. 83,500 2,348
Dayton-Hudson Corp. 33,000 2,504
Deere & Co. 23,200 1,888
Dexter Corp. 54,700 1,395
Dillard Department
Stores, Inc., Class A 65,500 2,088
Eaton Corp. 43,200 2,289
EI DuPont de Nemours Co. 29,300 2,014
El Paso Natural Gas Co. 64,100 1,763
Entergy Corp. 68,067 1,778
* Federal Express Corp. 34,600 2,872
Federal Home Loan
Mortgage Corp. 17,800 1,230
Federal National Mortgage
Association 18,300 1,894
First of America Bank
Corp. 34,358 1,477
* FMC Corp. 19,400 1,474
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
* Foundation Health Corp. 52,700 $ 2,009
General Motors Corp. 53,680 2,516
General Public Utilities
Corp. 73,500 2,288
Goodyear Tire &
Rubber Co. 59,600 2,347
Great Western Financial
Corp. 62,300 1,480
International Business
Machines Corp. 25,400 2,397
ITT Corp. 15,900 1,972
Lockheed Martin Corp. 30,115 2,021
Long Island Lighting Co. 85,900 1,482
Lubrizol Corp. 40,400 1,318
Mallinckrodt Group, Inc. 59,500 2,358
MAPCO, Inc. 37,900 1,952
MCI Communications Corp. 108,700 2,833
Melville Corp. 41,000 1,415
* National Semiconductor
Corp. 107,200 2,961
New York State Electric &
Gas Corp. 26,700 701
Northern Trust Corp. 10,100 465
Olin Corp. 33,700 2,317
* PacifiCare Health
Systems, Inc., Class B 30,700 2,088
PECO Energy Co. 90,300 2,585
PHH Corp. 35,700 1,607
Philip Morris Cos., Inc. 38,100 3,181
PNC Bank Corp. 51,300 1,430
Premark International,
Inc. 59,400 3,022
Providian Corp. 79,800 3,312
Raytheon Corp. 22,600 1,921
Reebok International Ltd. 37,200 1,279
Rhone-Poulenc Rorer, Inc. 39,300 1,788
RJR Nabisco Holdings
Corp. 64,400 2,085
Rockwell International
Corp. 37,500 1,772
Rohm & Haas Co. 38,000 2,294
Ryder Systems, Inc. 64,700 1,642
SAFECO Corp. 10,800 709
Scitex Corp., Ltd. 112,000 2,113
* Seagate Technology 65,600 2,763
Sears, Roebuck & Co. 40,000 1,475
Shawmut National Corp. 28,700 965
Signet Banking Corp. 86,807 2,279
Springs Industries, Inc.,
Class A 55,700 2,185
Sprint Corp. 73,000 2,555
St. Paul Cos., Inc. 41,500 2,423
Standard Register Co. 40,900 879
TCF Financial Corp. 19,000 1,106
Tecumseh Products Co.,
Class A 82,600 3,965
* Tenet Healthcare Corp. 117,900 2,049
Texas Instruments, Inc. 28,400 2,268
Textron, Inc. 27,500 1,876
Torchmark Corp. 15,800 666
Trinova Corp. 62,500 2,109
Ultramar Corp. 64,700 1,537
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
6
<PAGE> 9
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
United Technologies Corp. 15,500 $ 1,370
Universal Foods Corp. 4,700 164
V. F. Corp. 48,700 2,484
* Western Digital Corp. 117,600 1,867
Weyerhaeuser Co. 20,800 949
Whirlpool Corp. 20,000 1,155
Williams Cos., Inc. 55,700 2,172
YPF SA ADR 56,600 1,018
- ---------------------------------------------------------
GROUP TOTAL 190,423
- ---------------------------------------------------------
TOTAL COMMON STOCKS (Cost $1,204,437) 1,472,807
- ---------------------------------------------------------
CONVERTIBLE BONDS (0.0%)
- ---------------------------------------------------------
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT
& POOR'S) (000)
---------- -------
<S> <C> <C> <C>
Time Warner, Inc.
8.75%, 1/10/15
(Cost $1) BB+ $ 1 1
- ---------------------------------------------------------
CASH EQUIVALENTS (9.9%)
- ---------------------------------------------------------
Short-term Investments
Held as Collateral for
Loaned Securities (1.3%) 20,343 20,343
- ---------------------------------------------------------
COMMERCIAL PAPER (4.7%)
American General Corp.
5.74%, 10/13/95 15,000 14,971
Associates Corp.
5.73%, 10/11/95 15,000 14,976
Exxon Corp.
5.69%, 10/27/95 15,000 14,939
Norwest Financial Corp.
5.72%, 11/3/95 15,000 14,921
Raytheon Co.
5.73%, 10/5/95 15,000 14,991
- ---------------------------------------------------------
GROUP TOTAL 74,798
- ---------------------------------------------------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)+
- ---------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT (3.9%)
Chase Manhattan Bank,
N.A. 6.20%, dated
9/29/95 due 10/2/95, to
be repurchased at
$62,999, collateralized
by $63,242 of various
U.S. Government and
Agency Obligations, due
10/3/95-7/7/97, valued
at $63,598
(Cost $62,966) $ 62,966 $ 62,966
- ---------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $158,107) 158,107
- ---------------------------------------------------------
TOTAL INVESTMENTS (102.1%) (Cost $1,362,545)1,630,915
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-2.1%)
Dividends Receivable 2,984
Interest Receivable 22
Receivable for Fund Shares Sold 345
Receivable for Investments Sold 19,392
Other Assets 7
Payable for Fund Shares Redeemed (25,551)
Payable for Investments Purchased (7,928)
Payable for Administrative Fees (115)
Payable for Investment Advisory Fees (2,005)
Collateral on Securities Loaned, at
Value (20,343)
Other Liabilities (91)
----------
(33,283)
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 65,396,280 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $1,597,632
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 24.43
- ---------------------------------------------------------
</TABLE>
+ See Note A1 to Financial Statements.
++ Ratings are unaudited.
* Non-income producing security.
ADR American Depositary Receipt.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
7
<PAGE> 10
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
SMALL CAP VALUE
PORTFOLIO
STATEMENT OF NET ASSETS
COMMON STOCKS (92.6%)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
VALUE
SEPTEMBER 30, 1995 SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
BANKS (8.0%)
Banco Latinoamericano de
Exportaciones SA ADR 166,300 $ 6,714
California Federal Bank 36,800 580
CENFED Financial Corp. 21,200 503
Center Financial Corp. 94,000 1,786
Commercial Federal Corp. 56,200 2,009
Deposit Guaranty Corp. 46,100 1,948
Eagle Financial Corp. 115,100 2,647
First Essex Bancorp, Inc. 87,400 929
Greater New York Savings
Bank 152,300 1,828
Hibernia Corp., Class A 83,361 844
MLF Bancorp, Inc. 86,000 1,989
* Norwalk Savings Society 65,400 1,234
Reliance Bancorp, Inc. 289,800 4,238
RCSB Financial, Inc. 45,000 1,086
St. Paul Bancorp, Inc. 110,300 2,937
Union Planters Corp. 59,979 1,784
Vermont Financial Services
Corp. 45,500 1,365
- ---------------------------------------------------------
GROUP TOTAL 34,421
- ---------------------------------------------------------
BASIC RESOURCES (10.1%)
Allegheny Ludlum Corp. 64,700 1,318
Asarco, Inc. 186,400 5,872
* CasTech Aluminum Group,
Inc. 115,400 1,861
Chesapeake Corp. 83,300 3,009
* Gaylord Container Corp.,
Class A 41,900 395
Geon Co. 45,100 1,150
* Gibraltar Steel Corp. 282,100 3,807
* Jefferson Smurfit Corp. 216,300 3,299
J&L Specialty Steel, Inc. 19,700 414
Longview Fibre Co. 169,300 2,582
Magma Copper Co. 277,100 5,195
Olin Corp. 9,200 633
Quanex Corp. 162,800 3,521
Rouge Steel Co. 83,200 1,933
Schnitzer Steel Industries,
Inc., Class A 84,200 2,400
Terra Industries, Inc. 194,400 2,770
Tri Polyta Indonesia ADR 87,000 1,871
* U.S. Can Corp. 37,500 502
Vigoro Group 13,600 575
* WCI Steel, Inc. 88,700 455
- ---------------------------------------------------------
GROUP TOTAL 43,562
- ---------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
CONSUMER DURABLES (9.2%)
Ameriwood Industries
International Corp. 46,900 $ 287
Borg-Warner Automotive,
Inc. 150,300 4,810
Brewer (C) Homes, Inc.,
Class A 121,300 697
Capco Automotive Products
Corp. 381,400 3,528
Cavalier Homes, Inc. 147,500 2,434
Consorcio G Grupo Dina SA
de CV ADR 282,500 989
Excel Industries, Inc. 253,400 3,548
Falcon Building Products,
Inc., Class A 161,600 1,414
Hayes Wheels International,
Inc. 86,300 2,319
Holson Burnes Group, Inc. 187,300 703
Masland Corp. 536,100 7,974
* Quaker Fabric Corp. 109,000 1,022
* R & B, Inc. 55,000 467
Schult Homes Corp. 112,800 1,636
Simpson Industries, Inc. 206,100 1,984
Smith (A.O.) Corp., Class B 211,100 5,462
Westcast Industries, Inc.,
Class A 50,000 550
- ---------------------------------------------------------
GROUP TOTAL 39,824
- ---------------------------------------------------------
CONSUMER SERVICES (1.7%)
American Publishing Co. 354,000 4,425
* Heritage Media Corp.,
Class A 28,900 871
HMG Worldwide Corp. 180,000 427
* John Q. Hammons Hotels,
Inc. 129,600 1,669
- ---------------------------------------------------------
GROUP TOTAL 7,392
- ---------------------------------------------------------
CREDIT & FINANCE/INVESTMENT COMPANIES (6.4%)
Edwards (A.G.), Inc. 85,500 2,276
GATX Corp. 45,700 2,365
Inter-Regional Financial
Group, Inc. 30,000 1,080
* Interpool, Inc. 28,100 485
Legg Mason, Inc. 57,100 1,699
North American Mortgage Co. 28,900 751
Price (T. Rowe) Associates 65,500 3,357
Raymond James Financial,
Inc. 28,200 613
United Asset Management
Corp. 368,300 14,778
- ---------------------------------------------------------
GROUP TOTAL 27,404
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
8
<PAGE> 11
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
ENERGY (3.9%)
* Basin Exploration, Inc. 193,800 $ 1,017
Belden & Blake Corp. 40,000 760
Cabot Oil & Gas Corp.,
Class A 63,300 862
* Coda Energy, Inc. 145,000 1,078
Energen Corp. 129,100 2,808
* Enterra Corp. 46,100 1,014
International Colin Energy
Corp. 314,200 1,650
* Maverick Tube Corp. 115,000 920
* Newfield Exploration Co. 40,100 1,208
* Nuevo Energy Co. 33,500 754
Southwest Gas Corp. 112,400 1,757
Southwestern Energy Co. 83,500 1,138
* Tide West Oil Co. 69,700 749
Ultramar Corp. 27,700 658
Western Gas Resources, Inc. 29,700 497
- ---------------------------------------------------------
GROUP TOTAL 16,870
- ---------------------------------------------------------
FOOD, TOBACCO & OTHER (2.7%)
Dimon, Inc. 321,300 4,820
Grupo Industrial Maseca, SA
de CV ADR 192,500 2,214
Stokely USA, Inc. 561,300 3,928
Universal Foods Corp. 22,500 506
- ---------------------------------------------------------
GROUP TOTAL 11,468
- ---------------------------------------------------------
HEALTH CARE (9.7%)
Bergen Brunswig Corp.,
Class A 160,400 3,429
Bindley Western Industries 117,000 2,179
* Datascope Corp. 165,900 3,442
* Haemonetics Corp. 142,500 3,278
* Lincare Holdings, Inc. 30,000 773
* Maxicare Health Plans,
Inc. 148,800 2,771
Medex, Inc. 14,800 157
* Multicare Cos.,Inc. 166,500 3,871
* OrNda Healthcorp 473,443 10,061
* Physicians Health
Services, Inc., Class A 51,500 1,416
Protocol Systems 168,900 1,942
* Regency Health Services,
Inc. 90,200 936
* Sierra Health Services 138,300 3,458
Sterile Concepts Holdings,
Inc. 173,800 2,411
Surgical Care Affiliates,
Inc. 74,200 1,725
- ---------------------------------------------------------
GROUP TOTAL 41,849
- ---------------------------------------------------------
HEAVY INDUSTRY/TRANSPORTATION (12.0%)
* Allied Holdings, Inc. 146,800 1,174
* American Buildings Co. 104,200 2,462
* Career Horizons, Inc. 121,800 3,380
* Centex Construction
Products 25,800 339
Comair Holdings, Inc. 28,500 755
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
* Detroit Diesel Corp. 29,500 $ 620
* Giant Cement Holdings,
Inc. 621,200 7,532
Greenbrier Companies, Inc. 140,800 1,584
* Interim Services, Inc. 73,800 1,993
* Johnstown America
Industries, Inc. 112,500 914
Kelly Services, Inc., Class
A 78,600 2,103
Martin Marietta Materials,
Inc. 239,000 4,690
* Mesa Airlines, Inc. 316,800 3,227
NCI Building Systems, Inc. 142,700 3,353
Old Dominion Freight Lines,
Inc. 124,700 1,309
PST Vans, Inc. 110,000 784
Regal Beloit Corp. 110,500 2,059
Skywest, Inc. 34,700 659
Teekay Shipping Corp. 81,600 1,958
Texas Industries, Inc. 75,500 3,983
TNT Freightways Corp. 51,700 976
* U.S. Xpress Enterprises,
Inc., Class A 46,100 409
York International Corp. 121,900 5,135
- ---------------------------------------------------------
GROUP TOTAL 51,398
- ---------------------------------------------------------
INSURANCE (4.2%)
Allied Group, Inc. 70,300 2,302
Allied Life Financial Corp. 67,000 1,173
Financial Security
Assurance Holdings 148,000 3,756
Penncorp Financial Group,
Inc. 35,000 836
PMI Group, Inc. 48,600 2,302
Presidential Life Corp. 195,700 1,688
Protective Life Corp. 39,400 1,152
Sphere Drake Holdings Ltd. 14,400 216
Transnational RE Corp.,
Class A 87,300 2,007
Washington National Corp. 109,500 2,724
- ---------------------------------------------------------
GROUP TOTAL 18,156
- ---------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (6.3%)
Associated Estates Realty
Corp. 94,300 1,933
Healthcare Realty Trust,
Inc. 165,200 3,428
Home Properties of N.Y.
Inc. 378,800 6,440
Oasis Residential, Inc. 83,200 1,872
Regency Realty Corp. 47,300 834
ROC Communities, Inc. 180,600 4,176
South West Property Trust 92,200 1,176
Sun Communities, Inc. 118,800 3,088
Tanger Factory Outlet
Center, Inc. 9,400 234
Walden Residential
Properties, Inc. 214,800 4,054
- ---------------------------------------------------------
GROUP TOTAL 27,235
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
9
<PAGE> 12
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
SMALL CAP VALUE
PORTFOLIO
<TABLE>
<CAPTION>
VALUE
(CONT'D) SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
RETAIL (3.9%)
Big B, Inc. 199,000 $ 2,960
Cato Corp., Class A 250,800 1,787
Culp, Inc. 115,500 1,242
* Dress Barn (The), Inc. 122,700 1,273
Farah, Inc. 104,000 767
* Galey & Lord, Inc. 92,600 1,273
Haverty Furniture Co. 123,550 1,683
* Jos. A. Bank Clothiers,
Inc. 222,000 749
Max & Erma's Restaurants,
Inc. 64,020 512
Paul Harris Stores, Inc. 273,000 478
* Welcome Home, Inc. 95,200 286
Westpoint Stevens, Inc. 57,000 1,226
* Wickes Lumber Co. 259,600 2,531
- ---------------------------------------------------------
GROUP TOTAL 16,767
- ---------------------------------------------------------
TECHNOLOGY (11.8%)
Align-Rite International,
Inc. 217,400 3,016
* American Management
Systems 50,000 1,338
* Amphenol Corp., Class A 177,000 3,828
* Auspex Systems, Inc. 105,100 1,642
Autoclave Engineers, Inc. 112,000 1,778
Belden, Inc. 137,700 3,615
* C.I.S. Technologies, Inc. 45,000 174
Dallas Semiconductor 78,600 1,611
* Dionex Corp. 102,000 5,330
* Exabyte Corp. 166,900 2,253
* Exar Corp. 53,150 1,900
* IPC Information Systems,
Inc. 101,800 1,731
MacNeal-Schwendler Corp. 4,800 82
Norstan, Inc. 53,300 1,386
* Progress Software Corp. 29,800 1,997
* Quickturn Designs
Systems, Inc. 232,900 2,416
* Read-Rite Corp. 31,500 1,150
Sterling Software, Inc.
(Escrow) 6,951 --
Sterling Software, Inc. 121,062 5,508
Stormmedia, Inc. 59,400 2,687
* Western Digital Corp. 455,000 7,223
- ---------------------------------------------------------
GROUP TOTAL 50,665
- ---------------------------------------------------------
UTILITIES (2.7%)
Commonwealth Energy Systems 123,000 5,335
Rochester Gas & Electric
Corp. 263,400 6,223
- ---------------------------------------------------------
GROUP TOTAL 11,558
- ---------------------------------------------------------
TOTAL COMMON STOCKS (Cost $377,209) 398,569
- ---------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCK (0.1%)
- ---------------------------------------------------------
Allstate Corp.
6.75%, 1998
(Cost $280) 7,100 $ 303
- ---------------------------------------------------------
CASH EQUIVALENTS (6.5%)
- ---------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
-------
<S> <C> <C>
REPURCHASE AGREEMENT (6.5%)
Chase Manhattan Bank, N.A.
6.20%, dated 9/29/95, due
10/2/95, to be repurchased
at $27,920, collateralized
by $28,027 of various U.S.
Government and Agency
Obligations, due
10/3/95-7/7/97, valued at
$28,185
(Cost $27,906) $27,906 27,906
- ---------------------------------------------------------
TOTAL INVESTMENTS (99.2%) (Cost $405,395) 426,778
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.8%)
Cash 1
Dividends Receivable 555
Interest Receivable 10
Receivable for Fund Shares Sold 2,721
Receivable for Investments Sold 6,066
Other Assets 1
Payable for Fund Shares Redeemed (1,114)
Payable for Investments Purchased (3,777)
Payable for Administrative Fees (32)
Payable for Investment Advisory Fees (783)
Other Liabilities (58)
--------
3,590
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 23,537,596 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $430,368
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 18.28
- ---------------------------------------------------------
+ See Note A1 to Financial Statements.
* Non-income producing security.
ADR American Depositary Receipt.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
10
<PAGE> 13
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
SELECT EQUITY
PORTFOLIO
STATEMENT OF NET ASSETS
COMMON STOCKS (89.7%)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
VALUE
SEPTEMBER 30, 1995 SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
BANKS (5.4%)
Barnett Banks of Florida, Inc. 1,700 $ 96
Boatmen's Bancshares, Inc. 3,700 137
Chemical Banking Corp. 6,400 390
Citicorp 2,900 205
Comerica, Inc. 3,400 124
First Fidelity Bancorp 800 54
First Union Corp. 1,900 97
NationsBank Corp. 5,520 371
SunTrust Banks, Inc. 1,600 106
U.S. Bancorp, Inc. 100 3
- ---------------------------------------------------------
GROUP TOTAL 1,583
- ---------------------------------------------------------
BASIC RESOURCES (3.4%)
Dow Chemical Co. 3,900 291
Georgia Pacific Corp. 1,700 149
Scott Paper Co. 4,300 208
Temple-Inland, Inc. 2,800 149
W R Grace & Co. 2,900 194
- ---------------------------------------------------------
GROUP TOTAL 991
- ---------------------------------------------------------
BEVERAGE & PERSONAL PRODUCTS (3.8%)
Anheuser Busch Cos, Inc. 2,200 137
Avon Products, Inc. 2,300 165
PepsiCo, Inc. 10,700 546
Procter & Gamble Co. 3,400 262
- ---------------------------------------------------------
GROUP TOTAL 1,110
- ---------------------------------------------------------
CONSUMER DURABLES (3.4%)
Armstrong World Industries,
Inc. 900 50
Chrysler Corp. 2,100 111
Eastman Kodak Co. 1,600 95
Eaton Corp. 2,600 138
General Motors Corp. 8,500 398
Goodyear Tire & Rubber Co. 5,500 217
- ---------------------------------------------------------
GROUP TOTAL 1,009
- ---------------------------------------------------------
CONSUMER SERVICES (3.2%)
Capital Cities ABC, Inc. 1,400 165
News Corp. Ltd. ADR 7,700 153
Service Corp. International 4,000 156
* Tele-Communications, Inc.,
Class A 7,000 123
* Tele-Communications-Liberty
Media Group, Class A 3,550 95
Time Warner, Inc. 4,200 167
Walt Disney Co. 1,800 103
- ---------------------------------------------------------
GROUP TOTAL 962
- ---------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
CREDIT & FINANCE/INVESTMENT COMPANIES (2.0%)
Federal Home Loan Mortgage
Corp. 1,900 $ 131
Federal National Mortgage
Association 2,900 300
Lehman Brothers Holdings, Inc. 146 3
Transamerica Corp. 2,419 173
- ---------------------------------------------------------
GROUP TOTAL 607
- ---------------------------------------------------------
ENERGY (7.4%)
Amoco Corp. 4,000 257
Atlantic Richfield Co. 4,800 515
Burlington Resources, Inc. 2,900 112
Coastal Corp. 4,400 148
El Paso Natural Gas Co. 2,300 63
Kerr-McGee Corp. 5,700 316
Mobil Corp. 5,300 528
Norsk Hydro A.S. 1,900 82
Unocal Corp. 5,771 165
- ---------------------------------------------------------
GROUP TOTAL 2,186
- ---------------------------------------------------------
FOOD, TOBACCO & OTHER (5.2%)
American Brands, Inc. 6,300 266
Archer Daniels Midland Co. 9,605 148
Campbell Soup Co. 2,800 141
Philip Morris Cos., Inc. 7,000 584
RJR Nabisco Holdings Corp. 8,800 285
UST, Inc. 3,900 112
- ---------------------------------------------------------
GROUP TOTAL 1,536
- ---------------------------------------------------------
HEALTH CARE (9.5%)
American Home Products Corp. 4,200 356
Baxter International, Inc. 4,451 183
Becton, Dickinson & Co. 12,400 780
Columbia HCA Healthcare Corp. 5,680 275
* Humana, Inc. 4,900 99
Merck & Co., Inc. 17,700 991
U.S. Healthcare, Inc. 3,700 131
- ---------------------------------------------------------
GROUP TOTAL 2,815
- ---------------------------------------------------------
HEAVY INDUSTRY/TRANSPORTATION (7.6%)
* AMR Corp. 2,000 144
Burlington Northern, Inc. 3,091 224
CSX Corp. 800 68
Cooper Industries, Inc. 4,500 159
General Electric Co. 9,000 574
ITT Corp. 1,300 161
Tenneco, Inc. 4,700 217
Textron, Inc. 2,300 157
Union Pacific Corp. 6,100 404
WMX Technologies, Inc. 5,400 154
- ---------------------------------------------------------
GROUP TOTAL 2,262
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
11
<PAGE> 14
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
SELECT EQUITY
PORTFOLIO
<TABLE>
<CAPTION>
VALUE
(CONT'D) SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
INSURANCE (2.2%)
Aetna Life & Casualty Co. 2,500 $ 183
AFLAC, Inc. 1,800 75
Exel Ltd. 5,200 302
Marsh & McLennan, Inc. 1,000 88
- ---------------------------------------------------------
GROUP TOTAL 648
- ---------------------------------------------------------
MID CAP GROWTH (4.2%)
Adobe Systems, Inc. 300 16
*Airgas, Inc. 600 16
*American Mobile Satellite
Corp. 700 17
*Boca Research, Inc. 200 5
*Boston Chicken, Inc. 600 16
*Broderbund Software, Inc. 200 15
Cardinal Health, Inc. 400 22
*Cellstar Corp. 500 16
*Cellular Communications, Inc.,
Class A 200 11
*Ceridian Corp. 500 22
*CIDCO, Inc. 800 28
Cintas Corp. 550 24
Citicasters, Inc. 300 10
*CNS, Inc. 1,200 16
Comcast Corp., Class A Special 825 17
*Comcast UK Cable Partners 600 9
Computron Software, Inc. 1,000 17
*Cordis Corp. 100 8
Danaher Corp. 550 18
*Eckerd Corp. 500 20
*Electronics for Imaging,
Inc. 200 14
Firefox Communications, Inc. 200 5
*Fiserv, Inc. 350 10
Frontier Corp. 1,200 32
*Gartner Group, Inc., Class A 600 20
General Cable plc ADR 500 8
*Glenayre Technologies, Inc. 350 25
Globalstar Telecommunications,
Ltd. 800 17
*Health Management
Association, Class A 1,275 41
*Healthcare Compare Corp. 300 12
HFS, Inc. 300 16
HighwayMaster Communications,
Inc. 100 1
*Inter-Tel, Inc. 300 5
*International Cabletel, Inc. 933 26
*Kemet Corp. 200 7
Kent Electronics Corp. 600 25
La Quinta Motor Inns, Inc. 650 18
Lin Television Corp. 300 9
*Lincare Holdings, Inc. 900 23
*LSI Logic Corp. 300 17
Maxis, Inc. 200 9
*McAfee Associates, Inc. 200 10
*Millicom International
Cellular S.A. 300 10
Mylan Labs, Inc. 450 9
Nokia Corp., ADR 200 14
*North American Biologicals,
Inc. 500 4
OfficeMax, Inc. 600 15
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
*OrNda Healthcorp 550 $ 12
*Paging Network, Inc. 600 29
Palmer Wireless, Inc. 500 11
PanAmSat Corp. 1,000 15
Papa John's International,
Inc. 300 14
Paychex, Inc. 550 25
P-Com, Inc. 200 9
PMI Group, Inc. 200 9
Post Properties, Inc. 300 9
*Qualcomm, Inc. 400 18
*Robert Mondavi Corp., Class A 500 13
*Rotech Medical Corp. 1,200 30
Security Capital Industrial
Trust 500 8
Security Capital Pacific Trust 500 10
Sinclair Broadcast Group, Inc. 400 12
Sirrom Capital Corp. 700 13
Softkey International, Inc. 400 18
Stewart Enterprises, Inc.,
Class A 400 15
*Sunglass Hut International,
Inc. 300 15
Tanger Factory Outlet Center 300 7
*Tele-Communications, Inc.,
Class A 3,567 62
Tele-Communications
International, Inc., Class A 700 13
*Tele-Communications-Liberty
Media Group, Class A 641 17
*Tellabs, Inc. 400 17
*Tommy Hilfiger Corp. 600 20
Transaction Systems Architect,
Inc., Class A 400 11
*United International
Holdings, Inc., Class A 600 11
*United Video Satellite Group 400 12
Videotron Holdings plc ADR 300 5
*Viking Office Products, Inc. 400 17
*Vivra, Inc. 350 11
Wolverine World Wide, Inc. 600 16
- ---------------------------------------------------------
GROUP TOTAL 1,229
- ---------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (0.4%)
DeBartolo Realty Corp. 2,700 38
Developers Diversified Realty
Corp. 1,000 30
Security Capital Pacific Trust 2,055 39
- ---------------------------------------------------------
GROUP TOTAL 107
- ---------------------------------------------------------
RETAIL (5.2%)
Circuit City Stores, Inc. 4,000 127
*Federated Department Stores,
Inc. 4,900 139
Home Depot, Inc. 5,500 219
*Kroger Co. 4,500 154
NIKE, Inc., Class B 100 11
*Office Depot, Inc. 3,100 93
OfficeMax, Inc. 4,150 101
Sears, Roebuck & Co. 8,500 313
Wal-Mart Stores, Inc. 8,900 221
Wendy's International, Inc. 8,000 169
- ---------------------------------------------------------
GROUP TOTAL 1,547
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------
12
<PAGE> 15
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (6.1%)
* Compaq Computer Corp. 5,300 $ 256
Intel Corp. 4,700 283
International Business
Machines Corp. 2,700 255
Motorola, Inc. 1,800 137
* National Semiconductor Corp. 7,900 218
* Oracle System Corp. 2,450 94
* Project Software &
Development, Inc. 150 4
* Seagate Technology 6,000 253
Texas Instruments, Inc. 3,700 296
- ---------------------------------------------------------
GROUP TOTAL 1,796
- ---------------------------------------------------------
UTILITIES (10.0%)
* AirTouch Communications,
Inc. 4,200 129
Consolidated Edison Co. of
New York 2,300 70
Entergy Corp. 5,700 149
Florida Progress Corp. 2,300 74
Frontier Corp. 6,300 168
GTE Corp. 10,900 428
Houston Industries, Inc. 2,000 88
MCI Communications Corp. 8,100 211
Ohio Edison Co. 6,300 143
Pacific Gas & Electric Co. 4,900 146
PECO Energy Co. 3,800 109
Public Service Enterprise
Group, Inc. 2,700 80
SBC Communications, Inc. 6,000 330
Sprint Corp. 10,100 354
U.S. West, Inc. 6,600 311
Unicom Corp. 5,900 178
- ---------------------------------------------------------
GROUP TOTAL 2,968
- ---------------------------------------------------------
VALUE (10.7%)
Allied Signal, Inc. 500 22
Allstate Corp. 648 23
American General Corp. 1,600 60
Amoco Corp. 400 26
Anheuser Busch Cos., Inc. 500 31
Archer Daniels Midland Co. 1,890 29
Armstrong World Industries,
Inc. 800 44
Atlantic Richfield Co. 300 32
Bank of Boston Corp. 820 39
Bard (C.R.), Inc. 600 18
Bergen Brunswig Corp., Class A 1,000 21
Boatmen's Bancshares, Inc. 500 18
Boise Cascade Corp. 200 8
Brunswick Corp. 1,800 36
Burlington Northern, Inc. 700 51
Cabot Oil & Gas Corp., Class A 300 16
Capital One Financial Corp. 1,000 29
Central Maine Power Co. 1,900 25
Chemical Banking Corp. 600 37
Citicorp 300 21
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
* Compaq Computer Corp. 1,400 $ 68
Crestar Financial Corp. 624 35
CSX Corp. 500 42
Cyprus Amax Minerals Co. 1,000 28
Dayton-Hudson Corp. 300 23
Dexter Corp. 900 23
Dillard Department Stores,
Inc., Class A 800 26
Eastman Chemical Co. 175 11
Eaton Corp. 900 48
El Paso Natural Gas Co. 1,100 30
Entergy Corp. 698 18
* Federal Express Corp. 400 33
Federal Home Loan Mortgage
Corp. 400 28
Federal National Mortgage
Association 600 62
First of America Bank Corp. 928 40
* FMC Corp. 300 23
* Foundation Health Corp. 1,600 61
General Motors Corp. 1,566 73
General Public Utilities Corp. 1,600 50
Goodyear Tire & Rubber Co. 2,000 79
Great Western Financial Corp. 2,000 48
International Business
Machines Corp. 400 38
ITT Corp. 300 37
Lockheed Martin Corp. 489 33
Long Island Lighting Co. 1,700 29
Mallinckrodt Group, Inc. 1,000 40
MAPCO, Inc. 900 46
MCI Communications Corp. 1,300 34
Melville Corp. 800 28
* National Semiconductor Corp. 1,800 50
New York State Electric & Gas
Corp. 700 18
Northern Trust Corp. 200 9
* PacifiCare Health Systems
Class B 400 27
PECO Energy Co. 1,500 43
PHH Corp. 700 32
Philip Morris Cos., Inc. 1,200 100
PNC Bank Corp. 800 22
Providian Corp. 1,400 58
RJR Nabisco Holdings Corp. 1,100 36
Rohm & Haas Co. 400 24
Ryder Systems, Inc. 1,500 38
SAFECO Corp. 300 20
Scitex Corp., Ltd. 11,000 208
* Seagate Technology 1,100 46
Sears, Roebuck & Co. 1,400 52
Shawmut National Corp. 600 20
Signet Banking Corp. 513 13
Sprint Corp. 900 32
St. Paul Cos., Inc. 700 41
Standard Register Co. 700 15
TCF Financial Corp. 300 17
Tecumseh Products Co., Class A 600 29
Telefonica de Espana ADR 1,000 41
* Tenet Healthcare Corp. 2,800 49
Texas Instruments, Inc. 400 32
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
13
<PAGE> 16
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
SELECT EQUITY PORTFOLIO
<TABLE>
<CAPTION>
VALUE
(CONT'D) SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
Textron, Inc. 800 $ 55
Torchmark Corp. 300 13
Trinova Corp. 1,400 47
Ultramar Corp. 2,400 57
Universal Foods Corp. 500 17
V. F. Corp. 700 35
* Western Digital Corp. 2,000 32
Weyerhaeuser Co. 400 18
Whirlpool Corp. 400 23
Williams Cos., Inc. 600 23
YPF SA ADR 3,400 60
- ---------------------------------------------------------
GROUP TOTAL 3,172
- ---------------------------------------------------------
TOTAL COMMON STOCKS (Cost $22,947) 26,528
- ---------------------------------------------------------
CONVERTIBLE BONDS (0.0%)
- ---------------------------------------------------------
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT
& POOR'S) (000)
--------- ------
<S> <C> <C> <C>
Time Warner, Inc.
8.75%, 1/10/15
(Cost $1) BB+ $ 1 1
- ---------------------------------------------------------
CASH EQUIVALENTS (18.5%)
- ---------------------------------------------------------
Short-term Investments Held as
Collateral for Loaned Securities
(0.3%) 84 84
- ---------------------------------------------------------
COMMERCIAL PAPER (4.1%)
Raytheon Co.
5.79%, 10/3/95 600 600
Siemens Corp.
5.78%, 10/4/95 600 600
- ---------------------------------------------------------
GROUP TOTAL 1,200
- ---------------------------------------------------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)+
- ---------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT (14.1%)
Chase Manhattan Bank, N.A.
6.20%, dated 9/29/95 due
10/2/95, to be repurchased at
$4,186, collateralized by
$4,203 of various U.S.
Government and Agency
Obligations, due 10/3/95-
7/7/97, valued at $4,227
(Cost $4,184) $4,184 $ 4,184
- ---------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $5,468) 5,468
- ---------------------------------------------------------
TOTAL INVESTMENTS (108.2%) (Cost $28,416) 31,997
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-8.2%)
Dividends Receivable 56
Interest Receivable 1
Receivable for Fund Shares Sold 100
Receivable for Investments Sold 160
Payable for Investments Purchased (2,601)
Payable for Administrative Fees (3)
Payable for Investment Advisory Fees (26)
Collateral on Securities Loaned, at
Value (84)
Other Liabilities (19)
-------
(2,416)
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 2,507,639 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $29,581
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 11.80
- ---------------------------------------------------------
</TABLE>
+ See Note A1 to Financial Statements.
++ Ratings are unaudited.
* Non-income producing security.
ADR American Depositary Receipt.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
14
<PAGE> 17
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY
PORTFOLIO
STATEMENT OF NET ASSETS
COMMON STOCKS (91.0%)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
VALUE
SEPTEMBER 30, 1995 SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
ARGENTINA (1.0%)
Banco Frances del Rio de
la Plata SA ADR 166,300 $ 3,596
* Central Termoelectrica 94,167 108
B.A. SA
CIADEA SA 862,093 3,406
YPF SA ADR 258,300 4,649
- ---------------------------------------------------------
GROUP TOTAL 11,759
- ---------------------------------------------------------
AUSTRALIA (2.7%)
Broken Hill Proprietary
Co., Ltd. 318,780 4,392
National Australia
Bank Ltd. 894,400 7,906
Pacific Dunlop Ltd. 3,924,000 9,753
* Qantas Airways Ltd. 2,746,000 4,875
*(+) Qantas Airways Ltd.
ADR 32,000 568
Reinsurance Australia
Corp., Ltd. 2,195,000 4,063
- ---------------------------------------------------------
GROUP TOTAL 31,557
- ---------------------------------------------------------
AUSTRIA (0.6%)
Flughafen Wien AG 108,420 6,853
- ---------------------------------------------------------
BELGIUM (0.2%)
Powerfin SA 24,250 2,711
- ---------------------------------------------------------
CANADA (1.5%)
Abitibi-Price, Inc. 400,800 6,972
Four Seasons Hotels, Inc. 140,500 1,778
Royal Bank of Canada 392,000 8,607
- ---------------------------------------------------------
GROUP TOTAL 17,357
- ---------------------------------------------------------
CHINA (0.2%)
Shanghai Dazhong Taxi,
Class B 2,380,671 1,952
- ---------------------------------------------------------
COLOMBIA (0.2%)
Banco Ganadero, SA ADR 176,000 2,508
- ---------------------------------------------------------
FRANCE (5.2%)
Air Liquide 19,300 3,074
Alcatel Alsthom 59,056 4,968
Carrefour SA 10,400 6,105
Christian Dior SA 71,100 6,470
Cie de Saint Gobain 29,152 3,553
Cie Generale Des Eaux 49,519 4,757
Elf Aquitaine 83,500 5,636
(a) Groupe Danone SA 23,900 3,864
L'Oreal SA 5,000 1,275
LVMH Moet Hennessy SA 10,300 1,944
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
Michelin, Class B 101,300 $ 4,443
Societe Generale 39,800 4,075
Usinor Sacilor 563,000 10,012
- ---------------------------------------------------------
GROUP TOTAL 60,176
- ---------------------------------------------------------
GERMANY (5.2%)
Daimler-Benz AG 9,410 4,646
Degussa AG 10,210 3,188
Deutsche Bank AG 210,800 10,046
Hoechst AG 35,400 8,611
Mannesmann AG 7,840 2,565
(a) Munich Ruekvers AG 5,090 10,369
SGL Carbon AG 123,000 7,999
Siemens AG 8,390 4,220
Veba AG 161,900 6,420
Volkswagen AG 8,370 2,713
- ---------------------------------------------------------
GROUP TOTAL 60,777
- ---------------------------------------------------------
HONG KONG (6.1%)
Cheung Kong Holdings Ltd. 1,412,000 7,689
Hang Seng Bank Ltd. 786,000 6,481
* High Fashion
International Ltd. 4,965,946 289
Hong Kong & China Gas Co.
Ltd. 4,352,400 7,009
Hong Kong Land Holdings
Ltd. 4,085,000 7,149
Hong Kong
Telecommunications Ltd. 3,721,600 6,763
Hutchison Whampoa Ltd. 1,403,000 7,604
Johnson Electric Holdings
Ltd. 1,779,300 3,544
Li & Fung Ltd. 2,318,800 1,770
Sun Hung Kai Properties
Ltd. 830,300 6,739
Swire Pacific Ltd., Class
A 804,500 6,374
Varitronix International
Ltd. 1,955,000 3,983
Wharf (Holdings) Ltd. 1,738,000 5,418
- ---------------------------------------------------------
GROUP TOTAL 70,812
- ---------------------------------------------------------
INDONESIA (1.6%)
Bank Dagang Nasional
(Foreign) 5,749,250 5,267
Hanajaya Mandala
Sampoerna (Foreign) 146,500 1,365
Indofood Sukses Makmur 763,000 3,680
Kalbe Farma (Foreign) 1,024,080 4,092
Unilever Indonesia
(Foreign) 290,536 4,361
- ---------------------------------------------------------
GROUP TOTAL 18,765
- ---------------------------------------------------------
ITALY (0.7%)
Olivetti Group 5,826,000 4,987
Telecom Italia S.p.A. 2,054,500 3,366
- ---------------------------------------------------------
GROUP TOTAL 8,353
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
15
<PAGE> 18
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY
PORTFOLIO
VALUE
(CONT'D) SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
JAPAN (24.8%)
Canon, Inc. 635,000 $ 11,350
Chiyoda Fire & Marine
Insurance Co., Ltd. 764,000 4,498
Daiwa House Industry 561,000 8,837
Fuji Photo Film Ltd. 462,000 11,523
Hitachi Ltd. 1,485,000 16,195
(a) Ito-Yokado Co., Ltd. 302,000 16,712
Kansai Electric Power Co. 431,270 10,713
Kao Corp. 1,229,000 15,265
Kirin Brewery Co., Ltd. 1,446,000 15,186
Matsushita Electric
Industries Ltd. 814,000 12,494
Mitsubishi Corp. 309,000 3,463
Mitsubishi Heavy
Industries Ltd. 1,605,000 12,317
* NKK Corp. 2,387,000 6,388
Nichido Fire & Marine
Insurance Co. 1,007,000 8,277
Nippon Oil Co., Ltd. 2,013,000 10,855
Sekisui Chemical Co. 554,000 7,049
Shiseido Co., Ltd. 890,000 9,257
Sumitomo Marine & Fire
Insurance Co. 1,801,000 13,658
Sumitomo Bank 385,000 7,464
Sumitomo Electric
Industries 496,000 6,060
Sumitomo Metal 2,014,000 5,857
Takeda Chemical
Industries 878,000 12,235
Tokio Marine & Fire
Insurance 1,382,000 14,932
Tostem Corp. 224,000 7,216
Toyo Seikan Kaisha 158,000 4,930
(a) Yamanouchi
Pharmaceutical Co. 723,000 15,624
Yasuda Fire & Marine
Insurance 2,183,000 14,108
Yasuda Trust &
Banking Co. 935,000 5,467
- ---------------------------------------------------------
GROUP TOTAL 287,930
- ---------------------------------------------------------
KOREA (3.3%)
Hanjin Shipping Co., Ltd. 164,311 10,589
Hyundai Engineering &
Construction Co. 67,518 3,552
Korea Electric Power
Corp. 104,000 3,913
* Korean Air 109,000 3,704
L. G. Chemical Ltd. 197,060 4,336
* Samsung Electronics Co. 30,260 6,520
* Samsung Electronics Co. (New) 90 19
*(+) Samsung Electronics Co. GDR 14 1
*(+) Samsung Electronics
Co. GDR
(New) 1,007 72
*(+) Samsung Electronics
Co. GDS 199 14
Shinhan Bank Co., Ltd. 201,700 4,464
Shinhan Bank Co., Ltd. (New) 34,646 735
- ---------------------------------------------------------
GROUP TOTAL 37,919
- ---------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
MALAYSIA (2.3%)
Genting Bhd. 242,000 $2,091
Leader Universal Cable
Holdings Bhd. 583,000 1,787
Malayan Banking Bhd. 951,000 7,686
Malaysia Airline System
Bhd. 626,000 1,795
Nestle Malaysia Bhd. 419,000 2,970
Resorts World Bhd. 424,000 2,110
United Engineers Bhd. 803,000 5,148
YTL Corp. Bhd. 676,000 3,499
- ---------------------------------------------------------
GROUP TOTAL 27,086
- ---------------------------------------------------------
MEXICO (1.4%)
* Desc Sociedad de Fomento
Industrial SA de CV,
Series B 1,302,000 4,902
Grupo Financiero Capital
SA 377,782 2,434
Grupo Radio Centro SA ADR 75,600 624
Grupo Televisa SA GDS 191,000 3,820
Panamerican Beverages,
Inc., Class A 160,900 4,324
- ---------------------------------------------------------
GROUP TOTAL 16,104
- ---------------------------------------------------------
NETHERLANDS (4.0%)
DSM N.V. 32,300 2,593
Elsevier N.V. 287,500 3,685
Internationale
Nederlanden N.V. 81,095 4,710
Philips Electronics N.V. 143,000 6,974
Polygram N.V. 36,600 2,380
Royal Dutch Petroleum Co. 84,500 10,387
Royal PTT Nederland N.V. 147,000 5,193
Unilever N.V. 31,300 4,069
Wolters Kluwer 64,774 5,949
- ---------------------------------------------------------
GROUP TOTAL 45,940
- ---------------------------------------------------------
PAKISTAN (0.0%)
D.G. Khan Cement Ltd. 120,000 177
Pakistan State Oil Co.,
Ltd. 10,000 114
- ---------------------------------------------------------
GROUP TOTAL 291
- ---------------------------------------------------------
PHILIPPINES (0.6%)
Metropolitan Bank &
Trust Co. 8,843 165
Philippine Commercial
International Bank 220,000 1,985
San Miguel, Class B ADR 147,550 5,210
- ---------------------------------------------------------
GROUP TOTAL 7,360
- ---------------------------------------------------------
SINGAPORE (2.7%)
DBS Land Ltd. 957,000 2,839
Jardine Matheson Holdings 827,000 5,582
Jardine Strategic
Holdings Ltd. 3,655,750 10,675
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
16
<PAGE> 19
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
Overseas Union Bank Ltd. 1,339,000 $ 8,565
Singapore Press Holdings
(Foreign) 233,160 3,573
- ---------------------------------------------------------
GROUP TOTAL 31,234
- ---------------------------------------------------------
SOUTH AFRICA (0.5%)
Anglovaal Industries Ltd. 38,700 1,420
DeBeers Consolidated
Mines Ltd. ADR 61,800 1,684
Liberty Life Association
of Africa 56,700 1,437
South African Breweries Ltd. 48,845 1,539
- ---------------------------------------------------------
GROUP TOTAL 6,080
- ---------------------------------------------------------
SPAIN (1.1%)
Empresa Nacional de
Eletricidad SA 75,500 3,872
Iberdrola SA 346,400 2,617
Repsol SA 73,700 2,316
Telefonica Nacional de
Espana 253,700 3,489
- ---------------------------------------------------------
GROUP TOTAL 12,294
- ---------------------------------------------------------
SRI LANKA (0.4%)
Development Finance Corp.
of Ceylon 687,556 3,933
(+) John Keells Holding
Ltd. ADR 40,000 270
- ---------------------------------------------------------
GROUP TOTAL 4,203
- ---------------------------------------------------------
SWEDEN (1.6%)
SKF AB, Class B 370,000 8,171
Volvo AB, Class B 427,450 10,488
- ---------------------------------------------------------
GROUP TOTAL 18,659
- ---------------------------------------------------------
SWITZERLAND (6.1%)
BBC Brown Boveri Ltd. AG
(Bearer) 10,715 12,414
Ciba-Geigy AG 6,270 5,024
Nestle SA AG 15,310 15,672
Roche Holdings AG 1,800 12,709
Sandoz AG 9,500 7,234
Swiss Bank Corp. (Bearer) 24,776 9,476
Zurich Insurance (Bearer) 29,100 8,158
- ---------------------------------------------------------
GROUP TOTAL 70,687
- ---------------------------------------------------------
TAIWAN (1.8%)
Cathay Life Insurance 573,600 2,534
China Steel Corp. ADR 144,000 2,664
Evergreen Marine Corp. 1,868,900 2,701
Formosa Chemicals & Fiber
Corp. 2,034,150 1,970
Formosa Plastics Corp. 1,609,500 2,618
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
Taiwan Semiconductor
Manufacturing Co. 1,666,800 $ 6,068
Walsin Lihwa Electric
Wire & Cable Corp. 1,397,760 1,679
- ---------------------------------------------------------
GROUP TOTAL 20,234
- ---------------------------------------------------------
THAILAND (1.8%)
Charoen Pokphand Feedmill
Co., Ltd. 586,000 2,804
Finance One Public Co.,
Ltd. (Foreign) 216,000 1,318
International Cosmetic
Co., Ltd. (Foreign) 148,280 2,105
Land & House Co., Ltd. 82,300 1,188
TPI Public Co., Ltd.
(Foreign) 686,900 5,204
* Thai Airways
International, Ltd.
(Foreign) 935,100 1,734
Thai Farmers Bank Ltd. 1,063,000 6,951
- ---------------------------------------------------------
GROUP TOTAL 21,304
- ---------------------------------------------------------
TURKEY (0.2%)
(+) Turk Otomobil
Fabrikasi AS ADR 2,480,400 1,939
- ---------------------------------------------------------
UNITED KINGDOM (12.9%)
Abbey National plc 1,532,800 13,124
Argyll Group plc 2,712,100 14,395
B.A.T. Industries plc 1,558,900 13,027
British Petroleum Co. plc 1,438,000 10,790
British Telecom Co. plc 1,506,700 9,425
East Midlands Electricity
plc 977,200 13,260
Hanson plc 2,831,898 9,059
Imperial Chemical
Industries plc 687,700 8,723
Kingfisher plc 1,500,000 11,943
Redland plc 1,189,200 7,120
Royal Insurance Holdings
plc 2,435,700 13,582
(a) SmithKline Beecham,
Class A 1,484,200 15,006
Unilever plc 536,900 10,721
- ---------------------------------------------------------
GROUP TOTAL 150,175
- ---------------------------------------------------------
UNITED STATES (0.3%)
* Millicom International
Cellular SA 113,800 3,656
- ---------------------------------------------------------
TOTAL COMMON STOCKS (Cost $969,488) 1,056,675
- ---------------------------------------------------------
PREFERRED STOCKS (1.4%)
- ---------------------------------------------------------
BRAZIL (0.6%)
Telebras SA 91,000,000 4,344
Usinas Siderurgicas de
Minas Gerais ADR 2,650,000 2,920
- ---------------------------------------------------------
GROUP TOTAL 7,264
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
17
<PAGE> 20
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY
PORTFOLIO
VALUE
(CONT'D) SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
FINLAND (0.8%)
Nokia AB 124,700 $ 8,755
- ---------------------------------------------------------
TOTAL PREFERRED STOCKS (Cost $10,482) 16,019
- ---------------------------------------------------------
WARRANTS (0.0%)
- ---------------------------------------------------------
HONG KONG (0.0%)
* Min Xin Holdings Ltd.,
expiring 12/31/96 480,000 5
- ---------------------------------------------------------
SINGAPORE (0.0%)
* Jardine Strategic
Holdings Ltd., expiring
5/2/98 101,250 36
- ---------------------------------------------------------
TOTAL WARRANTS (Cost $0) 41
- ---------------------------------------------------------
FOREIGN CURRENCY (1.7%)
- ---------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
-------
<S> <C> <C> <C>
British Pound L 1,203 1,901
Canadian Dollar C$ 34 25
French Franc FF 212 42
German Mark DM 3 2
Hong Kong Dollar HK$ 1,089 141
Indonesian Rupiah IN 383,972 170
Italian Lira IL 327 --
Japanese Yen Y 728,234 7,354
Korean Won KW 1,364,209 1,776
Netherlands Guilder NG 438 274
Singapore Dollar S$ 47 33
Taiwan Dollar T$ 219,924 8,129
- ---------------------------------------------------------
TOTAL FOREIGN CURRENCY (Cost $20,043) 19,847
- ---------------------------------------------------------
CASH EQUIVALENTS (9.8%)
- ---------------------------------------------------------
Short-term Investments
held
as Collateral for
Loaned Securities (3.7%) $ 42,710 42,710
- ---------------------------------------------------------
COMMERCIAL PAPER (0.4%)
Ford Motor Credit Corp.,
5.73%, 10/4/95 4,500 4,498
- ---------------------------------------------------------
REPURCHASE AGREEMENT (5.7%)
Chase Manhattan Bank N.A.
6.20%, dated 9/29/95,
due 10/2/95, to be
repurchased at $66,535,
collateralized by
$66,793 of various U.S.
Government and Agency
Obligations, due
10/3/95-7/7/97, valued
at $67,169 (Cost
$66,501) 66,501 66,501
- ---------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $113,709) 113,709
- ---------------------------------------------------------
TOTAL INVESTMENTS (103.9%) (Cost $1,113,722)1,206,291
- ---------------------------------------------------------
<CAPTION>
VALUE
(000)+
- ---------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (-3.9%)
Dividends Receivable $ 2,813
Interest Receivable 23
Receivable for Withholding Tax
Reclaim 854
Receivable for Investments Sold 11,092
Receivable for Fund Shares Sold 3,695
Receivable for Daily Variation on
Futures Contracts 1,336
Unrealized Gain on Forward Foreign
Currency Contracts 1,622
Other Assets 4
Payable for Fund Shares Redeemed (9,477)
Payable for Investments Purchased (12,636)
Payable for Administrative Fees (85)
Payable for Investment Advisory Fees (1,458)
Payable to Custodian Bank (212)
Collateral on Securities Loaned, at
Value (42,710)
Other Liabilities (166)
----------
(45,305)
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 92,801,686 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $1,160,986
- ---------------------------------------------------------
NET ASSETS PER SHARE $ 12.51
- ---------------------------------------------------------
+ See Note A1 to Financial Statements.
* Non-income producing security.
(a) A portion of these securities was pledged to cover
margin requirements for futures contracts.
(+) 144A security. Certain conditions for public sale
may exist.
ADR American Depositary Receipt.
GDR Global Depositary Receipt.
GDS Global Depositary Shares.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
18
<PAGE> 21
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
MID CAP GROWTH
PORTFOLIO
STATEMENT OF NET ASSETS
COMMON STOCKS (95.4%)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
VALUE
SEPTEMBER 30, 1995 SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
BASIC RESOURCES (1.3%)
* Airgas, Inc. 185,700 $ 4,944
- ---------------------------------------------------------
BEVERAGE & PERSONAL PRODUCTS (2.6%)
Cott Corp. 406,200 3,859
* Robert Mondavi Corp.,
Class A 167,600 4,274
USA Detergents, Inc. 80,000 1,660
- ---------------------------------------------------------
GROUP TOTAL 9,793
- ---------------------------------------------------------
CONSUMER DURABLES (1.3%)
Danaher Corp. 152,900 5,007
- ---------------------------------------------------------
CONSUMER SERVICES (20.1%)
Citicasters, Inc. 102,500 3,421
Comcast Corp., Class A
Special 228,373 4,567
* Comcast UK Cable Partners 194,400 3,038
General Cable plc ADR 92,200 1,476
HFS, Inc. 116,600 6,107
* International Cabletel,
Inc. 201,866 5,652
La Quinta Motor Inns, Inc. 213,400 5,975
Lin Television Corp. 86,400 2,678
PanAmSat Corp. 200,000 3,050
Sinclair Broadcast Group,
Inc. 137,700 3,959
Stewart Enterprises, Inc.,
Class A 112,250 4,069
* Tele-Communications, Inc.,
Class A 565,021 9,888
Tele-Communications
International, Inc.,
Class A 203,300 3,786
* Tele-Communications
Liberty Media Group,
Class A 211,255 5,651
Turner Broadcasting
System, Inc., Class B 100,000 2,750
* United International
Holdings, Inc., Class A 193,500 3,580
* United Video Satellite
Group 104,100 3,097
* Videotron Holdings plc ADR 130,900 2,176
- ---------------------------------------------------------
GROUP TOTAL 74,920
- ---------------------------------------------------------
CREDIT & FINANCE/INVESTMENT COMPANIES (1.0%)
Sirrom Capital Corp. 201,900 3,659
- ---------------------------------------------------------
HEALTH CARE (13.8%)
Cardinal Health, Inc. 128,600 7,121
* CNS, Inc. 167,500 2,198
* Cordis Corp. 50,600 4,288
* Health Management Association,
Class A 389,837 12,524
* Healthcare Compare Corp. 94,600 3,666
* Lincare Holdings, Inc. 245,900 6,332
Mylan Labs, Inc. 152,100 3,042
* North American
Biologicals, Inc. 162,300 1,339
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
* OrNda Healthcorp 165,200 $ 3,511
* Rotech Medical Corp. 168,900 4,201
* Vivra, Inc. 101,600 3,226
- ---------------------------------------------------------
GROUP TOTAL 51,448
- ---------------------------------------------------------
<PAGE>
HEAVY INDUSTRY/TRANSPORTATION (5.4%)
Cintas Corp. 150,000 6,600
* Gartner Group, Inc., Class
A 178,700 5,852
Paychex, Inc. 163,800 7,576
- ---------------------------------------------------------
GROUP TOTAL 20,028
- ---------------------------------------------------------
INSURANCE (0.7%)
PMI Group, Inc. 56,500 2,677
- ---------------------------------------------------------
REAL ESTATE INVESTMENT COMPANIES (3.1%)
Post Properties, Inc. 92,500 2,868
Security Capital
Industrial Trust 174,133 2,830
Security Capital Pacific
Trust 169,529 3,221
Tanger Factory Outlet
Center 104,500 2,599
- ---------------------------------------------------------
GROUP TOTAL 11,518
- ---------------------------------------------------------
RETAIL (10.6%)
* Boston Chicken, Inc. 194,700 5,087
* Eckerd Corp. 147,100 5,884
OfficeMax, Inc. 201,600 4,889
Papa John's International,
Inc. 100,500 4,522
* Sunglass Hut International,
Inc. 92,700 4,635
* Tommy Hilfiger Corp. 172,900 5,619
* Viking Office Products,
Inc. 145,300 6,066
Wolverine World Wide, Inc. 100,000 2,738
- ---------------------------------------------------------
GROUP TOTAL 39,440
- ---------------------------------------------------------
TECHNOLOGY (24.2%)
* Acclaim Entertainment,
Inc. 40,000 1,030
Adobe Systems, Inc. 135,600 7,017
* Boca Research, Inc. 62,600 1,518
* Broderbund Software, Inc. 48,900 3,723
* CellStar Corp. 154,200 4,819
* Ceridian Corp. 160,600 7,127
* CIDCO, Inc. 111,100 3,916
Computron Software, Inc. 145,500 2,510
* Electronics for Imaging,
Inc. 58,800 4,212
Firefox Communications,
Inc. 110,000 2,723
* Fiserv, Inc. 106,900 3,087
* Glenayre Technologies,
Inc. 96,250 6,930
* Inter-Tel, Inc. 80,000 1,410
Kent Electronics Corp. 85,700 3,760
* LSI Logic Corp. 63,900 3,690
Maxis, Inc. 52,100 2,292
* McAfee Associates, Inc. 57,000 2,936
* National Education Corp. 265,700 2,126
Nokia Corp., ADR 78,200 5,453
* Novadigm, Inc. 12,000 202
P-Com, Inc. 50,000 2,238
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
19
<PAGE> 22
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MID CAP GROWTH
PORTFOLIO VALUE
(CONT'D) SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
* Qualcomm, Inc. 77,400 $ 3,551
Simware, Inc. 20,000 200
Softkey International,
Inc. 50,800 2,248
* Tellabs, Inc. 112,200 4,726
* Transaction Systems
Architect, Inc., Class A 116,500 3,116
U.S. Robotics Corp. 45,200 3,853
- ---------------------------------------------------------
GROUP TOTAL 90,413
- ---------------------------------------------------------
UTILITIES (11.3%)
* American Mobile
Satellite Corp. 288,500 6,906
* Cellular Communications,
Inc., Class A 79,300 4,322
Frontier Corp. 330,600 8,802
Globalstar
Telecommunications Ltd. 275,400 5,887
HighwayMaster
Communications, Inc. 135,600 1,763
* Millicom International
Cellular S.A. 108,500 3,485
* Paging Network, Inc. 169,600 8,141
Palmer Wireless, Inc. 141,800 3,155
- ---------------------------------------------------------
GROUP TOTAL 42,461
- ---------------------------------------------------------
TOTAL COMMON STOCKS (Cost $284,506) 356,308
- ---------------------------------------------------------
CASH EQUIVALENTS (6.9%)
- ---------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
-------
<S> <C> <C>
Short-term Investments
Held
as Collateral for Loaned
Securities (4.6%) $ 17,185 17,185
- ---------------------------------------------------------
REPURCHASE AGREEMENT (2.3%)
Chase Manhattan Bank, N.A.
6.20%, dated 9/29/95, due
10/2/95, to be
repurchased at $8,581,
collateralized by $8,615
of various U.S. Gov-
ernment and Agency
Obligations, due
10/3/95-7/7/97, valued at
$8,663
(Cost $8,576) 8,576 8,576
- ---------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $25,761) 25,761
- ---------------------------------------------------------
TOTAL INVESTMENTS (102.3%) (Cost $310,267) 382,069
- ---------------------------------------------------------
<CAPTION>
VALUE
(000)+
- ---------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (-2.3%)
Cash $ 1
Dividends Receivable 65
Interest Receivable 3
Receivable for Fund Shares Sold 833
Receivable for Investments Sold 13,170
Receivable Due from Custodian 162
Other Assets 1
Payable for Administrative Fees (26)
Payable for Fund Shares Redeemed (2,292)
Payable for Investments Purchased (2,802)
Payable for Investment Advisory Fees (434)
Collateral on Securities Loaned, at
Value (17,185)
Other Liabilities (18)
--------
(8,522)
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 20,084,645 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $373,547
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 18.60
- ---------------------------------------------------------
</TABLE>
+ See Note A1 to Financial Statements.
* Non-income producing security.
ADR American Depositary Receipt.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
20
<PAGE> 23
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
MID CAP VALUE PORTFOLIO
STATEMENT OF NET ASSETS
COMMON STOCKS (93.4%)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
VALUE
SEPTEMBER 30, 1995 SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
BANKS (11.5%)
American Bank (Conn.) 1,600 $ 38
Banco Latinoamericano de
Exportaciones SA ADR 1,500 61
Central Financial Corp. 5,000 95
First Tennessee National Corp. 1,000 55
Integra Financial Corp. 800 47
Northern Trust Corp. 1,500 69
Reliance Bancorp, Inc. 8,500 124
Vermont Financial Services
Corp. 1,000 30
- ---------------------------------------------------------
GROUP TOTAL 519
- ---------------------------------------------------------
BASIC RESOURCES (15.8%)
Abitibi Price, Inc. 2,200 38
* Alumax, Inc. 500 17
Asarco, Inc. 1,400 44
Bowater, Inc. 2,400 112
Chesapeake Corp. 1,000 36
Consolidated Papers, Inc. 2,800 156
* Jefferson Smurfit Corp. 7,000 107
J&L Specialty Steel, Inc. 900 19
Phelps Dodge Corp. 1,100 69
Reynolds Metals Co. 400 23
Sigma-Aldrich Corp. 1,000 48
Tri Polyta Indonesia ADR 1,000 22
Willamette Industries, Inc. 300 20
- ---------------------------------------------------------
GROUP TOTAL 711
- ---------------------------------------------------------
CREDIT & FINANCE/INVESTMENT COMPANIES (10.1%)
Bear Stearns Co., Inc. 1,100 24
Dean Witter Discover & Co. 900 51
Edwards (A.G.), Inc. 2,000 53
North American Mortgage Co. 900 23
Raymond James Financial, Inc. 3,900 85
United Asset Management Corp. 5,500 220
- ---------------------------------------------------------
GROUP TOTAL 456
- ---------------------------------------------------------
CONSUMER DURABLES (3.8%)
Republic Gypsum Co. 6,200 73
* R & B, Inc. 6,500 55
Strattec Strategy Corp. 3,060 44
- ---------------------------------------------------------
GROUP TOTAL 172
- ---------------------------------------------------------
CONSUMER SERVICES (2.5%)
Harte-Hanks Communications 1,000 30
Interpublic Group of Cos.,
Inc. 300 12
Jostens, Inc. 1,400 33
Lee Enterprises, Inc. 300 13
Tribune Co. 400 26
- ---------------------------------------------------------
GROUP TOTAL 114
- ---------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
ENERGY (1.9%)
El Paso Natural Gas Co. 400 $ 11
* Enterra Corp. 600 13
Kerr-McGee Corp. 300 17
Pacific Enterprises 1,700 43
- ---------------------------------------------------------
GROUP TOTAL 84
- ---------------------------------------------------------
FOOD, TOBACCO & OTHER (2.3%)
Empresas La Moderna SA de CV
ADR 2,700 46
Tyson Foods, Inc., Class A 2,000 54
Universal Corp. 100 2
- ---------------------------------------------------------
GROUP TOTAL 102
- ---------------------------------------------------------
HEALTH CARE (7.4%)
Bergen Brunswig Corp., Class A 1,400 30
Community Health Systems 100 4
* Datascope Corp. 3,000 62
Foundation Health Corp. 900 34
* Haemonetics Corp. 4,500 104
Integrated Health Services 400 11
* Maxicare Health Plans, Inc. 500 9
McKesson Corp. 900 41
* Sierra Health Services 400 10
Surgical Care Affiliates, Inc. 1,300 30
- ---------------------------------------------------------
GROUP TOTAL 335
- ---------------------------------------------------------
HEAVY INDUSTRY/TRANSPORTATION (7.3%)
* AMR Corp. 300 22
Case Corp. 300 11
Comair Holdings, Inc. 1,500 40
Dover Corp. 400 15
* Federal Express Corp. 100 8
* Giant Cement Holdings, Inc. 5,600 68
Harris Corp. 900 49
IDEX Corp. 900 32
* Interim Services, Inc. 1,000 27
Teekay Shipping Corp. 1,900 46
True North Communications,
Inc. 500 10
- ---------------------------------------------------------
GROUP TOTAL 328
- ---------------------------------------------------------
INSURANCE (3.0%)
American General Corp 4,500 114
Penncorp Financial Group, Inc. 800 19
- ---------------------------------------------------------
GROUP TOTAL 133
- ---------------------------------------------------------
RETAIL (2.0%)
* Kroger Co. 500 17
Rite Aid Corp. 1,200 34
Springs Industries, Inc.,
Class A 300 12
* Vons Cos., Inc. 1,100 26
- ---------------------------------------------------------
GROUP TOTAL 89
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
21
<PAGE> 24
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MID CAP VALUE
PORTFOLIO VALUE
(CONT'D) SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (14.7%)
* Amphenol Corp., Class A 1,600 $ 35
Autoclave Engineers, Inc. 5,000 79
Avnet, Inc. 200 10
Belden, Inc. 700 18
* C.I.S. Technologies, Inc. 5,000 19
* Dell Computer Corp. 1,600 136
* Gateway 2000, Inc. 1,000 31
* Integrated Device Technology,
Inc. 1,000 25
* Lattice Semiconductor Corp. 2,600 106
* National Semiconductor Corp. 900 25
* Octel Communications Corp. 1,200 42
Progress Software Corp. 400 27
* Quantum Corp. 1,200 26
Tektronix, Inc. 200 12
Varian Associates, Inc. 700 36
* Western Digital Corp. 2,300 37
- ---------------------------------------------------------
GROUP TOTAL 664
- ---------------------------------------------------------
UTILITIES (11.1%)
Atlantic Energy, Inc. 1,300 26
Century Telephone Enterprises 200 6
Commonwealth Energy Systems 200 9
Delmarva Power & Light 3,800 87
Frontier Corp. 2,700 72
PECO Energy 9,800 247
Rochester Gas & Electric Corp. 2,100 50
Telephone & Data Systems, Inc. 100 4
- ---------------------------------------------------------
GROUP TOTAL 501
- ---------------------------------------------------------
TOTAL INVESTMENTS (93.4%) (Cost $4,047) 4,208
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES
(6.6%)
Dividends Receivable 85
Receivable for Fund Shares
Sold 87
Receivable for Investments
Sold 834
Receivable from Investment
Adviser 12
Payable for Investments
Purchased (410)
Payable for Administrative
Fees (1)
Payable to Custodian Bank (289)
Other Liabilities (19)
------
299
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 335,171 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $4,507
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $13.45
- ---------------------------------------------------------
+ See Note A1 to Financial Statements.
* Non-income producing security.
ADR American Depositary Receipt.
</TABLE>
EMERGING MARKETS
PORTFOLIO
STATEMENT OF NET ASSETS
COMMON STOCKS (69.6%)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
VALUE
SEPTEMBER 30, 1995 SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
ARGENTINA (6.0%)
Cia Interamericana de Automo 200,446 $ 792
Cia Naviera Perez Co., Series B 133,300 583
Central Puerto SA, Class
B 174,800 568
YPF SA ADR 33,000 594
- ---------------------------------------------------------
GROUP TOTAL 2,537
- ---------------------------------------------------------
CHILE (1.2%)
Banco O'Higgins ADR 22,000 498
- ---------------------------------------------------------
CZECH REPUBLIC (3.0%)
Harvardsky Dividend
Investment Fund 19,005 487
Tabak AS 4,700 793
- ---------------------------------------------------------
GROUP TOTAL 1,280
- ---------------------------------------------------------
GREECE (3.0%)
Ergo Bank SA 14,500 703
Nikas SA 42,400 561
- ---------------------------------------------------------
GROUP TOTAL 1,264
- ---------------------------------------------------------
HONG KONG (11.3%)
Amoy Properties Ltd. 550,000 519
Liu Chong Hing Bank Ltd. 285,000 354
Liu Chong Hing
Investment Ltd. 206,000 215
Orient Overseas
International Ltd. 1,742,000 1,020
* Orient Telecom &
Technology Holding Ltd. 3,656,800 1,218
Semi-Tech (Global) Ltd. 990,700 1,493
- ---------------------------------------------------------
GROUP TOTAL 4,819
- ---------------------------------------------------------
INDIA (4.5%)
Century Textiles &
Industries GDR 3,300 586
Garden Silk Mills Ltd. 100,000 550
Indian Petrochemical 28,000 385
(+) JCT Ltd. GDR 36,000 378
- ---------------------------------------------------------
GROUP TOTAL 1,899
- ---------------------------------------------------------
INDONESIA (4.9%)
Aneka Kima Raya (Foreign) 138,000 398
Asia Pacific Resources 41,000 328
Ever Shine Textile
Industry 952,000 346
Jakarta International
Hotel (Foreign) 686,000 765
* Roda Vivatex 316,500 234
- ---------------------------------------------------------
GROUP TOTAL 2,071
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
22
<PAGE> 25
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
KOREA (11.8%)
Cheil Foods & Chemicals 38,460 $ 1,227
* Chosun Brewery Co. 18,751 669
Doosan Beverages Co. 11,460 548
* Jinro Ltd. 20,000 542
* LG International Corp. 85,399 1,378
* Ssangyong Oil Refining
Co. 23,400 658
- ---------------------------------------------------------
GROUP TOTAL 5,022
- ---------------------------------------------------------
MALAYSIA (2.9%)
Boustead Holdings Bhd. 368,000 727
Renong Bhd. 301,000 523
- ---------------------------------------------------------
GROUP TOTAL 1,250
- ---------------------------------------------------------
MEXICO (2.9%)
* Desc Sociedad de Fomento
Industrial SA, Series B 130,000 489
Panamerican Beverages,
Inc. 27,000 726
- ---------------------------------------------------------
GROUP TOTAL 1,215
- ---------------------------------------------------------
PERU (0.7%)
* Southern Peru Copper, Class T 81,895 307
- ---------------------------------------------------------
PORTUGAL (3.3%)
Banco Comercial Portugues 20,700 275
(+)Portucel Industrial SA 114,100 846
Sonae Industrial e
Investment 12,800 299
- ---------------------------------------------------------
GROUP TOTAL 1,420
- ---------------------------------------------------------
SOUTH AFRICA (4.4%)
DeBeers Consolidated
Mines, Ltd. ADR 33,900 915
Rembrandt Group Ltd. 116,400 973
- ---------------------------------------------------------
GROUP TOTAL 1,888
- ---------------------------------------------------------
THAILAND (7.6%)
Ruam Pattana Fund II
(Foreign) 830,600 505
Siam Commercial Bank
Co., Ltd. 78,000 684
Sinpinyo Fund 5 (Foreign) 1,099,900 812
Sub-Thawee Fund 785,400 1,010
Thai Orchid Fund 593,200 234
- ---------------------------------------------------------
GROUP TOTAL 3,245
- ---------------------------------------------------------
TURKEY (0.7%)
(+)Turk Otomobil Fabrikasi
A.S. ADR 362,400 283
- ---------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
UNITED STATES (1.4%)
* Millicom International
Cellular SA 18,200 $ 584
- ---------------------------------------------------------
TOTAL COMMON STOCKS (Cost $28,305) 29,582
- ---------------------------------------------------------
PREFERRED STOCKS (9.8%)
- ---------------------------------------------------------
BRAZIL (9.8%)
Brasmotor SA 3,935,000 1,007
Cia Cervejaria Brahma 1,488,667 607
Iochpe Maxion SA 2,665,909 878
Telebras SA 18,546,600 885
Usinas Siderurgicas de
Minas Gerais 720,255,000 794
- ---------------------------------------------------------
TOTAL PREFERRED STOCKS (Cost $4,804) 4,171
- ---------------------------------------------------------
WARRANTS (0.1%)
- ---------------------------------------------------------
MALAYSIA (0.1%)
* Petronas, expiring
8/17/00 (Cost $43) 30 30
- ---------------------------------------------------------
FIXED INCOME SECURITIES (10.0%)
- ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT
& POOR'S) (000)
--------- ------
<S> <C> <C> <C>
ARGENTINA (1.9%)
##(b) Central Bank of
Argentina Bocon Pre 2
PIK
3.313%, 4/1/01 B2 $ 350 286
# Republic of
Argentina
5.00%, 3/31/23 BB- 1,075 522
- ---------------------------------------------------------
GROUP TOTAL 808
- ---------------------------------------------------------
BRAZIL (2.3%)
##(b) Brazil Par Series
YL4
4.25%, 4/15/24 B1 2,025 982
- ---------------------------------------------------------
INDIA (1.3%)
(b) Reliance Industries
(Convertible)
3.50%, 11/3/99 Baa3 490 538
- ---------------------------------------------------------
MALAYSIA (2.0%)
Renong Bhd.
(Convertible)
2.50%, 1/15/05 N/R 365 413
United Engineers
(Convertible)
2.00%, 3/1/04 N/R 380 440
- ---------------------------------------------------------
GROUP TOTAL 853
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
23
<PAGE> 26
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING MARKETS
PORTFOLIO
++RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
RUSSIA (2.5%
(-)** Bank Of
Vneshconom
(Loan Agreement) N/R $ 3,250 $ 1,070
- ---------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost $3,932) 4,251
- ---------------------------------------------------------
STRUCTURED INVESTMENTS (7.4%)-SEE NOTE A7
- ---------------------------------------------------------
RUSSIA (7.4%)
(-)## Credit Suisse
Notes, 11/4/96, 3.50%
Floating rate coupon
indexed to the
Russian ruble
dividend amount of
LUKoil. Principal is
composed of 70% of
the appreciation/
depreciation
of LUKoil plus the
accreted value of a
zero coupon bond
purchased at 27.13%
which matures at 30%
on the maturity date. N/R 750 542
(-)## Credit Suisse
Notes, 10/20/97,
3.50% Floating rate
coupon indexed to the
Russian ruble
dividend amount of
the underlying Basket
shares consisting of
four Russian stocks.
Principal is composed
of 70% of the
appreciation/
depreciation of the
Basket shares plus
the accreted value of
a zero coupon bond
purchased at 26.68%
which matures at 30%
on the maturity date. N/R 3,000 2,576
- ---------------------------------------------------------
TOTAL STRUCTURED INVESTMENTS (Cost $3,485) 3,118
- ---------------------------------------------------------
FOREIGN CURRENCY (1.7%)
- ---------------------------------------------------------
Argentine Peso AP 26 26
Greek Drachma GD 5,300 23
Hong Kong Dollar HK$ 108 14
Indonesian Rupiah IN 1,464,236 646
Thai Baht TB 182,700 7
- ---------------------------------------------------------
TOTAL FOREIGN CURRENCY (Cost $716) 716
- ---------------------------------------------------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)+
---------------------------------------------------------
<S> <C> <C>
CASH EQUIVALENT (10.1%)
- ---------------------------------------------------------
REPURCHASE AGREEMENT (10.1%)
Chase Manhattan Bank, N.A.
6.20%, dated 9/29/95, due
10/2/95, to be repurchased
at $4,299, collateralized
by $4,317 of various U.S.
Government and Agency
Obligations, due 10/3/95-
7/7/97, valued at $4,342
(Cost $4,297) $ 4,297 $ 4,297
- ---------------------------------------------------------
TOTAL INVESTMENTS (108.7%) (Cost $45,582) 46,165
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-8.7%)
Dividends Receivable 20
Interest Receivable 74
Payable for Investments Purchased (3,701)
Payable for Administrative Fees (4)
Payable for Investment Advisory Fees (30)
Other Liabilities (65)
-------
(3,706)
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 3,650,278 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $42,459
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 11.63
- ---------------------------------------------------------
+ See Note A1 to Financial Statements.
++ Ratings are unaudited.
* Non-income producing security.
** Non-income producing. Defaulted Security.
(b) Moody's Investor Service, Inc. rating. Security is
not rated by Standard & Poor's Corporation.
# Step Bond-Coupon rate is zero or below market for
an initial period and then increases to a higher
coupon rate thereafter.
## Variable or Floating rate security -- rate
disclosed is as of September 30, 1995.
(+) 144A security. Certain conditions for public sale
may exist.
(-) Security is subject to delayed delivery. See Note
A8 to Financial Statements.
ADR American Depositary Receipt.
GDR Global Depositary Receipt.
N/R Not rated by either Moody's Investor Service, Inc.
or Standard & Poor's Corporation.
PIK Payment-In-Kind Security.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
24
<PAGE> 27
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
FIXED INCOME
PORTFOLIO
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (99.8%)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
++RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 1995 & POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
ADJUSTABLE RATE MORTGAGES (9.9%)
## Government National
Mortgage Association II:
Various Pools:
5.50%,
4/20/24-5/20/24 Agy $ 3,429 $ 3,397
6.00%,
8/20/22-9/20/24 Agy 80,774 81,341
6.50%,
3/20/22-3/20/25 Agy 54,984 55,981
7.375%,
6/20/22-6/20/23 Agy 6,006 6,149
- ---------------------------------------------------------
GROUP TOTAL 146,868
- ---------------------------------------------------------
AGENCY FIXED RATE MORTGAGES (23.4%)
Federal Home Loan Mortgage
Corporation:
Gold Pools
10.50%,
10/1/20-4/1/21 Agy 8,425 9,222
November TBA
7.50%,
6/15/24-11/15/25 Agy 70,750 71,089
11.00%, 11/1/17 Agy 3,111 3,446
Conventional Pools:
10.50%,
4/1/11-8/1/19 Agy 1,024 1,122
11.00%,
9/1/15-5/1/20 Agy 1,748 1,937
11.25%,
10/1/11-12/1/15 Agy 2,402 2,661
11.75%, 4/1/19 Agy 328 368
13.00%, 6/1/19 Agy 96 110
14.75%, 3/1/10 Agy 53 61
Federal National
Mortgage Association:
Gold Pools:
11.50%,
7/1/13-11/1/15 Agy 682 767
12.00%, 4/1/15 Agy 114 128
Conventional Pools:
10.50%,
6/1/10-11/1/20 Agy 8,905 9,764
10.75%, 2/1/11 Agy 51 56
11.00%,
1/1/16-11/1/20 Agy 5,488 6,120
October TBA
7.50%, 8/15/23 Agy 21,500 21,634
November TBA
7.00%, 11/15/24 Agy 71,925 70,846
7.50%, 11/15/25 Agy 37,000 37,173
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Government National
Mortgage Association:
Various Pools:
10.50%,
2/15/13-3/15/21 Agy $ 3,102 $ 3,432
11.00%,
12/15/09-11/20/19 Agy 4,319 4,816
11.50%,
7/20/15-9/20/19 Agy 819 904
12.00%,
4/15/12-3/15/16 Agy 2,433 2,755
November TBA
7.50%, 8/15/24 Agy 99,000 99,804
- ---------------------------------------------------------
GROUP TOTAL 348,215
- ---------------------------------------------------------
<PAGE>
ASSET BACKED CORPORATES (0.6%)
ALPS Series:
94-1 A4 CMO
7.80%, 7/15/99 AA 3,350 3,443
94-1 C CMO
9.35%, 3/15/00 BBB 4,378 4,525
#(+) Equitable Asset
Trust Series 93-A
5.00%, 10/15/08 AAA 1,497 1,492
- ---------------------------------------------------------
GROUP TOTAL 9,460
- ---------------------------------------------------------
ASSET BACKED MORTGAGES (0.8%)
Security Pacific Home
Equity Trust Series:
(b) 91-A A2
8.90%, 3/10/06 Aaa 3,559 3,601
91-A B
10.50%, 3/10/06 A+ 7,585 7,915
- ---------------------------------------------------------
GROUP TOTAL 11,516
- ---------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-
AGENCY COLLATERAL SERIES (1.4%)
(b) Collateralized Mortgage
Obligation Trust Series:
86-14 A1
6.513%, 4/1/09 Aaa 2 2
86-14 A2 Inv Fl
12.00%, 4/1/09 Aaa 6 6
Federal Home Loan
Mortgage Corporation
Series:
92-1398 I Inv Fl
10.612%, 10/15/07 Agy 7,348 7,585
Federal National
Mortgage Association
Series:
90-80 S Inv Fl
17.232%, 7/25/20 Agy 1,013 1,181
90-118 S Inv Fl
27.392%, 9/25/20 Agy 1,953 2,643
92-33 S Inv Fl
12.90%, 3/25/22 Agy 2,230 2,399
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
25
<PAGE> 28
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIXED INCOME
PORTFOLIO
++RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Goldman Sachs Trust IV
Series:
89-D 2 Inv Fl
17.716%, 5/1/19 AAA $ 3,957 $ 4,818
89-E 2 Inv Fl
12.573%, 10/27/19 AAA 1,985 2,387
- ---------------------------------------------------------
GROUP TOTAL 21,021
- ---------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-
NON-AGENCY COLLATERAL SERIES (11.6%)
American Housing Trust
Series V 1G
9.125%, 4/25/21 AAA 800 829
(b) American Southwest
Financial
Securities Corp.
Series 95-C1 A1B
7.40%, 11/17/04 Aaa 10,000 10,265
(c) sec. BBS 4 B2
8.528%, 5/28/22
(acquired
8/5/92-12/9/93,
cost $4,131) A 4,118 4,169
Citicorp Mortgage
Securities, Inc. Series
90-11 A5
9.50%, 7/25/20 AAA 3,030 3,081
CMC Securities Corp.
IV
Series 94-G A4
7.00%, 9/25/24 AAA 5,822 5,403
(+) Equitable Life Assurance
Society of the U.S.
6.633%, 7/23/03 AA 7,000 6,932
sec. First Boston Mortgage
Securities Corp.
Series:
92-4 B1
8.125%, 10/25/22
(acquired
1/25/93-12/9/93,
cost $4,207) A 4,433 4,324
GE Capital Mortgage
Services, Inc. Series
94-24 A4
7.00%, 7/25/24 AAA 5,144 4,777
J.P. Morgan
Commercial Mortgage
Finance Corp.
Series 95-C1 A1
7.268%, 7/25/10 AAA 7,143 7,266
Mid-State Trust Series
88-2 A4
9.625%, 4/1/03 AAA 1,800 1,977
Mortgage Capital
Funding, Inc. Series
95-MC1 A1B
7.60%, 5/25/27 AAA 10,750 11,148
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
(c) Nomura Asset Securities
Corp. Series:
94-MD1 A1B
7.526%, 3/15/18 AAA $ 200 $ 207
94-MD1 A3
8.026%, 3/15/18 A 4,249 4,483
Prudential Home
Mortgage Securities
Co., Inc. Series:
90-5 A3
9.50%, 5/25/05 AAA 1,866 1,865
90-8 A 5 PAC-1(11)
9.50%, 9/25/20 AAA 3,350 3,350
(+) 92-A 2B4
7.90%, 4/28/22 AA 11,188 9,416
(b)sec. 93-17 B1
6.50%, 3/1/23
(acquired
4/14/93-10/13/94,
cost $6,386) A2 6,677 6,332
(+) 93-B 1B1
7.837%, 4/28/23 AA 8,475 8,456
(+) 93-B B2
7.837%, 4/28/23 A 788 768
(c)(+) 94-A 3B5
6.803%, 4/28/24 A 11,515 10,556
Residential Funding
Mortgage Securities
Co., Inc. Series:
92-S2 M
8.00%, 1/25/22 AA 5,967 6,044
92-S15 A5
8.00%, 5/25/07 AAA 81 82
sec. 93-MZ2 A2
7.47%, 5/30/23
(acquired
5/12/93-12/9/93,
cost $7,032) AA 7,000 6,926
(c) sec. 93-MZ3 A2
6.97%, 8/28/23
(acquired
7/17/95, cost
$7,274) AA 7,821 7,349
sec. 94-S1 A19
6.75%, 1/25/24
(acquired
5/22/95,
cost $4,036) AAA 4,426 4,201
95-S11 A16
7.50%, 9/25/25 AAA 8,794 8,822
Rural Housing Trust
Series:
87-1 D
6.33%, 4/1/26 AAA 10,295 10,025
87-1 M
3.33%, 4/1/26 A- 10,183 9,285
87-2 C
6.83%, 4/1/26 AAA 6,675 6,609
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
26
<PAGE> 29
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Ryland Mortgage
Securities Corp.
Series:
93-A 1A
7.45%, 1/28/23 AAA $ 276 $ 266
94-7B 4A2
7.50%, 8/25/25 AAA 7,500 7,231
Saxon Mortgage
Securities Corp.
Series 93-4A 1B
7.25%, 6/25/24 AAA 250 233
- ---------------------------------------------------------
GROUP TOTAL 172,677
- ---------------------------------------------------------
ENERGY (0.8%)
Maxus Energy Corp.
10.83%, 9/1/04 BB- 6,500 6,808
Mobile Energy Services
8.665%, 1/1/17 BBB- 4,900 5,129
- ---------------------------------------------------------
GROUP TOTAL 11,937
- ---------------------------------------------------------
FINANCE (10.6%)
## Bank of Hawaii,
Honolulu
5.988%, 11/25/96 A 6,000 6,002
## Caterpillar Financial
Services
5.888%, 6/20/97 A 11,000 10,978
Conseco, Inc.
8.125%, 2/15/03 BB+ 8,875 8,448
(+) Farmers
Insurance Exchange
8.625%, 5/1/24 BBB- 8,775 8,267
Fireman's Fund
Mortgage Corp.
8.875%, 10/15/01 BBB+ 6,325 6,838
(+) First Hawaiian Bank,
Series A
6.93%, 12/1/03 A 4,950 4,850
First Union REIT
8.875%, 10/1/03 BB+ 3,325 3,044
(b) FNBC Series 93-A
8.08%, 1/5/18 A1 8,500 8,876
Home Holdings, Inc.
8.625%, 12/15/03 B- 6,200 4,992
John Hancock
7.375%, 2/15/24 AA 10,900 10,116
(+) Mass Mutual
7.625%, 11/15/23 AA- 8,550 8,313
(+) Metropolitan Life
Insurance
7.45%, 11/1/23 AA 10,100 9,324
# Mutual Life Insurance
Co. of New York
0.00%, 8/15/24 BBB 7,325 5,741
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
(+) Nationwide Mutual Life
Insurance
7.50%, 2/15/24 AA- $ 12,975 $ 12,019
(+) New York Life
7.50%, 12/15/23 AA 8,525 8,168
(+) Principal Mutual Life
Insurance Co.
7.875%, 3/1/24 AA- 5,950 5,725
(+) Prudential Insurance Co.
8.30%, 7/1/25 A 10,000 10,009
(+) United Savings of Texas
9.05%, 5/15/98 BB+ 6,100 6,045
## Wells Fargo & Co.
5.813%, 8/16/96 A- 13,575 13,572
## World Savings & Loan
Association
5.875%, 3/15/96 A+ 6,900 6,899
- ---------------------------------------------------------
GROUP TOTAL 158,226
- ---------------------------------------------------------
FOREIGN GOVERNMENTS (12.8%)
Government of Canada
6.50%, 6/1/04 AA+ C$ 14,350 9,788
8.50%, 4/1/02 AA+ 42,125 32,873
Government of France
O.A.T.
8.50%, 11/25/02 AAA FF 128,650 27,951
8.50%, 10/25/19 AAA 80,230 17,065
8.50%, 4/25/23 AAA 77,000 16,346
9.50%, 1/25/01 AAA 76,150 17,163
Kingdom of Denmark
9.00%, 11/15/00 AAA DK107,500 20,802
Treuhandanstalt
7.125%, 1/29/03 AAA DM 39,480 28,663
7.75%, 10/1/02 AAA 17,795 13,384
United Kingdom
9.125%, 2/21/01 AAA ECU 4,850 6,760
- ---------------------------------------------------------
GROUP TOTAL 190,795
- ---------------------------------------------------------
/ / HEDGED MORTGAGES (1.9%)
Federal Home Loan Mortgage
Corporation Series:
1415-S Inv Fl IO CMO
17.563%, 11/15/07 Agy $ 4,265 1,663
1476-S Inv Fl IO
REMIC PAC
4.106%, 2/15/08 Agy 43,139 3,790
1485-S Inv Fl IO
CMO
3.663%, 3/15/08 Agy 45,117 3,375
1600-SA Inv Fl IO
REMIC
2.063%, 10/15/08 Agy 77,800 4,060
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
27
<PAGE> 30
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIXED INCOME
PORTFOLIO
++RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Federal National
Mortgage Association
Series:
92-186 S Inv Fl IO
3.106%, 10/25/07 Agy $ 75,278 $ 5,093
94-33 S Inv Fl IO
2.225%, 3/25/09 Agy 113,093 5,955
G 94-2 S Inv Fl IO
REMIC
2.225%, 1/25/24 Agy 89,477 4,726
- ---------------------------------------------------------
GROUP TOTAL 28,662
- ---------------------------------------------------------
INDUSTRIALS (7.0%)
Alateif Freeport Finance
9.75%, 4/15/01 BBB- 5,030 5,517
## Blue Bell Funding
11.85%, 5/1/99 BB- 593 623
(b) Columbia/HCA
Healthcare
7.69%, 6/15/25 A3 7,050 7,207
Comcast Corp.
9.375%, 5/15/05 B+ 8,200 8,344
DR Structured Finance
Series 94K2
9.35%, 8/15/19 BBB 3,350 3,307
Digital Equipment Corp.
8.625%, 11/1/12 BB+ 5,425 5,619
Federated Department
Stores
10.00%, 2/15/01 BB- 7,425 8,047
Fleming Cos., Inc.
10.625%, 12/15/01 BB- 7,775 8,300
News America
Holdings, Inc.
10.125%, 10/15/12 BBB- 9,805 11,420
Paramount
Communications
8.25%, 8/1/22 BB+ 7,200 7,099
(b) Rhone-Poulenc
Rorer, Inc.
8.62%, 1/5/21 A3 5,500 6,000
RJR Nabisco, Inc.
8.75%, 4/15/04 BBB- 10,260 10,388
Scotia Pacific
Holding Co.
7.95%, 7/20/15 BBB 4,162 4,261
Southland Corp.
5.00%, 12/15/03 BB+ 10,830 8,407
Time Warner, Inc.
9.15%, 2/1/23 BBB- 8,150 8,855
- ---------------------------------------------------------
GROUP TOTAL 103,394
- ---------------------------------------------------------
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
NON-AGENCY FIXED RATE MORTGAGES (0.1%)
sec. Household Bank
Series 85-1
7.94%, 5/1/02
(acquired
6/22/94, cost
$444) N/R $ 470 $ 470
sec. Pelican
Homestead Savings
Association Series
84-2
9.143%, 10/1/07
(acquired
5/1/87, cost
$1,037) N/R 1,103 1,126
- ---------------------------------------------------------
GROUP TOTAL 1,596
- ---------------------------------------------------------
<PAGE>
RATED NON-AGENCY FIXED RATE MORTGAGES (2.5%)
Bank of America
Series A
8.375%, 5/1/07 AA 26 26
(+) Creekwood
Capital
Corp. Series 95-1A
8.47%, 3/16/15 AA 5,766 6,062
(b)(+) DeBartolo
Capital Corp.
Series A 2
7.48%, 5/1/04 Aaa 6,650 6,903
(+) Lakewood Mall Finance
Co. Series 95-C1 A
7.00%, 8/13/10 AA 7,000 6,964
Marine Midland Bank
NA, Series 91-1 A7
8.50%, 4/25/22 AA 106 106
Mid-State Trust
Series 95-4 A
8.33%, 4/1/30 AAA 5,897 6,262
Resolution Trust Corp.
Series 92-5C
8.628%, 1/25/26 AA 4,488 4,593
Ryland Acceptance
Corp. IV Series 79-A
6.65%, 7/1/11 AA 6,195 5,945
(b) Town & Country
Funding Corp.
5.85%, 8/15/98 Aa2 550 539
- ---------------------------------------------------------
GROUP TOTAL 37,400
- -------------------------------------------------------
TELEPHONES (1.8%)
Comcast Cellular Corp.
Series:
A, Zero Coupon,
3/5/00 B+ 7,800 5,947
B, Zero Coupon,
3/5/00 B+ 165 126
(+) Rogers Cable Systems
10.00%, 3/15/05 BB+ 7,775 8,164
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
28
<PAGE> 31
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Tele-Communications,
Inc.
9.25%, 1/15/23 BBB- $ 6,900 $ 7,171
9.875%, 6/15/22 BBB- 4,350 5,012
- ---------------------------------------------------------
GROUP TOTAL 26,420
- ---------------------------------------------------------
TRANSPORTATION (1.2%)
Delta Airlines Trust
Series 93 B2
10.06%, 1/2/16 BB+ 6,900 7,940
Jet Equipment Trust
Series:
(+) 95-C
10.69%, 5/1/15 BBB- 6,325 7,117
(+) B1
10.91%, 6/15/06 BB+ 1,730 1,961
- ---------------------------------------------------------
GROUP TOTAL 17,018
- ---------------------------------------------------------
U.S. TREASURY SECURITIES (10.8%)
U.S. Treasury Bonds
7.875%, 2/15/21 Tsy 97,025 111,261
(a) 8.75%, 8/15/20 Tsy 36,550 45,699
U.S. Treasury Note
7.25%, 8/15/04 Tsy 3,300 3,528
- ---------------------------------------------------------
GROUP TOTAL 160,488
- ---------------------------------------------------------
UTILITIES (0.2%)
Long Island Lighting Co.
8.90%, 7/15/19 BB+ 3,450 3,459
- ---------------------------------------------------------
YANKEE (2.4%)
CFE Petacalco
Topolobamp
8.125%, 12/15/03 BB 4,650 3,602
Hydro-Quebec
9.40%, 2/1/21 A+ 2,350 2,807
PDV America, Inc.
7.875%, 8/1/03 BB- 6,325 5,844
# Republic of Argentina
5.00%, 3/31/23 BB- 32,300 15,665
United Mexican States
6.25%, 12/31/19 BB 13,700 8,220
- ---------------------------------------------------------
GROUP TOTAL 36,138
- ---------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost
$1,447,400) 1,485,290
- ---------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS (0.5%)
- ---------------------------------------------------------
<CAPTION>
SHARES
------
<S> <C> <C> <C>
Unisys Corp.
Series A $3.75
(Cost $7,774) B- 180,450 6,744
- ---------------------------------------------------------
RIGHTS (0.0%)
- ---------------------------------------------------------
* Mexico Recovery Rights,
expiring 6/30/03 13,700,000 --
- ---------------------------------------------------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)+
- ---------------------------------------------------------
<S> <C> <C>
CASH EQUIVALENTS (22.2%)
- ---------------------------------------------------------
Short-term Investments Held
as Collateral for Loaned
Securities (0.6%) $ 9,033 $ 9,033
- ---------------------------------------------------------
COMMERCIAL PAPER (17.1%)
Alabama Power
5.71%, 10/27/95 15,000 14,938
American General Finance
Corp.
5.71%, 11/2/95 15,000 14,924
Bell Atlantic Financial
5.72%, 10/11/95 15,000 14,976
Beneficial Corp.
5.73%, 11/13/95 15,000 14,897
CIT Group Holdings, Inc.
5.74%, 10/10/95 15,000 14,979
E.I. du-Pont de Nemours & Co.
5.69%, 10/24/95 15,000 14,946
Ford Motor Credit Company
5.74%, 10/26/95 15,000 14,940
General Electric Capital
Corp.
5.74%, 10/12/95 15,000 14,974
Heller Financial, Inc.
5.75%, 10/17/95 15,000 14,962
Household Finance Corp.
5.73%, 10/16/95 15,000 14,964
National Rural Utilities
5.71%, 11/9/95 15,000 14,907
PHH Corp.
5.72%, 11/3/95 15,000 14,921
Pitney Bowes, Inc.
5.73%, 10/12/95 15,000 14,974
Prudential Funding Corp.
5.74%, 11/7/95 15,000 14,912
Raytheon Co.
5.72%, 10/4/95 15,000 14,993
Weyerhaeuser Mortgage Co.
5.70%, 11/1/95 15,000 14,926
Xerox Credit Corp.
5.75%, 10/3/95 15,000 14,995
- --------------------------------------------------------
GROUP TOTAL 254,128
- ---------------------------------------------------------
REPURCHASE AGREEMENT (4.5%)
Chase Manhattan Bank, N.A.
6.20%, dated 9/29/95, due
10/2/95, to be repurchased
at $66,831, collateralized
by $67,086 of various U.S.
Government and Agency
Obligations, due 10/3/95-
7/7/97, valued at $67,464 66,797 66,797
- ---------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $329,958) 329,958
- ---------------------------------------------------------
TOTAL INVESTMENTS (122.5%) (Cost $1,785,132) 1,821,992
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-22.5%)
Cash 1
Dividends Receivable 169
Interest Receivable 23,549
Receivable for Fund Shares Sold 488
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
29
<PAGE> 32
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIXED INCOME
PORTFOLIO
VALUE
(CONT'D) (000)+
- ---------------------------------------------------------
<S> <C>
Receivable for Investments Sold $ 379
Other Assets 5
Payable for Fund Shares Redeemed (1,063)
Payable for Investments Purchased (301,202)
Payable for Administrative Fees (104)
Payable for Investment Advisory Fees (1,372)
Payable for Daily Variation on Futures
Contracts (772)
Written Interest Rate Floors at Value (44,319)
Unrealized Loss on Forward Foreign
Currency Contracts (570)
Collateral on Securities Loaned, at
Value (9,033)
Other Liabilities (739)
-------
(334,583)
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 125,834,387 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $1,487,409
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 11.82
- ---------------------------------------------------------
sec. Restricted Security-Total cost of restricted
securities at September 30, 1995 amounted to
$34,547. Total market value of restricted
securities owned at September 30, 1995 was
$34,897 or 2.3% of net assets.
+ See Note A1 to Financial Statements.
++ Ratings are unaudited.
* Non-Income Producing Security.
(a) A portion of these securities was pledged to
cover margin requirements for futures
contracts.
(b) Moody's Investor Service, Inc. rating. Security
is not rated by Standard & Poor's Corporation.
(c) Fitch rating. Security is not rated by Standard
& Poor's Corporation or Moody's Investor
Service, Inc.
/ / Securities purchased with proceeds from written
floors. See Note A6 to Financial Statements.
# Step Bond-Coupon rate is zero or below market
for an initial period and then increases to a
higher coupon rate thereafter.
## Variable or floating rate securities-rate
disclosed is as of September 30, 1995.
(+) 144A security. Certain conditions for public
sale may exist.
CMO Collateralized Mortgage Obligations.
Inv Fl Inverse Floating Rate-Interest rate fluctuates
with an inverse relationship to an associated
interest rate. Indicated rate is the effective
rate at September 30, 1995.
IO Interest Only.
N/R Not rated by either Moody's Investor Service,
Inc. or Standard & Poor's Corporation.
PAC Planned Amortization Class.
REMIC Real Estate Mortgage Investment Conduit.
TBA Security is subject to delayed delivery. See
Note A8 to Financial Statements.
C$ Canadian Dollar.
DK Danish Krone.
DM German Mark.
ECU European Currency Unit.
FF French Franc.
</TABLE>
<PAGE>
DOMESTIC FIXED INCOME PORTFOLIO
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (93.9%)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
++RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 1995 & POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
ADJUSTABLE RATE MORTGAGES (9.3%)
## Government National
Mortgage Association II:
Various Pools:
5.50%, 11/20/24 Agy $ 988 $ 993
6.00%,
4/20/24-11/20/24 Agy 1,732 1,744
6.50%,
10/20/22-2/20/23 Agy 622 632
- ---------------------------------------------------------
GROUP TOTAL 3,369
- ---------------------------------------------------------
AGENCY FIXED RATE MORTGAGES (34.4%)
Federal Home Loan Mortgage
Corporation:
Gold Pools:
11.00%, 5/1/20 Agy 358 396
October TBA
7.50%, 8/15/23 Agy 2,200 2,216
November TBA:
7.00%, 6/15/24 Agy 1,550 1,528
7.50%,
8/15/24-11/15/25 Agy 1,175 1,181
Conventional Pool
12.00%, 11/1/19 Agy 197 223
Federal National
Mortgage Association:
Conventional Pools:
10.00%, 5/1/22 Agy 222 242
11.50%, 9/1/25 Agy 300 338
October TBA
7.50%,
8/15/23-10/15/24 Agy 2,800 2,817
November TBA:
7.00%, 11/15/24 Agy 600 591
7.50%, 11/15/25 Agy 825 829
Government National
Mortgage Association:
Various Pools:
10.50%,
5/15/19-7/15/21 Agy 203 226
12.00%,
12/15/12-7/15/15 Agy 179 204
November TBA
7.50%, 8/15/24 Agy 1,650 1,663
- ---------------------------------------------------------
GROUP TOTAL 12,454
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
30
<PAGE> 33
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
ASSET BACKED CORPORATES (0.6%)
ALPS Series 94-1 A4
CMO
7.80%, 7/15/99 AA $ 150 $ 154
#(+) Equitable Asset Trust
Series 93-A
5.00%, 10/15/08 AAA 57 57
- ---------------------------------------------------------
GROUP TOTAL 211
- ---------------------------------------------------------
ASSET BACKED MORTGAGES (0.3%)
(b) Security Pacific Home
Equity Trust
Series 91-A A2
8.90%, 3/10/06 Aaa 137 138
- ---------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-
AGENCY COLLATERAL SERIES (0.9%)
(b) Collateralized Mortgage
Obligation Trust Series:
86-14 A2 Inv Fl
12.00%, 4/1/09 Aaa 19 19
86-16 Q Inv Fl
12.00%, 3/20/18 Aaa 202 214
Goldman Sachs Trust IV
Series 89-E 2
12.57%, 10/27/19 AAA 63 76
- ---------------------------------------------------------
GROUP TOTAL 309
- ---------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-
NON-AGENCY COLLATERAL SERIES (16.1%)
(b) American Southwest
Financial Securities Corp.
Series 95-C1 A1B
7.40%, 11/17/04 Aaa 225 231
Asset Securitization
Corp. Series 95-D1 A1
7.59%, 8/11/27 AAA 225 233
Citicorp Mortgage
Securities, Inc. Series:
90-11A-5
9.50%, 7/25/20 AAA 127 129
94-7 A5
6.25%, 4/25/24 AAA 200 172
(+)(c) 95-2 B1
7.50%, 4/25/25 AA 199 196
Countrywide Mortgage
Backed Securities, Inc.
Series 93-C A11
6.50%, 1/25/24 AAA 245 229
(+) Equitable Life Assurance
Society of the U.S.
6.633%, 7/23/03 AA 250 248
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
(c) sec. First Boston Mortgage
Securities Corp.
Series 93-5 B1
7.30%, 7/25/23
(acquired 7/19/95,
cost $233) A $ 245 $ 237
GE Capital Mortgage
Services, Inc. Series:
92-10A F
7.50%, 8/25/22 AAA 250 244
(b) 94-19 M
7.50%, 8/25/24 A2 198 195
94-24 A4
7.00%, 7/25/24 AAA 218 203
94-27 A6
6.50%, 7/25/24 AAA 250 221
J.P. Morgan Commercial
Mortgage Finance Corp.
Series 95-C1 A1
7.268%, 7/25/10 AAA 154 157
<PAGE>
Mid-State Trust Series
88-2-A4
9.625%, 4/1/03 AAA 100 110
Mortgage Capital Funding,
Inc. Series 95-MC1 A1B
7.60%, 5/25/27 AAA 225 233
(c) Nomura Asset Securities
Corp. Series:
94-MD1 A 1B
7.526%, 3/15/18 AAA 100 103
94-MD1 A2
7.676%, 3/15/18 AA 125 129
PNC Mortgage Securities Corp.
Series 94-3 A8
7.50%, 7/25/24 AAA 150 147
Prudential Home
Mortgage Securities Co.,
Inc. Series:
90-5 A3
9.50%, 5/25/05 AAA 63 63
sec. 95-2 M
8.50%, 6/25/25
(acquired 4/28/95,
cost $274) AA 275 283
Residential Funding
Mortgage Securities Co.,
Inc. Series:
sec. 93-MZ3 A2
6.97%, 8/28/23
(acquired 7/17/95,
cost $140) N/R 150 141
sec. 93-S27 M2
7.50%, 6/25/23
(acquired 7/21/95,
cost $235) A 244 239
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
31
<PAGE> 34
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DOMESTIC FIXED
INCOME PORTFOLIO
++RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
sec. 93-S43 A10
6.50%, 11/25/23
(acquired 6/12/95,
cost $227) AAA $ 245 $ 228
95-S11M
7.50%, 9/25/25 AAA 200 200
(-) 95-S16 A7
7.50%, 10/15/25 AAA 300 300
Rural Housing Trust
Series:
87-1 D
6.33%, 4/1/26 AAA 633 617
87-1 M
3.33%, 4/1/26 A- 265 241
87-2 C
6.83%, 4/1/26 AAA 93 92
- ---------------------------------------------------------
GROUP TOTAL 5,821
- ---------------------------------------------------------
FINANCE (10.0%)
## Caterpillar
Financial Services
5.888%, 6/20/97 A 250 250
## Dean Witter Discover
6.075%, 11/15/96 A 325 325
(b) FNBC Series 93-A
8.08%, 1/5/18 A1 325 339
John Hancock
7.375%, 2/15/24 AA 500 464
## Marshall & Ilsley Bank
5.898%, 5/26/97 A+ 325 325
(+) Mass Mutual
7.625%, 11/15/23 AA- 250 243
(+) Metropolitan Life
Insurance
7.45%, 11/1/23 AA 250 231
NationsBank Texas
5.875%, 6/18/97 A+ 250 250
(+) New York Life Insurance
7.50%, 12/15/23 AA 320 307
(+) Principal Mutual Life
Insurance Co.
7.875%, 3/1/24 AA- 250 241
(+) Prudential Insurance Co.
8.30%, 7/1/25 A 225 225
## Wells Fargo & Co.
5.813%, 8/16/96 A- 325 325
## World Savings & Loan
Association
5.875%, 3/15/96 A+ 100 100
- ---------------------------------------------------------
GROUP TOTAL 3,625
- ---------------------------------------------------------
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
/ / HEDGED MORTGAGES (0.4%)
Federal Home Loan
Mortgage Corporation
Inv Fl IO
REMIC Series
1699-SD
2.063%, 3/15/24 Agy $2,166 $ 130
- ---------------------------------------------------------
INDUSTRIALS (0.6%)
(b) Columbia/HCA Healthcare
7.69%, 6/15/25 A3 200 204
- ---------------------------------------------------------
RATED NON-AGENCY FIXED RATE MORTGAGES (4.5%)
(+) CVM Finance Corp.
7.19%, 4/1/04 AA 444 446
(+) Creekwood Capital Corp.
Series 95-1 A
8.47%, 3/16/15 AA 249 261
(b)(+) DeBartolo Capital Corp.
Series A 2
7.48%, 5/1/04 Aaa 150 156
sec. Gemsco Mortgage
Pass Through Certificate
Series 83-TX A
8.701%, 11/25/10
(acquired 9/9/88,
cost $361) AA 392 396
(+) Lakewood Mall Finance
Co. Series 95-C1 A
7.00%, 8/13/10 AA 125 124
Mid-State Trust
Series 95-4 A
8.33%, 4/1/30 AAA 157 167
## Resolution Trust Corp.
Series 92-5C
8.65415%, 1/25/26 AA 66 68
- ---------------------------------------------------------
GROUP TOTAL 1,618
- ---------------------------------------------------------
TELEPHONES (0.4%)
AT&T Corp.
8.35%, 1/15/25 AA 125 136
- ---------------------------------------------------------
TRANSPORTATION (0.9%)
(+) Jet Equipment Trust
Series A11
10.00%, 6/15/12 A 275 317
- ---------------------------------------------------------
U.S. TREASURY SECURITIES (15.0%)
U.S. Treasury Bond
7.875%, 2/15/21 Tsy 2,100 2,408
(a) 8.75%, 8/15/20 Tsy 1,550 1,938
U.S. Treasury Note
7.25%, 8/15/04 Tsy 1,000 1,069
- ---------------------------------------------------------
GROUP TOTAL 5,415
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
32
<PAGE> 35
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
YANKEE (0.5%)
Hydro-Quebec
9.40%, 2/1/21 A+ $ 150 $ 179
- ---------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost
$33,307) 33,926
- ---------------------------------------------------------
CASH EQUIVALENTS (36.8%)
- ---------------------------------------------------------
COMMERCIAL PAPER (32.8%)
Bell Atlantic
Financial
5.82%, 10/25/95 700 697
Barclays U.S. Funding
5.74%, 10/30/95 700 697
Beneficial Corp.
5.73%, 11/13/95 700 695
E.I. du Pont de
Nemours & Co.
5.80%, 10/16/95 700 698
Ford Motor Credit
Corp.
5.74%, 10/26/95 700 697
McDonald's Corp.
5.72%, 10/11/95 700 699
National Rural
Utilities
5.71%, 11/9/95 700 697
PHH Corp.
6.10%, 10/10/95 700 699
Philip Morris Corp.
5.73%, 10/11/95 700 699
Pitney Bowes, Inc.
5.73%, 10/12/95 700 699
Prudential Funding
Corp.
5.74%, 11/7/95 700 696
Sara Lee Corp.
5.75%, 10/2/95 700 700
Southwestern Bell
5.75%, 10/16/95 700 698
U.S. West, Inc.
5.71%, 11/7/95 700 696
Warner Lambert
5.75%, 10/6/95 700 699
Weyerhaeuser Mortgage Co.
5.80%, 10/17/95 700 698
Xerox Corp.
5.70%, 11/6/95 700 696
- ---------------------------------------------------------
GROUP TOTAL 11,860
- ---------------------------------------------------------
REPURCHASE AGREEMENT (4.0%)
Chase Manhattan Bank N.A.,
6.20% dated 9/29/95, due
10/2/95, to be repurchased
at $1,461, collateralized by
$1,467 of various U.S.
Government and Agency
Obligations, due 10/3/95-
7/7/97, valued at $1,476 1,460 1,460
- ---------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $13,320) 13,320
- ---------------------------------------------------------
TOTAL INVESTMENTS (130.7%) (Cost $46,627) 47,246
- ---------------------------------------------------------
<CAPTION>
<PAGE>
VALUE
(000)+
- ---------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (-30.7%)
Interest Receivable $ 200
Receivable for Investments Sold 10
Payable for Investments Purchased (11,133)
Payable for Administrative Fees (3)
Payable for Investment Advisory Fees (26)
Payable for Daily Variation on Futures
Contracts (19)
Written Interest Rate Floor at Value (112)
Other Liabilities (16)
-------
(11,099)
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 3,276,630 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $36,147
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 11.03
- ---------------------------------------------------------
sec. Restricted Security-Total cost of restricted
securities at September 30, 1995 amounted to
$1,470. Total market value of restricted
securities owned at September 30, 1995 was
$1,524 or 4.2% of net assets.
+ See Note A1 to Financial Statements.
++ Ratings are unaudited.
(a) A portion of these securities was pledged to
cover margin requirements for futures
contracts.
(b) Moody's Investor Service, Inc. rating.
Security is not rated by Standard & Poor's
Corporation.
(c) Fitch rating. Security is not rated by
Standard & Poor's Corporation or Moody's
Investor Service, Inc.
/ / Securities purchased with proceeds from
written floors. See Note A6 to Financial
Statements.
# Step Bond-Coupon rate is zero or below market
for an initial period and then increases to
a higher coupon rate thereafter.
## Variable or floating rate securities-rate
disclosed is as of September 30,1995.
(+) 144A Security. Certain conditions for public
sale may exist.
(-) Security is subject to delayed delivery. See
Note A8 to Financial Statements.
CMO Collateralized Mortgage Obligations.
IO Interest Only.
Inv Fl Inverse Floating Rate-Interest rate
fluctuates with an inverse relationship to
an associated interest rate. Indicated rate
is the effective rate at September 30, 1995.
N/R Not rated by either Moody's Investor Service
Inc. or Standard & Poor's Corporation.
REMIC Real Estate Mortgage Investment Conduit.
TBA Security is subject to delayed delivery. See
Note A8 to Financial Statements.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
33
<PAGE> 36
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (90.6%)
(UNLESS OTHERWISE NOTED)
<TABLE>
<CAPTION>
---------------------------------------------------------
++RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 1995 & POOR'S) (000) (000)+
---------------------------------------------------------
<S> <C> <C> <C>
CABLE (9.4%)
(a) Adelphia Communications
Corp. Series B
9.875%, 3/1/05 B $ 5,250 $ 4,883
#(+) Bell Cablemedia
0.00%, 9/15/05 BB- 4,450 2,603
Comcast Corp.
(Convertible)
1.125%, 4/15/07 B+ 5,750 3,033
# Marcus Cable Co.
0.00%, 12/15/05 B 3,700 2,165
Rogers Cable Systems
9.65%, 1/15/14 BB+ C$ 6,150 3,942
(+) 10.00%, 3/15/05 BB+ $ 1,800 1,890
# Telewest Communications
0.00%, 10/1/07 BB 3,700 2,192
- ---------------------------------------------------------
GROUP TOTAL 20,708
- ---------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-
NON-AGENCY COLLATERAL SERIES (11.1%)
CBA Mortgage Corp. Series
93-C1 E
7.154%, 12/25/03 BB 1,675 1,373
(b) Citicorp Mortgage
Securities, Inc.
Series 90-8 A7
9.50%, 6/25/05 Ba1 3,250 2,784
CMC Securities Corp.
III Series:
sec. 94-C B3
6.75%, 3/25/24
(acquired 4/21/95,
cost $431) N/R 652 448
(+) 94-E B3
6.50%, 3/25/24 BB 2,718 1,821
(+) CMC Securities
Corp. IV Series 94-G
B3
7.00%, 9/25/24 N/R 755 522
Countrywide Mortgage
Securities Series:
(+) 93-E B4
6.50%, 1/25/24 BB 1,013 694
94-G B3
6.50%, 2/15/24 N/R 2,205 1,575
(c) sec. DLJ Mortgage
Acceptance Corp.
Series 94-3 B3
6.50%, 4/25/24
(acquired 5/8/95,
cost $944) BB 1,414 985
(b)(+) First Boston
Mortgage Corp. Series
92-4R 2
8.025%, 10/28/22 Ba3 1,375 960
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
G.E. Capital Mortgage
Services, Inc.
Series:
(+) 94-8 B3
6.00%, 2/25/24 N/R $ 397 $ 264
(+) 94-9 B3
6.50%, 2/25/24 N/R 1,082 755
(+) 94-28 B3
8.00%, 8/25/24 N/R 1,406 1,103
<PAGE>
Prudential Home
Mortgage Securities
Co., Inc. Series:
(b)(+) 92-A 3B2
7.90%, 4/28/22 Baa3 2,900 2,086
(+) 93-B 4B
7.836%, 4/28/23 BB 4,090 3,231
(+) 95-D B4
7.539%, 10/28/25 BB 1,685 1,389
Residential Funding
Mortgage Securities Co.,
Inc. Series:
95-S10 B1
7.50%, 7/25/25 N/R 622 473
95-S11 B1
7.50%, 9/25/25 N/R 1,300 988
(-) 95-S16 B3
7.50%, 8/15/24 N/R 1,000 763
Ryland Mortgage
Securities Corp.
Series
92-A C1
8.305%, 3/29/30 BB 700 564
Saxon Mortgage
Securities Corp.
Series:
sec. 93-8A B3
7.30%, 9/25/23
(acquired 2/9/94,
cost $754) BB 881 635
(+) 94-2 B3
6.75%, 1/25/24 BB 1,618 1,081
- ---------------------------------------------------------
GROUP TOTAL 24,494
- ---------------------------------------------------------
CONSUMER SERVICES/PRODUCTS (8.6%)
Coleman Holdings
Zero Coupon, 5/27/98 B 3,400 2,652
Flagstar Corp.
11.25%, 11/1/04 CCC+ 3,400 2,635
** Heileman Acquisition Co.
9.625%, 1/31/04 CC 2,225 606
(+) Host Marriott Travel
Plaza
9.50%, 5/15/05 BB- 3,850 3,744
Marvel Parent
Holdings, Inc.
Zero Coupon, 4/15/98 B- 9,850 7,055
#(+) Six Flags Theme Parks,
Inc.
0.00%, 6/15/05 B 3,025 2,284
- ---------------------------------------------------------
GROUP TOTAL 18,976
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
34
<PAGE> 37
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
ENERGY (4.5%)
Clark R&M Holdings
Zero Coupon, 2/15/00 B+ $ 5,675 $ 3,632
Maxus Energy Corp
9.50%, 2/15/03 BB- 1,100 1,067
9.875%, 10/15/02 BB- 850 841
10.83%, 9/1/04 BB- 2,125 2,226
# TransAmerican
Refining Corp. Series
1
0.00%, 2/15/02 B- 2,900 2,030
* TransAmerican
Refining Corp.
(Warrants, expiring
2/15/02) (1) 49,570 166
- ---------------------------------------------------------
GROUP TOTAL 9,962
- ---------------------------------------------------------
FINANCE (9.4%)
Conseco, Inc.
8.125%, 2/15/03 BB+ 3,075 2,927
First Union REIT
8.875%, 10/1/03 BB+ 1,200 1,099
Home Holdings, Inc.
7.75%, 12/15/98 B- 1,100 996
8.625%, 12/15/03 B- 3,000 2,415
MDC Holdings, Inc.
11.125%, 12/15/03 B 2,550 2,359
# Mutual Life
Insurance Co. of New
York
0.00%, 8/15/24 BBB 6,075 4,762
Reliance Group
Holdings
9.75%, 11/15/03 BB- 4,125 4,104
sec. Riggs National
Corp. Series B
10.75% (Preferred Stock)
(acquired 10/14/93-
8/4/94, cost
$1,837) N/R (1) 73,500 2,021
- ---------------------------------------------------------
GROUP TOTAL 20,683
- ---------------------------------------------------------
FOREIGN GOVERNMENTS (1.1%)
Mexican Cetes
Zero Coupon, 1/25/96 BBB+ MP16,709 2,361
* Mexico Recovery (Rights,
expiring 6/30/03) (1) 6,425,000 --
- ---------------------------------------------------------
GROUP TOTAL 2,361
- ---------------------------------------------------------
INDUSTRIALS (8.3%)
AK Steel Corp.
10.75%, 4/1/04 B+ 3,000 3,218
## Blue Bell Funding
11.85%, 5/1/99 BB- 525 551
Consolidated Hydro, Inc.
13.50% (Preferred
Stock) N/R (1) 1,500 580
* Consolidated Hydro,
Inc. (Warrants,
expiring 12/31/03) (1) 2,700 --
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Fleming Cos., Inc.
10.625%, 12/15/01 BB- $ 3,500 $ 3,736
G.I. Holdings, Inc.
Zero Coupon, 10/1/98 B+ 8,375 6,082
(+) Terex Corp.
13.75%, 5/15/02 B 1,900 1,539
TLC Beatrice
11.50%, 10/1/05 BB- 2,650 2,670
- ---------------------------------------------------------
GROUP TOTAL 18,376
- ---------------------------------------------------------
<PAGE>
SUPERMARKETS (4.1%)
Big V Supermarkets, Inc.
11.00%, 2/15/04 B- 2,320 1,856
Grand Union Co.
(Common Stock) (1) 190,881 2,481
Ralph's Grocery Co.
10.45%, 6/15/04 B 2,400 2,334
Southland Corp.
5.00%, 12/15/03 BB+ 3,125 2,426
- ---------------------------------------------------------
GROUP TOTAL 9,097
- ---------------------------------------------------------
TECHNOLOGY (3.6%)
Unisys Corp.
9.75%, 9/15/16 BB- 1,450 1,417
Unisys Corp. Series A
$3.75 (Convertible
Preferred Stock) B- (1) 179,500 6,709
- ---------------------------------------------------------
GROUP TOTAL 8,126
- ---------------------------------------------------------
TELEPHONES (7.0%)
Comcast Cellular Corp.
Series:
A Zero Coupon,
3/5/00 B+ 2,800 2,135
B Zero Coupon,
3/5/00 B+ 6,375 4,877
# Dial Call
Communications, Inc.
0.00%, 4/15/04 CCC- 4,800 2,520
* Dial Call
Communications, Inc.
(Warrants, expiring
4/25/99) (1) 2,800 --
# Nextel Communications,
Inc.
0.00%, 8/15/04 CCC- 11,825 5,824
- ---------------------------------------------------------
GROUP TOTAL 15,356
- ---------------------------------------------------------
TRANSPORTATION (3.6%)
Jet Equipment Trust
Series:
(+) 95-C,
10.69%, 5/1/15 BBB- 2,200 2,475
(+) B1,
10.91%, 6/15/06 BB+ 1,348 1,528
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
35
<PAGE> 38
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD
PORTFOLIO
++RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
USAir Inc. Series:
93-A3,
10.375%, 3/1/13 B+ $ 3,275 $ 3,095
F
10.55%, 1/15/05 B+ 625 586
10.70%, 1/15/06 B+ 296 278
- ---------------------------------------------------------
GROUP TOTAL 7,962
- ---------------------------------------------------------
UTILITIES (3.2%)
Cleveland Electric
Series:
B 9.50%, 5/15/05 BB 2,075 2,090
sec. Q $91.50
(Preferred Stock)
(acquired 5/10/95,
cost $2,397) N/R (1) 2,700 2,395
First PV Funding Corp.
10.15%, 1/15/16 B+ 2,450 2,487
- ---------------------------------------------------------
GROUP TOTAL 6,972
- ---------------------------------------------------------
YANKEE (16.7%)
##(b) Brazil Par Series:
YL3
4.25%, 4/15/24 B1 5,625 2,728
YL4
4.25%, 4/15/24 B1 9,725 4,717
##(b) Central Bank of
Argentina Bocon PIK:
Pre 2,
3.313%, 4/1/01 B2 5,425 4,435
Pre 4,
3.313%, 9/1/02 B2 10,200 6,362
CFE Petacalco
Topolobamp
8.125%, 12/15/03 BB 2,975 2,304
Republic of Argentina
# 5.00%, 3/31/23 BB- 9,725 4,717
## 6.813%, 3/31/05 BB- 2,300 1,426
## Republic of Brazil,
Series EI-L
7.25%, 4/15/06 N/R 5,925 3,940
Republic of Ecuador
## (Discount)
6.813%, 2/28/25 N/R 4,115 2,027
# (Past Due
Interest)
6.813%, 2/28/15 N/R 1,225 398
* Republic of
Venezuela Oil
Warrants, expiring
4/15/20 (1) 33,750 --
United Mexican States
6.25%, 12/31/19 BB 6,425 3,855
- ---------------------------------------------------------
GROUP TOTAL 36,909
- ---------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost $200,472) 199,982
- ---------------------------------------------------------
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
CASH EQUIVALENTS (10.5%)
- ---------------------------------------------------------
U.S. TREASURY SECURITIES (0.1%)
U.S. Treasury Bill
Zero Coupon,
11/16/95 Tsy $ 100 $ 99
- ---------------------------------------------------------
COMMERCIAL PAPER (5.3%)
Aon Corp.
5.72%, 10/23/95 2,350 2,342
H.J. Heinz Co.
5.73%, 10/12/95 2,350 2,346
Heller Financial, Inc.
5.75%, 10/3/95 2,350 2,349
Southern California
Edison Co.
5.72%, 10/18/95 2,350 2,344
Xerox Corp.
5.72%, 10/27/95 2,350 2,340
- ---------------------------------------------------------
GROUP TOTAL 11,721
- ---------------------------------------------------------
REPURCHASE AGREEMENT (5.1%)
Chase Manhattan Bank N.A.,
6.20%, dated 9/29/95, due
10/2/95, to be repurchased
at $11,352, collateralized
by $11,395 of various U.S.
Government and Agency
obligations, due 10/3/95-
7/7/97, valued at $11,459 11,346 11,346
- ---------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $23,166) 23,166
- ---------------------------------------------------------
TOTAL INVESTMENTS (101.1%) (Cost $223,638) 223,148
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.1%)
Cash 1
Dividends Receivable 177
Interest Receivable 3,341
Receivable for Fund Shares Sold 117
Receivable for Investments Sold 4
Other Assets 1
Payable for Fund Shares Redeemed (16)
Payable for Investments Purchased (5,611)
Payable for Administrative Fees (16)
Payable for Investment Advisory Fees (215)
Payable for Daily Variation on Futures
Contracts (88)
Unrealized Loss on Swap Contracts (27)
Other Liabilities (31)
------
(2,363)
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 24,304,177 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $220,785
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 9.08
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
36
<PAGE> 39
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------------
sec. Restricted Security-Total cost of restricted
securities at September 30, 1995 amounted to
$6,363. Total market value of restricted
securities owned at September 30, 1995 was $6,484
or 2.9% of net assets.
+ See Note A1 to Financial Statements.
++ Ratings are unaudited.
* Non-Income Producing Security.
** Non-Income Producing, Defaulted Security.
(a) A portion of these securities was pledged to cover
margin requirements for futures contracts.
(b) Moody's Investor Service, Inc. rating. Security is
not rated by Standard & Poor's Corporation.
(c) Fitch rating. Security is not rated by Standard &
Poor's Corporation or Moody's Investor Service,
Inc.
# Step Bond-Coupon rate is zero or below market for
an initial period and then increases to a higher
coupon rate thereafter.
## Variable or floating rate securities-rate
disclosed is as of September 30, 1995.
(-) Security is subject to delayed delivery. See Note
A8 to Financial statements.
(+) 144A security. Certain conditions for public sale
may exist.
(1) Amount represents shares held by the Portfolio.
N/R Not rated by either Moody's Investor Service, Inc.
or Standard & Poor's Corporation.
PIK Payment-In-Kind Security.
C$ Canadian Dollar.
MP Mexican Peso.
</TABLE>
CASH RESERVES
PORTFOLIO
STATEMENT OF NET ASSETS
COMMERCIAL PAPER (91.9%)
<TABLE>
<CAPTION>
- --------------------------------------------------------
FACE
AMOUNT VALUE
SEPTEMBER 30, 1995 (000) (000)+
- --------------------------------------------------------
<S> <C> <C>
FINANCE (40.2%)
American General Corp.
5.73%, 10/20/95 $1,000 $ 997
Aon Corp.
5.72%, 10/23/95 1,000 997
Beneficial Corp.
5.73%, 11/10/95 1,000 994
Barclays U.S. Funding
5.74%, 10/30/95 1,000 995
C.I.T. Group Holdings, Inc.
5.73%, 10/12/95 1,000 998
Chevron Oil Finance Co.
5.72%, 10/17/95 1,000 997
Commercial Credit Co.
5.73%, 10/10/95 1,000 999
General Electric Capital Corp.
5.72%, 10/2/95 1,000 1,000
Heller Financial, Inc.
5.72%, 10/5/95 1,000 999
Household Finance Corp.
5.73%, 10/11/95 1,000 998
Metlife Funding, Inc.
5.72%, 10/10/95 1,000 999
Motorola Credit Corp.
5.71%, 10/17/95 1,000 997
National Rural Utilities
Finance Corp.
5.72%, 10/12/95 1,000 998
Norwest Financial, Inc.
5.72%, 10/11/95 1,000 998
PHH Corp.
5.72%, 10/6/95 1,000 999
Prudential Funding Co.
5.74%, 10/13/95 1,000 998
Transamerica Corp.
5.74%, 10/3/95 1,000 1,000
Weyerhaeuser Mortgage Co.
5.74%, 10/5/95 1,000 999
- --------------------------------------------------------
GROUP TOTAL 17,962
- --------------------------------------------------------
INDUSTRIALS (22.4%)
Abbott Laboratories
5.70%, 10/3/95 1,000 1,000
Alabama Power Co.
5.73%, 10/13/95 1,000 998
Cargill, Inc.
5.80%, 10/20/95 1,000 997
E.I. du Pont de Nemours & Co.
5.71%, 10/6/95 1,000 999
H.J. Heinz Co.
5.73%, 10/19/95 1,000 997
Pitney Bowes, Inc.
5.75%, 10/12/95 1,000 998
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
37
<PAGE> 40
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CASH RESERVES
PORTFOLIO
FACE
AMOUNT VALUE
(CONT'D) (000) (000)+
- --------------------------------------------------------
<S> <C> <C>
Raytheon Co.
5.72%, 10/10/95 $1,000 $ 999
Shell Oil Co.
5.70%, 10/3/95 1,000 1,000
Southern California Edison Co.
5.71%, 10/18/95 1,000 997
Texaco, Inc.
5.72%, 10/6/95 1,000 999
- --------------------------------------------------------
GROUP TOTAL 9,984
- --------------------------------------------------------
MANUFACTURING AND RETAIL TRADE (18.1%)
Campbell Soup Co.
5.73%, 10/11/95 1,100 1,098
Kellogg Co.
5.70%, 11/3/95 1,000 995
Philip Morris, Inc.
5.71%, 10/20/95 1,000 997
R.R. Donnelley & Sons Co.
5.80%, 10/6/95 1,000 999
Sara Lee Corp.
5.75%, 10/16/95 1,000 998
United Parcel Service of America, Inc.
5.70%, 10/2/95 1,000 1,000
Wal-Mart Stores, Inc.
5.70%, 10/2/95 1,000 1,000
Xerox Corp.
5.72%, 10/4/95 1,000 1,000
- --------------------------------------------------------
GROUP TOTAL 8,087
- --------------------------------------------------------
TELECOMMUNICATIONS (11.2%)
AT&T Corp.
5.70%, 10/30/95 1,000 996
Bell Atlantic Corp.
5.72%, 10/6/95 1,000 999
BellSouth Telecommunications, Inc.
5.70%, 10/5/95 1,000 999
Southwestern Bell Telephone Co.
5.72%, 10/10/95 1,000 999
U.S. West Communications, Inc.
5.69%, 10/25/95 1,000 996
- --------------------------------------------------------
GROUP TOTAL 4,989
- --------------------------------------------------------
TOTAL COMMERCIAL PAPER (Cost $41,022) 41,022
- --------------------------------------------------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)+
- --------------------------------------------------------
<S> <C> <C>
VARIABLE RATE OBLIGATIONS (3.3%)
- --------------------------------------------------------
AGENCY (0.7%)
## Federal National
Mortgage Association
5.39%, 2/16/96 $ 325 $ 325
- --------------------------------------------------------
FINANCE (2.6%)
## Wells Fargo & Co.
5.81%, 8/16/96 500 500
## World Savings & Loan Association
5.88%, 3/15/96 650 650
- --------------------------------------------------------
GROUP TOTAL 1,150
- --------------------------------------------------------
TOTAL VARIABLE RATE OBLIGATIONS (Cost $1,475) 1,475
- --------------------------------------------------------
REPURCHASE AGREEMENT (5.9%)
Chase Manhattan Bank, N.A.
6.20%, dated 9/29/95, due
10/2/95, to be repurchased at
$2,640, collateralized by
$2,497 of various U.S.
Government and Agency
Obligations, due
10/3/95-5/15/03, valued at
$2,672(Cost $2,638) 2,638 2,638
- --------------------------------------------------------
TOTAL INVESTMENTS (101.1%) (Cost $45,135) 45,135
- --------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.1%)
Interest Receivable 6
Receivable for Fund Shares Sold 2
Payable for Fund Shares Redeemed (492)
Payable for Administrative Fees (2)
Payable for Investment Advisory Fees (12)
Other Liabilities (13)
-------
(511)
- --------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------
Applicable to 44,623,030 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $44,624
- --------------------------------------------------------
NET ASSET VALUE PER SHARE $ 1.00
- --------------------------------------------------------
+ See Note A1 to Financial Statements.
## Variable or floating rate securities-rate disclosed
is as of September 30, 1995.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
38
<PAGE> 41
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
FIXED INCOME
PORTFOLIO II
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (100.5%)
<TABLE>
<CAPTION>
- --------------------------------------------------------
++RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 1995 & POOR'S) (000) (000)+
- --------------------------------------------------------
<S> <C> <C> <C>
ADJUSTABLE RATE MORTGAGES (10.1%)
## Government National
Mortgage Association II:
Various Pools:
6.00%,
10/20/23-9/20/24 Agy $ 8,276 $ 8,329
6.50%,
1/20/22-1/20/25 Agy 6,923 7,061
7.00%,
4/20/22-5/20/23 Agy 2,371 2,411
- --------------------------------------------------------
GROUP TOTAL 17,801
- --------------------------------------------------------
AGENCY FIXED RATE MORTGAGES (34.2%)
Federal Home Loan
Mortgage Corporation:
Gold Pools:
10.00%, 1/1/21 Agy 1,390 1,512
October TBA
7.50%, 8/15/23 Agy 11,250 11,331
November TBA
7.50%,
11/15/25 Agy 6,300 6,336
Conventional Pools:
8.25%, 10/1/06 Agy 148 151
10.25%, 7/1/09 Agy 397 432
11.00%, 1/1/16 Agy 575 638
11.25%,
9/1/10-12/1/14 Agy 775 859
11.50%, 2/1/00 Agy 6 6
Federal National
Mortgage
Association:
Gold Pools:
10.75%, 8/1/13 Agy 108 118
11.25%,
7/1/13-8/1/13 Agy 303 338
Conventional Pools:
10.00%, 5/1/22 Agy 1,333 1,450
10.50%,
11/1/17 Agy 217 238
11.25%,
11/1/00 Agy 85 95
11.50%, 9/1/25 Agy 1,200 1,351
October TBA
7.50%,
8/15/23-10/15/24 Agy 15,050 15,144
November TBA
7.00%,
11/15/24 Agy 5,500 5,418
7.50%,
11/15/25 Agy 4,450 4,471
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Government National
Mortgage Association:
Various Pools:
10.50%,
12/15/00 Agy $ 26 $ 29
11.00%,
2/15/10-2/15/19 Agy 1,450 1,618
November TBA
7.50%, 8/15/24 Agy 8,900 8,972
- ---------------------------------------------------------
GROUP TOTAL 60,507
- ---------------------------------------------------------
ASSET BACKED CORPORATES (0.6%)
ALPS Series 94-1 A4
CMO
7.80%, 7/15/99 AA 800 822
#(+) Equitable Asset Trust
Series 93-A
5.00%, 10/15/08 AAA 207 206
- ---------------------------------------------------------
GROUP TOTAL 1,028
- ---------------------------------------------------------
ASSET BACKED MORTGAGES (0.7%)
Security Pacific Home
Equity Trust Series:
(b) 91-A A2
8.90%, 3/10/06 Aaa 151 152
91-A B
10.50%, 3/10/06 A+ 1,050 1,096
- ---------------------------------------------------------
GROUP TOTAL 1,248
- ---------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-
AGENCY COLLATERAL SERIES (0.9%)
Federal Home Loan
Mortgage Corporation
Series:
89-47 F PAC-1 (11)
10.00%, 6/15/20 Agy 400 432
92-1398 I Inv Fl
10.612%,
10/15/07 Agy 650 671
Federal National
Mortgage Association
92-33 S Inv Fl
12.90%, 3/25/22 Agy 185 199
Goldman Sachs Trust IV
Series:
89-D 2 Inv Fl
17.716%, 5/1/19 AAA 134 163
89-E 2 Inv Fl
12.573%,
10/27/19 AAA 50 60
- ---------------------------------------------------------
GROUP TOTAL 1,525
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
39
<PAGE> 42
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIXED INCOME
PORTFOLIO II
++RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS-
NON-AGENCY COLLATERAL SERIES (17.7%)
American Southwest
Financial Securities
Corp. Series:
(c) 93-2 A1
7.30%, 1/18/09 AA $ 1,222 $ 1,233
(b) 95-C1 A1B
7.40%,
11/17/04 Aaa 1,250 1,283
Asset Securitization Corp.
Series 95-D1 A1
7.59%, 8/11/27 AAA 1,299 1,349
(c) sec. BBS 4 B2
8.528%,
5/28/22
(acquired
8/5/92, cost
$305) A 305 308
(b) Chase Mortgage Finance
Corp. Series:
93-N A8
6.75%,
11/25/24 Aaa 1,287 1,169
94-H A7
7.25%, 6/25/25 Aaa 1,600 1,516
Citicorp Mortgage
Securities, Inc. Series:
90-11 A5
9.50%, 7/25/20 AAA 208 212
(c)(+) 95-2 B1
7.50%, 4/25/25 AA 792 780
(+) Equitable Life Assurance
Society of the U.S.
6.633%,
7/23/03 AA 1,150 1,139
First Boston Mortgage
Securities Corp. Series:
sec. 92-4 B1
8.125%,
10/25/22
(acquired
1/25/93, cost
$334) A 348 340
(c) sec. 93-5 B1
7.30%, 7/25/23
(acquired
7/19/95, cost
$1,384) A 1,456 1,406
(+) FSA Finance,
Inc. Series
95-1A
7.42%, 6/1/07 AA 696 713
GE Capital Mortgage
Services, Inc.
Series 94-24 A4
7.00%, 7/25/24 AAA 582 541
J.P. Morgan Commercial
Mortgage Finance Corp.
Series 95-C1 A1
7.268%,
7/25/10 AAA 862 877
Mid-States Trust
Series 88-2 A4
9.625%, 4/1/03 AAA 1,050 1,153
Mortgage Capital
Funding, Inc.
Series: 95-MC1 A1B
7.60%, 5/25/27 AAA 1,300 1,348
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
(c) Nomura Asset Securities
Corp. Series:
94-MD1 A2
7.676%, 3/15/18 AA $ 750 $ 774
PNC Mortgage Securities
Corp. Series: 94-3 A8
7.50%, 8/15/24 AAA 2,117 2,068
Prudential Home
Mortgage Securities
Co., Inc.
Series:
(b) sec. 92-33 B1
7.50%, 11/15/22
(acquired
9/14/92, cost
$533) A2 561 542
(+) 92A-B2 4
7.90%, 4/28/22 AA 1,000 842
(b) sec. 93-17 B1
6.50%, 3/1/23
(acquired
4/14/93, cost
$585) Aa2 609 584
(c)(+) 94-A 3B3
6.803%, 4/28/24 A 1,450 1,316
Residential
Funding
Mortgage
Securities Co.,
Inc.
Series:
92-S6 M
7.50%, 2/25/22 AA 1,377 1,373
93-MZ1 A2
7.47%, 3/2/23 AA 1,000 980
93-MZ2 A2
7.47%, 5/30/23 AA 650 643
(c) 93-MZ3 A2
6.97%, 8/28/23 AA 700 658
sec. 93-S27 M2
7.50%, 6/25/23
(acquired
7/21/95, cost
$783) A 814 794
sec. 94-S1 A19
6.75%, 1/25/24
(acquired
5/22/95, cost
$716) AAA 785 746
95-S11
7.50%, 9/25/25 AAA 1,149 1,153
Rural Housing
Trust Series:
87-1 M
3.33%, 4/1/26 A- 1,818 1,657
87-2 C
6.83%, 4/1/26 AAA 647 641
## Ryland
Mortgage
Securities Corp.
Series 92-A 1A
8.302%, 3/29/30 A- 632 634
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
40
<PAGE> 43
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
(b) Salomon Brothers
Mortgage Securities
Series 93-3 B1
7.20%, 8/25/23 Aa2 $ 636 $ 615
- --------------------------------------------------------
GROUP TOTAL 31,387
- --------------------------------------------------------
FINANCE (10.7%)
## Bank of
Hawaii, Honolulu
5.988%,
11/25/96 A 750 750
## Caterpillar Financial
Services
5.888%,
6/20/97 A 1,350 1,347
Countrywide Funding
6.55%, 4/14/00 A 1,000 996
Fireman's Fund
Mortgage Corp.
8.875%,
10/15/01 BBB+ 950 1,027
## First Chicago Corp.
5.933%,
10/3/97 A 1,525 1,522
(+) First Hawaiian Bank,
Series A
6.93%, 12/1/03 A 600 588
(b) FNBC Series 93-A
8.08%, 1/5/18 A1 1,100 1,149
## Household Finance Corp.
6.045%,
8/11/97 A 1,350 1,349
John Hancock
7.375%,
2/15/24 AA 1,350 1,253
(+) Mass Mutual Life
7.625%,
11/15/23 AA- 750 729
(+) Metropolitan Life
Insurance
7.45%, 11/1/23 AA 1,450 1,338
(+) Nationwide Mutual
Life Insurance
7.50%, 2/15/24 AA- 1,250 1,158
(+) New York Life Insurance
7.50%,
12/15/23 AA 1,325 1,270
(+) Principal Mutual Life
Insurance Co.
7.875%, 3/1/24 AA- 825 794
(+) Prudential Insurance Co.
8.30%, 7/1/25 A 1,275 1,276
## Wells Fargo & Co.
5.813%,
8/16/96 A- 1,650 1,650
## World Savings & Loan
Association
5.875%,
3/15/96 A+ 750 750
- --------------------------------------------------------
GROUP TOTAL 18,946
- --------------------------------------------------------
FOREIGN GOVERNMENTS (12.8%)
Government of Canada
6.50%, 6/1/04 AA+ C$ 825 563
8.50%, 4/1/02 AA+ 5,875 4,585
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Government of France
O.A.T.
8.50%, 11/25/02 AAA FF 18,800 $ 4,084
8.50%, 10/25/19 AAA 11,150 2,372
8.50%, 4/25/23 AAA 6,450 1,369
9.50%, 1/25/01 AAA 6,750 1,521
Kingdom of Denmark
9.00%, 11/15/00 AAA DK 12,400 2,399
Treuhandanstalt
7.125%, 1/29/03 AAA DM 4,620 3,354
7.75%, 10/1/02 AAA 2,130 1,602
United Kingdom
9.125%, 2/21/01 AAA ECU 525 732
- ---------------------------------------------------------
GROUP TOTAL 22,581
- ---------------------------------------------------------
/ / HEDGED MORTGAGES (0.4%)
Federal Home Loan
Mortgage Corporation
Series 1699-SD Inv
Fl IO REMIC
2.063%, 3/15/24 Agy $10,993 659
- ---------------------------------------------------------
INDUSTRIALS (0.9%)
(b) Columbia/HCA
Healthcare
7.69%, 6/15/25 A3 1,075 1,099
(b) Rhone-Poulenc
Rorer, Inc.
8.62%, 1/5/21 A3 450 491
- ---------------------------------------------------------
GROUP TOTAL 1,590
- ---------------------------------------------------------
RATED NON-AGENCY FIXED RATE MORTGAGES (3.6%)
Bank of America
Series A
8.375%, 5/1/07 AA 182 184
Beverly Finance
8.36%, 7/15/04 AA- 675 712
California Federal
Savings & Loan
Series 86-1A
8.80%, 1/1/14 AA 122 122
(+) Creekwood Capital
Corp. Series 95-1 A
8.47%, 3/16/15 AA 746 784
(+) CVM Finance Corp.
7.19%, 4/1/04 AA 592 595
(b)(+) DeBartolo Capital Corp.
Series A 2
7.48%, 5/1/04 Aaa 400 415
First Federal Savings
& Loan Association
Series 92-C
8.75%, 6/1/06 AA 74 75
(+) Lakewood Mall
Finance Co.
Series 95-C1 A
7.00%, 8/13/10 AA 900 895
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
41
<PAGE> 44
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIXED INCOME
PORTFOLIO II
++RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Marine Midland Bank
Series 91-1A7
8.50%, 4/25/22 AA $ 6 $ 7
Mid-State Trust
Series 95-4 A
8.33%, 4/1/30 AAA 678 720
Resolution Trust Corp.
Series 92-5C
8.628%,
1/25/26 AA 706 722
Ryland Acceptance
Corp. IV Series 79-A
6.65%, 7/1/11 AA 1,031 990
Security Pacific Home
Equity Trust
Series 87-A1
8.00%, 1/1/02 AA 134 134
- --------------------------------------------------------
GROUP TOTAL 6,355
- --------------------------------------------------------
TELEPHONES (0.5%)
AT&T Corp.
8.35%, 1/15/25 AA 900 980
- --------------------------------------------------------
TRANSPORTATION (0.6%)
(+) Jet Equipment
Trust
Series A11
10.00%,
6/15/12 A 950 1,095
- --------------------------------------------------------
U.S. TREASURY SECURITIES (6.6%)
U.S. Treasury Bond
7.875%,
2/15/21 Tsy 7,675 8,801
(a) 8.75%,
8/15/20 Tsy 1,325 1,657
U.S. Treasury Note
7.25%, 8/15/04 Tsy 1,300 1,390
- --------------------------------------------------------
GROUP TOTAL 11,848
- --------------------------------------------------------
YANKEE (0.2%)
Hydro-Quebec
9.40%, 2/1/21 A+ 225 269
- --------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost
$174,723) 177,819
- --------------------------------------------------------
CASH EQUIVALENTS (28.7%)
- --------------------------------------------------------
Short-term Investments
Held as Collateral for
Loaned Securities (0.8%) 1,417 1,417
- --------------------------------------------------------
COMMERCIAL PAPER (22.7%)
Alabama Power
5.71%, 10/27/95 1,800 1,792
American General Finance
Corp.
5.71%, 11/2/95 1,800 1,791
Barclays U.S. Funding
5.74%, 10/30/95 1,800 1,792
Bell Atlantic Financial
5.72%, 10/11/95 1,800 1,797
CIT Group Holdings, Inc.
5.74%, 10/10/95 1,700 1,697
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)+
- ---------------------------------------------------------
<S> <C> <C>
Cargill, Inc.
5.72%, 10/6/95 $ 1,800 $ 1,798
E.I. du Pont de Nemours & Co.
5.69%, 10/24/95 1,700 1,694
Ford Motor Credit Corp.
5.74%, 10/2/95 1,700 1,700
General Electric Capital Corp.
5.74%, 10/12/95 1,700 1,697
Hershey Foods
5.70%, 10/27/95 1,800 1,793
Household Finance Corp.
5.73%, 10/16/95 1,700 1,696
Motorola Credit
5.70%, 10/17/95 1,800 1,795
National Rural Utilities
5.80%, 10/11/95 1,800 1,797
Philip Morris Cos., Inc.
5.73%, 10/6/95 1,700 1,699
Prudential Funding Corp.
5.74%, 11/7/95 1,800 1,789
Raytheon Co.
5.72%, 10/4/95 1,800 1,799
Sara Lee Corp.
5.75%, 10/2/95 1,623 1,623
Southwestern Bell
5.75%, 10/16/95 1,800 1,796
Transamerica Corp.
5.74%, 10/5/95 1,700 1,699
U.S. West, Inc.
5.70%, 10/27/95 1,700 1,693
Wal-Mart Stores, Inc.
5.72%, 10/4/95 1,800 1,799
Weyerhaeuser Mortgage Co.
5.71%, 10/25/95 1,700 1,694
Xerox Corp.
5.70%, 11/6/95 1,800 1,790
- ---------------------------------------------------------
GROUP TOTAL 40,220
- ---------------------------------------------------------
REPURCHASE AGREEMENT (5.2%)
Chase Manhattan Bank, N.A.
6.20%, dated 9/29/95, due
10/2/95, to be repurchased at
$9,171, collateralized by
$9,206 of various U.S.
Government and Agency
Obligations, due
10/3/95-7/7/97, valued at
$9,258 (Cost $9,166) 9,166 9,166
- ---------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $50,803) 50,803
- ---------------------------------------------------------
TOTAL INVESTMENTS (129.2%) (Cost
$225,526) 228,622
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-29.2%)
Interest Receivable 2,272
Receivable for Investments Sold 68
Other Assets 1
Payable for Fund Shares Redeemed (30)
Payable for Investments Purchased (51,653)
Payable for Administrative Fees (13)
Payable for Investment Advisory Fees (165)
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
42
<PAGE> 45
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
(000)+
- ---------------------------------------------------------
<S> <C>
Payable for Daily Variation on Futures
Contracts $ (115)
Written Interest Rate Floors at Value (571)
Unrealized Loss on Forward Foreign
Currency Contracts (12)
Collateral on Securities Loaned, at
Value (1,417)
Other Liabilities (42)
-------
(51,677)
- --------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------
Applicable to 15,612,663 outstanding
shares of beneficial interest
(unlimited authorization, no par
value) $176,945
- --------------------------------------------------------
NET ASSET VALUE PER SHARE $ 11.33
- --------------------------------------------------------
sec. Restricted Security-Total cost of restricted
securities at September 30, 1995 amounted to
$4,640. Total market value of restricted
securities owned at September 30, 1995 was
$4,720 or 2.7% of net assets.
+ See Note A1 to Financial Statements.
++ Ratings are unaudited.
(a) A portion of these securities was pledged to
cover margin requirements for futures
contracts.
(b) Moody's Investor Service, Inc. rating. Security
is not rated by Standard & Poor's Corporation.
(c) Fitch rating. Security is not rated by Standard
& Poor's Corporation or Moody's Investor
Service, Inc.
/ / Securities purchased with proceeds from written
floors. See Note A6.
# Step Bond-Coupon rate is zero or below market
for an initial period and then increases to a
higher coupon rate thereafter.
## Variable or floating rate securities-rate
disclosed is as of September 30, 1995.
(+) 144A security. Certain conditions for public
sale may exist.
Inv Fl Inverse Floating Rate-Interest rate fluctuates
with an inverse relationship to an associated
interest rate. Indicated rate is the effective
rate at September 30, 1995.
IO Interest Only.
PAC Planned Amortization Class.
REMIC Real Estate Mortgage Investment Conduit.
TBA Security is subject to delayed delivery. See
Note A8 to Financial Statements.
C$ Canadian Dollar.
DK Danish Krone.
DM German Mark.
ECU European Currency Unit.
FF French Franc.
</TABLE>
MORTGAGE-BACKED SECURITIES PORTFOLIO
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (105.3%)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
++RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 1995 & POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
ADJUSTABLE RATE MORTGAGES (12.5%)
## Government National
Mortgage Association II:
Various Pools:
6.00%, 5/20/24 Agy $ 1,534 $ 1,537
6.50%,
1/20/23-2/20/24 Agy 4,601 4,670
- ---------------------------------------------------------
GROUP TOTAL 6,207
- ---------------------------------------------------------
AGENCY FIXED RATE MORTGAGES (46.3%)
Federal Home Loan
Mortgage Corporation:
Gold Pools:
October TBA
7.00%, 2/15/23 Agy 6,500 6,417
November TBA
7.50%, 11/15/25 Agy 1,250 1,257
Federal National Mortgage
Association:
Conventional Pools:
11.50%,
2/1/15-12/1/15 Agy 226 255
12.50%, 9/1/13 Agy 94 107
October TBA
7.50%, 8/15/23 Agy 4,200 4,226
7.50%, 8/15/24 Agy 1,350 1,359
November TBA
7.50%, 11/15/25 Agy 1,250 1,256
Government National Mortgage
Association:
Various Pools:
12.00%,
12/15/12-11/15/15 Agy 1,852 2,103
November TBA
7.50%, 8/15/24 Agy 6,000 6,049
- ---------------------------------------------------------
GROUP TOTAL 23,029
- ---------------------------------------------------------
ASSET BACKED MORTGAGES (1.3%)
Security Pacific Home
Equity
Series 91-A B
10.50%, 3/10/06 A+ 645 673
- ---------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-
AGENCY COLLATERAL SERIES (5.4%)
(b) Collateralized Mortgage
Obligation Trust Series:
86-14 A2 Inv Fl
12.00%, 4/1/09 Aaa 11 10
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
43
<PAGE> 46
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MORTGAGE-BACKED
SECURITIES PORTFOLIO
++RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Federal Home Loan
Mortgage Corporation
Series:
90-1007 F Inv Fl
20.708%, 1/15/20 Agy $ 15 $ 17
90-129 H PAC
8.85%, 3/15/21 Agy 265 281
92-1398 I Inv Fl
10.612%, 10/15/07 Agy 330 341
Federal National Mortgage
Association Series:
90-80 S Inv Fl
17.232%, 7/25/20 Agy 108 126
90-85 D
9.50%, 9/25/19 Agy 50 51
90-118 S Inv Fl
27.392%, 9/25/20 Agy 90 122
91-G 20 S Inv Fl
19.238%, 6/25/21 Agy 100 123
92-33 S Inv Fl
12.90%, 3/25/22 Agy 265 285
93-5 M
7.00%, 1/25/08 Agy 366 364
Goldman Sachs Trust IV
Series
89-D 2 Inv Fl
17.716%, 5/1/19 AAA 166 202
Kidder Peabody Mortgage
Assets Trust Series:
87-B Principal Only,
4/22/18 N/R 455 352
87-B IO
9.50%, 4/22/18 N/R 455 117
Morgan Stanley Mortgage Trust
Series
88-28 8 PAC
9.40%, 10/1/18 AAA 244 266
Texas Housing Agency
Series
87-A E Inv Fl
11.513%, 8/1/16 Agy 44 46
- ---------------------------------------------------------
GROUP TOTAL 2,703
- ---------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-
NON-AGENCY COLLATERAL SERIES (28.2%)
American Housing Trust Series
V 1G
9.125%, 4/25/21 AAA 560 581
(c) sec. BBS 4 B2
8.528%, 5/28/22
(acquired
8/5/92-10/27/93,
cost $190) A 187 190
Citicorp Mortgage
Securities, Inc.
Series
93-9 A1
7.00%, 3/25/20 AAA 489 489
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
CMC Securities Corp. IV
Series
94-G A4
7.00%, 9/25/24 AAA $ 365 $ 339
Countrywide Funding Corp.
Series
94-12 A10
7.00%, 5/25/24 AAA 1,645 1,521
DLJ Mortgage Acceptance Corp.
Series
93-MF7 A1
7.40%, 6/18/03 AAA 368 376
(+) Equitable Life Assurance
Society of the U.S.
6.633%, 7/23/03 AA 375 371
sec. First Boston Mortgage
Securities Corp. Series
92-4 B1
8.125%, 10/25/22
(acquired
1/25/93-10/27/93,
cost $155) A 153 149
GE Capital Mortgage
Services, Inc. Series
(+) 94-6 M
6.50%, 4/25/24 AA 516 476
94-23 A16
7.50%, 8/25/24 AAA 550 521
94-24 A4
7.00%, 7/25/24 AAA 502 466
Mid-State Trust Series:
88-2 A4
9.625%, 4/1/03 AAA 855 939
##(c) Nomura Asset Securities
Corp. Series:
94-MD1 A 1B
7.526%, 3/15/18 A 265 274
94-MD1 A2
7.676%, 3/15/18 AA 215 222
Old Stone Credit Corporation
Series
92-3 B1
6.35%, 9/25/07 AAA 96 94
Prudential Home
Mortgage Securities Co.,
Inc. Series:
90-8 A5 PAC-1 (11)
9.50%, 9/25/20 AAA 109 109
(b) sec. 92-33 B1
7.50%, 11/15/22
(acquired
11/30/92, cost
$335) A2 390 377
(c)(+) 94-A 3B3
6.803%, 4/28/24 A 1,320 1,198
Residential Funding
Mortgage Securities Co.,
Inc. Series:
92-S15 A5
8.00%, 5/25/07 AAA 80 81
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
44
<PAGE> 47
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
93-MZ1 A2
7.47%, 3/2/23 AA $ 500 $ 490
sec. 93-S43 A10
6.50%, 11/25/23
(acquired 6/12/95,
cost $545) AAA 589 547
94-S1 A19
6.75%, 1/25/24 AAA 452 429
Rural Housing Trust Series:
87-1 M
3.33%, 4/1/26 A- 1,151 1,049
87-2 C
6.83%, 4/1/26 AAA 769 761
(b) Ryland Mortgage
Securities Corp. Series
93-4 A9
7.50%, 8/25/24 Aaa 1,285 1,243
Saxon Mortgage Securities
Corp. Series
93-8A A6
7.375%, 9/25/23 AAA 752 712
- ---------------------------------------------------------
GROUP TOTAL 14,004
- ---------------------------------------------------------
/ / HEDGED MORTGAGES (2.7%)
Federal Home Loan
Mortgage Corporation
Series:
1415-S Inv Fl IO CMO
17.563%, 11/15/07 Agy 287 112
1476-S Inv Fl IO
REMIC PAC
4.106%, 2/15/08 Agy 2,606 229
1485-S Inv Fl IO
REMIC
3.663%, 3/15/08 Agy 3,098 232
1600-SA Inv Fl IO
REMIC
2.063%, 10/15/08 Agy 4,000 209
Federal National Mortgage
Association Series:
92-186 S Inv Fl IO
CMO
3.106%, 10/25/07 Agy 4,517 305
G 94-2 S Inv Fl IO
REMIC
2.225%, 1/25/24 Agy 4,868 257
- ---------------------------------------------------------
GROUP TOTAL 1,344
- ---------------------------------------------------------
RATED NON-AGENCY FIXED RATE MORTGAGES (8.8%)
Bank of America Series
79-3
9.50%, 11/1/08 AA 100 102
Beverly Finance
8.36%, 7/15/04 AA- 410 432
(b)(+) DeBartolo Capital Corp.
Series A 2
7.48%, 5/1/04 Aaa 495 514
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
(+) Lakeside Finance Corp.
6.47%, 12/15/00 AA $ 460 $ 451
Marine Midland Bank NA,
Series
91-1 A7
8.50%, 4/25/22 AA 3 3
Mid-State Trust Series
95-4 A
8.33%, 4/1/30 AAA 516 548
Oakdale Mall
7.95%, 5/01/01 AAA 525 540
Resolution Trust Corp. Series
92-5C
8.628%, 1/25/26 AA 684 700
Ryland Acceptance Corp. IV
Series:
79-A
6.65%, 7/1/11 AA 133 128
Sawgrass Financial
93-A1
6.45%, 1/20/06 AAA 495 490
(+) Stratford Finance Corp.
6.776%, 2/1/04 AA 495 477
- ---------------------------------------------------------
GROUP TOTAL 4,385
- ---------------------------------------------------------
STRIPPED MORTGAGE BACKED SECURITIES-
AGENCY COLLATERAL SERIES (0.1%)
First Boston Mortgage
Corp. Series
87-B2 IO
8.985%, 4/25/17 AAA 328 76
- ---------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost $51,726) 52,421
- ---------------------------------------------------------
CASH EQUIVALENTS (40.4%)
- ---------------------------------------------------------
U.S. TREASURY SECURITIES (1.5%)
(a) U.S. Treasury Bill
Zero Coupon, 2/1/96 Tsy 750 736
- ---------------------------------------------------------
COMMERCIAL PAPER (34.1%)
Alabama Power Co.
5.71%, 10/27/95 1,000 996
American General Finance
Corp.
5.71%, 11/2/95 1,000 995
Barclays U.S. Funding
5.74%, 10/30/95 1,000 995
Cargill, Inc.
5.72%, 10/6/95 1,000 999
E.I. du Pont de Nemours & Co.
5.69%, 10/24/95 1,000 996
Ford Motor Credit
Corp.
5.74%, 10/26/95 1,000 996
Hershey Foods
5.70%, 10/27/95 1,000 996
Kellogg Co.
5.70%, 10/31/95 1,000 995
McDonald's Corp.
5.72%, 10/11/95 1,000 998
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
45
<PAGE> 48
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MORTGAGE-BACKED
SECURITIES PORTFOLIO
FACE
AMOUNT VALUE
(000) (000)+
- ---------------------------------------------------------
<S> <C> <C>
National Rural
Utilities Corp.
5.71%, 11/9/95 $ 1,000 $ 994
Norwest Financial,
Inc.
5.75%, 10/3/95 1,000 1,000
Prudential Funding
Corp.
5.74%, 11/7/95 1,000 994
Raytheon Co.
5.72%, 10/4/95 1,000 1,000
Southwestern Bell Telephone
Co.
5.75%, 10/16/95 1,000 998
U.S. West Communications,
Inc.
5.70%, 10/27/95 1,000 996
Weyerhaeuser Mortgage Co.
5.75%, 10/4/95 1,000 1,000
Xerox Corp.
5.73%, 10/12/95 1,000 998
- ---------------------------------------------------------
GROUP TOTAL 16,946
- ---------------------------------------------------------
REPURCHASE AGREEMENT (4.8%)
Chase Manhattan Bank, N.A.
6.20%, dated 9/29/95, due
10/2/95, to be repurchased
at $2,393, collateralized by
$2,349 of various U.S.
Government and Agency
Obligations, due
10/3/95-1/31/00, valued at
$2,429 (Cost $2,392) 2,392 2,392
- ---------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $20,074) 20,074
- ---------------------------------------------------------
TOTAL INVESTMENTS (145.7%) (Cost $71,800) 72,495
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-45.7%)
Interest Receivable 281
Receivable for Investments Sold 1,338
Receivable for Daily Variation Margin
on Futures Contracts 10
Written Interest Rate Floors at Value (2,403)
Payable for Investments Purchased (21,835)
Payable for Administrative Fees (4)
Payable for Investment Advisory Fees (61)
Other Liabilities (55)
-------
(22,729)
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 4,742,149 outstanding
shares of beneficial interest
(unlimited authorization, no par value) $ 49,766
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 10.49
- ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------------
sec. Restricted Security-Total cost of restricted
securities at September 30, 1995 amounted to
$1,225. Total market value of restricted
securities owned at September 30, 1995 was
$1,263 or 2.5% of net assets.
+ See Note A1 to Financial Statements.
++ Ratings are unaudited.
(a) A portion of these securities was pledged to
cover margin requirements for futures
contracts.
(b) Moody's Investor Service, Inc. rating. Security
is not rated by Standard & Poor's Corporation.
(c) Fitch rating. Security is not rated by Standard
& Poor's Corporation or Moody's Investor
Service, Inc.
## Variable or Floating rate security-rate
disclosed is as of September 30, 1995.
/ / Securities purchased with proceeds from written
floors. See Note A6 to Financial Statements.
(+) 144A Security. Certain conditions for public
sale may exist.
Inv Fl Inverse Floating Rate-Interest rate fluctuates
with an inverse relationship to an associated
interest rate. Indicated rate is the effective
rate at September 30, 1995.
IO Interest Only.
N/R Not rated by either Moody's Investor Service,
Inc. or Standard & Poor's Corporation.
PAC Planned Amortization Class.
REMIC Real Estate Mortgage Investment Conduit.
TBA Security is subject to delayed delivery. See
Note A8 to Financial Statements.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
46
<PAGE> 49
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
LIMITED DURATION
PORTFOLIO
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (89.5%)
<TABLE>
<CAPTION>
---------------------------------------------------------
++RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 1995 & POOR'S) (000) (000)+
---------------------------------------------------------
<S> <C> <C> <C>
ADJUSTABLE RATE MORTGAGES (9.3%)
## Government National
Mortgage Association II:
Various Pools:
6.00%,
10/20/23-2/20/24 Agy $ 2,615 $ 2,634
6.50%,
11/20/23-10/20/24 Agy 6,551 6,681
- ---------------------------------------------------------
GROUP TOTAL 9,315
- ---------------------------------------------------------
AGENCY FIXED RATE MORTGAGES (6.5%)
Federal Home Loan Mortgage
Corporation:
Gold Pools:
10.50%, 11/1/19 Agy 429 470
11.50%, 8/1/10 Agy 264 297
12.00%,
6/1/15-9/1/15 Agy 886 1,003
Conventional Pools:
11.00%, 5/1/20 Agy 286 317
11.50%,
4/1/11-1/1/19 Agy 1,483 1,660
Federal National Mortgage
Association:
Conventional Pools:
10.00%, 9/1/16 Agy 765 832
10.50%, 4/1/15 Agy 332 364
Government National Mortgage
Association:
Various Pools:
11.00%,
1/15/10-12/15/17 Agy 969 1,082
11.50%,
2/15/13-9/15/14 Agy 417 468
12.00%, 8/15/13 Agy 83 94
- ---------------------------------------------------------
GROUP TOTAL 6,587
- ---------------------------------------------------------
ASSET BACKED CORPORATES (8.3%)
ALPS Series 94-1 A2 CMO
7.15%, 11/15/97 AA 483 489
Case Equipment Loan Trust
Series
95-A
7.65%, 3/15/02 A 350 358
95-A A
7.30%, 3/15/02 AAA 409 415
(+) Cityscape Home Equity
Loan Series 95-2 A1
7.29%, 2/25/09 AAA 630 630
## Discover Card Master
Trust I Series 93-1 A
6.145%, 10/16/01 AAA 400 401
#(+) Equitable Asset Trust
Series 93-A
5.00%, 10/15/08 AAA 245 244
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
General Motors Acceptance
Corp. Series:
92-E A
4.75%, 8/15/97 AAA $ 272 $ 270
93-A A Grantor Trust
4.15%, 3/15/98 AAA 59 58
Green Tree Financial Series:
94-5 A1
6.60%, 8/15/98 AA 354 355
94-8 A1
7.75%, 4/15/25 AAA 662 668
IBM Credit Receivables
Lease Asset Master Trust
Series 93-1 A
4.55%, 11/15/00 AAA 343 338
Navistar Financial Corp.
Series:
93-A A2
4.475%, 10/15/98 AAA 474 471
94-B A
6.40%, 1/15/00 AAA 401 402
Olympic Automobile
Receivables Trust Series:
94-A1
5.65%, 1/15/01 AAA 583 579
94-B B
6.95%, 6/15/01 AAA 569 573
Onyx Acceptance Trust
Series
94-1 A
6.90%, 1/17/00 AAA 412 416
Premier Auto Trust Series:
92-2 A
6.375%, 9/15/97 AAA 165 165
92-3 B
6.25%, 11/15/97 A 279 279
94-3 B
6.80%, 12/2/99 AA 399 401
Western Financial Auto
Grantor Trust Series:
93-3 A1
4.25%, 12/1/98 AAA 239 235
94-1 A1
5.10%, 6/1/99 AAA 336 331
Western Financial Series:
93-A1
4.45%, 7/1/98 AAA 133 131
93-A2
4.70%, 10/1/98 AAA 105 104
- ---------------------------------------------------------
GROUP TOTAL 8,313
- ---------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-NON-AGENCY
COLLATERAL SERIES (2.4%)
Citicorp Mortgage
Securities, Inc. REMIC
Series:
93-9 A1
7.00%, 3/25/20 AAA 275 275
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
47
<PAGE> 50
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIMITED DURATION
PORTFOLIO
++RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)+
---------------------------------------------------------
<S> <C> <C> <C>
GE Capital Mortgage
Services, Inc. Series
93-14 A2
5.75%, 4/25/11 AAA $ 900 $ 887
Old Stone Credit
Corporation
Series 92-3 B1
6.35%, 9/25/07 AAA 200 195
Residential Funding
Mortgage Securities Co.,
Inc. Series
93-MZ1 A1
7.47%, 3/2/23 AA 270 270
Security Pacific Home
Equity Loan Trust
Series 91-1 B
8.85%, 5/15/98 AAA 750 777
- ---------------------------------------------------------
GROUP TOTAL 2,404
- ---------------------------------------------------------
FEDERAL AGENCY (2.2%)
## Federal National Mortgage
Association
6.02%, 2/16/96 AAA 675 675
##(b) Student Loan Marketing
Association
5.64%, 10/30/97 Aaa 1,500 1,500
- ---------------------------------------------------------
GROUP TOTAL 2,175
- ---------------------------------------------------------
FINANCE (19.2%)
Allstate Corp.
5.875%, 6/15/98 A 1,125 1,112
## Bankers Trust
New York Corp.
5.48%, 10/30/95 A+ 1,500 1,500
Barclays American Corp.
7.875%, 8/15/98 AA 450 468
## Caterpillar Financial
Services
5.888%, 6/20/97 A 600 599
##(b) Corestates Capital
5.46%, 10/16/96 A1 250 250
Countrywide Funding
7.32%, 8/15/00 A 650 668
## Dean Witter Discover
& Co.
6.075%, 11/15/96 A 700 700
(+) Farmers Insurance
8.50%, 8/1/04 BBB- 700 709
## FNBC
5.49%, 5/10/96 A+ 1,600 1,582
## General Electric
Capital Corp.
5.44%, 6/3/96 AAA 500 499
## General Motors Acceptance
Corp.
6.00%, 12/30/98 BBB+ 600 592
7.125%, 7/1/97 BBB+ 100 101
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Heller Financial, Inc.
7.875%, 11/1/99 A $ 525 $ 550
8.85%, 4/15/96 A 225 228
## Household Finance Corp.
Series 89-2 A
6.04%, 12/20/04 AAA 25 25
Household International
6.00%, 3/15/99 A 400 395
International Lease Finance
5.92%, 1/15/98 A+ 550 546
6.25%, 10/15/97 A+ 700 703
Lehman Bros. Holdings, Inc.
8.375%, 4/1/97 A 800 821
## Marshall & Ilsley Bank
5.898%, 5/26/97 A+ 725 725
##(b) Mercantile Bank
6.066%, 11/18/96 A1 725 726
(+) Metropolitan Life
Insurance Co.
6.30%, 11/1/03 AA 675 642
## NationsBank Texas
5.875%, 6/18/97 A+ 700 700
(+) Nationwide Mutual
Insurance Co.
6.50%, 2/15/04 AA- 675 650
(+) New York Life
6.40%, 12/15/03 AA 675 652
#(+) Prudential Insurance Co.
6.875%, 4/15/03 A2 400 388
## Signet Master Trust 93-2A
6.375%, 2/15/99 AAA 500 500
##(+) Superior Wholesale
Inventory Financing Trust
Series 94-A
6.325%, 1/15/99 A 650 650
## Toyota Motor Credit
5.46%, 6/3/96 AAA 500 499
## Wells Fargo & Co.
5.813%, 8/16/96 A- 700 700
## World Savings & Loan
Association
5.875%, 3/15/96 A+ 350 350
- ---------------------------------------------------------
GROUP TOTAL 19,230
- ---------------------------------------------------------
INDUSTRIALS (3.2%)
(b) Columbia/HCA Healthcare
6.87%, 9/15/03 A3 490 492
Ford Motor Co.
Series 93-A4
5.30%, 7/1/97 A+ 750 739
News America
Holdings, Inc.
8.625%, 2/1/03 BBB 500 545
RJR Nabisco, Inc.
8.625%, 12/1/02 BBB- 250 256
Tele-Communications Inc.
8.25%, 1/15/03 BBB- 500 525
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
48
<PAGE> 51
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Time Warner, Inc.
9.625%, 5/1/02 BBB- $ 550 $ 622
- ---------------------------------------------------------
GROUP TOTAL 3,179
- ---------------------------------------------------------
RATED NON-AGENCY FIXED RATE MORTGAGES (1.0%)
(b) Town & Country
Funding Corp.
5.85%, 8/15/98 Aa2 1,000 980
- ---------------------------------------------------------
U.S. TREASURY SECURITIES (37.4%)
U.S. Treasury Notes
4.375%, 11/15/96 Tsy 8,310 8,183
5.125%, 6/30/98 Tsy 4,500 4,412
5.625%, 1/31/98 Tsy 6,225 6,189
7.625%, 4/30/96 Tsy 2,200 2,224
7.875%, 7/31/96 Tsy 7,650 7,778
8.75%, 10/15/97 Tsy 8,250 8,698
- ---------------------------------------------------------
GROUP TOTAL 37,484
- ---------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost $89,355) 89,667
- ---------------------------------------------------------
CASH EQUIVALENT (10.3%)
- ---------------------------------------------------------
REPURCHASE AGREEMENT (10.3%)
Chase Manhattan Bank, N.A.
6.20%, dated 9/29/95, due
10/2/95, to be repurchased at
$10,281, collateralized by
$10,321 of various U.S.
Government and Agency
Obligations, due
10/3/95-7/7/97, valued at
$10,379 (Cost $10,275) 10,275 10,275
- ---------------------------------------------------------
TOTAL INVESTMENTS (99.8%) (Cost $99,630) 99,942
- ---------------------------------------------------------
<CAPTION>
VALUE
(000)+
---------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (0.2%)
Interest Receivable $ 1,399
Receivable for Fund Shares Sold 40
Payable for Investments Purchased (1,096)
Payable for Administrative Fees (7)
Payable for Investment Advisory Fees (67)
Other Liabilities (25)
-------
244
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 9,619,780 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $100,186
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 10.41
- ---------------------------------------------------------
+ See Note A1 to Financial Statements.
++ Ratings are unaudited.
(b) Moody's Investor Service, Inc. rating. Security
is not rated by Standard & Poor's Corporation.
# Step Bond-Coupon rate is zero or below market
for an initial period and then increases to a
higher coupon rate thereafter.
## Variable or floating rate securities-rate
disclosed is as of September 30, 1995.
(+) 144A security. Certain conditions for public
sale may exist.
CMO Collateralized Mortgage Obligation.
REMIC Real Estate Mortgage Investment Conduit.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
49
<PAGE> 52
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
SPECIAL PURPOSE FIXED INCOME PORTFOLIO
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (105.6%)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
++RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 1995 & POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
ADJUSTABLE RATE MORTGAGES (9.9%)
## Government National
Mortgage Association II:
Various Pools:
5.50%, 8/20/23 Agy $ 138 $ 137
6.00%,
10/20/23-6/20/25 Agy 17,456 17,599
6.50%,
1/20/22-10/20/24 Agy 20,481 20,816
- ---------------------------------------------------------
GROUP TOTAL 38,552
- ---------------------------------------------------------
AGENCY FIXED RATE MORTGAGES (23.5%)
Federal Home Loan Mortgage
Corporation:
Gold Pools:
10.50%,
11/1/15-4/1/21 Agy 1,268 1,390
November TBA
7.50%,
8/15/24-11/15/25 Agy 22,950 23,079
Conventional Pools:
10.50%,
8/1/15-10/1/20 Agy 694 760
11.00%,
12/1/10-9/1/20 Agy 3,893 4,314
11.75%, 12/1/17 Agy 191 214
Federal National Mortgage
Association:
Conventional Pools:
10.50%,
8/1/15-4/1/22 Agy 3,666 4,018
October TBA
7.50%, 8/15/23 Agy 8,500 8,553
November TBA
7.00%, 11/15/24 Agy 10,000 9,850
7.50%, 11/15/25 Agy 9,750 9,796
Government National Mortgage
Association:
Various Pools:
10.50%,
10/15/15-5/15/18 Agy 952 1,053
11.00%,
1/15/10-12/15/15 Agy 1,855 2,069
12.00%, 4/15/14 Agy 65 73
November TBA
7.50%, 8/15/24 Agy 26,500 26,715
- ---------------------------------------------------------
GROUP TOTAL 91,884
- ---------------------------------------------------------
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
ASSET BACKED CORPORATES (0.8%)
ALPS Series:
94-1 A4 CMO
7.80%, 7/15/99 AA $ 950 $ 977
94-1 C CMO
9.35%, 3/15/00 BBB 1,617 1,671
#(+) Equitable Asset
Trust Series 93-A
5.00%, 10/15/08 AAA 471 469
- ---------------------------------------------------------
GROUP TOTAL 3,117
- ---------------------------------------------------------
ASSET BACKED MORTGAGES (0.8%)
Security Pacific Home
Equity Trust Series:
(b) 1-A A2
8.90%, 3/10/06 Aaa 1,675 1,695
91-A B
10.50%, 3/10/06 A+ 1,298 1,354
- ---------------------------------------------------------
GROUP TOTAL 3,049
- ---------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-
AGENCY COLLATERAL SERIES (1.8%)
(b) Collateralized
Mortgage Obligation
Trust Series 86-14 A2
Inv Fl
12.00%, 4/1/09 Aaa 38 38
Federal Home Loan
Mortgage Corporation
Series:
88-22 C PAC 11
9.50%, 4/15/20 Agy 46 49
92-1398 I Inv Fl
10.612%, 10/15/07 Agy 2,205 2,276
Federal National Mortgage
Association Series:
90-80 S Inv Fl
17.232%, 7/25/20 Agy 145 170
92-33 S Inv Fl
12.90%, 3/25/22 Agy 610 656
Goldman Sachs Trust IV
Series:
89-D 2 Inv Fl
17.716%, 5/1/19 AAA 2,756 3,356
89-E 2 Inv Fl
12.573%, 10/27/19 AAA 385 463
Texas Housing Agency
Series 87-A E Inv Fl
11.513%, 8/1/16 Agy 30 31
- ---------------------------------------------------------
GROUP TOTAL 7,039
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
50
<PAGE> 53
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS-
NON-AGENCY COLLATERAL SERIES (13.2%)
American Housing
Trust Series:
IV 2
9.553%, 9/25/20 A $ 350 $ 363
V 1G
9.125%, 4/25/21 AAA 1,650 1,711
American Southwest
Financial Securities Corp.
Series:
(b) 95-C1 A1B
7.40%, 11/17/04 Aaa 3,000 3,080
(c) sec.BBS 4 B2
8.528%, 5/28/22
(acquired 8/5/92,
cost $821) A 819 829
(b) Chase Mortgage
Finance Corp. Series
93-N A8
6.75%, 11/25/24 Aaa 2,800 2,544
Chemical Mortgage
Securities, Inc.
Series 93-1M
7.45%, 2/25/23 AA 230 225
Citicorp Mortgage
Securities, Inc.
Series 90-11 A5
9.50%, 7/25/20 AAA 542 551
CMC Securities Corp.
IV Series 94-G A4
7.00%, 9/25/24 AAA 1,800 1,671
(+) Equitable Life
Assurance Society of
the U.S.
6.633%, 7/23/03 AA 2,200 2,179
sec. First Boston
Mortgage Corp. Series
92-4 B1
8.125%, 10/25/22
(acquired 1/26/93,
cost $1,126) A 1,179 1,150
(+) FSA Finance, Inc. Series
95-1A
7.42%, 6/1/07 AA 1,790 1,834
(+) GE Capital
Mortgage Services,
Inc. Series:
94-13 B1
6.50%, 4/25/24 N/R 5,422 4,880
94-24 A4
7.00%, 7/25/24 AAA 1,681 1,561
Mid-State Trust Series
88-2 A4
9.625%, 4/1/03 AAA 725 796
(c) Nomura Asset
Securities Corp.
Series:
94-MD1 A3
8.026%, 3/15/18 A 1,200 1,266
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Prudential Home
Mortgage Securities
Co.,
Inc. Series:
90-5 A3
9.50%, 5/25/05 AAA $ 428 $ 428
90-8 A5 PAC-1 (11)
9.50%, 9/25/20 AAA 2,379 2,379
(+) 92-A 2B4
7.90%, 4/28/22 AA 2,598 2,187
(+) 93-B 1B1
7.837%, 4/28/23 AA 3,055 3,048
(c) (+) 94-A 3B5
6.803%, 4/28/24 A 3,212 2,945
Residential Funding
Mortgage Securities
Co.,
Inc. Series:
sec. 92-S6 M
7.50%, 2/25/22
(acquired
11/18/94, cost
$162) AA 184 183
92-S15 A5
8.00%, 5/25/07 AAA 54 55
93-MZ1 A2
7.47%, 3/2/23 AA 2,800 2,743
sec. 93-MZ2 A2
7.47%, 5/30/23
(acquired 5/12/93,
cost $2,153) AA 2,150 2,127
Rural Housing Trust
Series:
87-1 D
6.33%, 4/1/26 AAA 3,261 3,176
87-1 M
3.33%, 4/1/26 A- 915 834
87-2 C
6.83%, 4/1/26 AAA 2,104 2,083
Ryland Mortgage
Securities Corp.
Series:
92-A 1A
8.302%, 3/29/30 A- 2,107 2,113
94-7B 4A2
7.50%, 8/25/25 AAA 2,700 2,603
- ---------------------------------------------------------
GROUP TOTAL 51,544
- ---------------------------------------------------------
ENERGY (1.0%)
Maxus Energy Corp.
10.83%, 9/1/04 BB- 2,375 2,488
Mobile Energy Services
8.665%, 1/1/17 BBB- 1,250 1,308
- ---------------------------------------------------------
GROUP TOTAL 3,796
- ---------------------------------------------------------
FINANCE (13.9%)
## Bank of Hawaii
Honolulu
5.988%, 11/25/96 A 2,000 2,001
## Caterpillar
Financial Services
5.888%, 6/20/97 A 3,450 3,443
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
51
<PAGE> 54
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
SPECIAL PURPOSE FIXED
INCOME PORTFOLIO
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Conseco, Inc.
8.125%, 2/15/03 BB+ $ 2,430 $ 2,313
(+) Farmers Insurance
8.625%, 5/1/24 BBB- 2,200 2,073
Fireman's Fund
Mortgage Corp.
8.875%, 10/15/01 BBB+ 175 189
(+) First Hawaiian
Bank, Series A
6.93%, 12/1/03 A 1,825 1,788
First Union REIT
8.875%, 10/1/03 BB+ 1,050 961
(b) FNBC Series 93-A
8.08%, 1/5/18 A1 3,050 3,185
## Ford Motor Credit
Corp.
6.075%, 11/3/97 A+ 4,050 4,050
Home Holdings, Inc.
8.625%, 12/15/03 B- 2,740 2,206
## Marshall & Ilsley Bank
5.898%, 5/26/97 A+ 3,500 3,499
(+) Mass Mutual
7.625%, 11/15/23 AA- 2,250 2,188
(+) Metropolitan Life
Insurance
7.45%, 11/1/23 AA 2,250 2,077
# Mutual Life
Insurance Co. of New
York
0.00%, 8/15/24 BBB 2,500 1,959
(+) Nationwide Mutual
Life Insurance
7.50%, 2/15/24 AA- 4,525 4,192
(+) New York Life
Insurance
7.50%, 12/15/23 AA 3,650 3,497
(+) Principal Mutual
Life Insurance Co.
7.875%, 3/1/24 AA- 2,450 2,357
(+) Prudential Insurance Co.
8.30%, 7/1/25 A 2,900 2,903
Reliance Group
Holdings
9.00%, 11/15/00 BB+ 1,175 1,175
(+) United Savings of Texas
9.05%, 5/15/98 BB+ 1,100 1,090
## Wells Fargo & Co.
5.813%, 8/16/96 A- 4,600 4,599
## World Savings &
Loan Association
5.875%, 3/15/96 A+ 2,300 2,300
- ---------------------------------------------------------
GROUP TOTAL 54,045
- ---------------------------------------------------------
FOREIGN GOVERNMENTS (12.9%)
Government of Canada
6.50%, 6/1/04 AA+ C$ 1,625 1,109
8.50%, 4/1/02 AA+ 14,700 11,471
Government of France
O.A.T.
8.50%, 11/25/02 AAA FF 38,000 8,256
8.50%, 10/25/19 AAA 25,370 5,396
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
8.50%, 4/25/23 AAA FF 23,365 $ 4,960
9.50%, 1/25/01 AAA 15,800 3,561
Kingdom of Denmark
9.00%, 11/15/00 AAA DK 29,250 5,660
Treuhandanstalt
7.125%, 1/29/03 AAA DM 5,800 4,211
7.75%, 10/1/02 AAA 4,735 3,561
United Kingdom
9.125%, 2/21/01 AAA ECU 1,625 2,265
- ---------------------------------------------------------
GROUP TOTAL 50,450
- ---------------------------------------------------------
/ / HEDGED MORTGAGES (2.5%)
Federal Home Loan
Mortgage Corporation
Series:
1415-S Inv Fl IO CMO
17.563%, 11/15/07 Agy $ 1,404 547
1476-S Inv Fl IO
REMIC PAC
4.106%, 2/15/08 Agy 13,895 1,221
1485-S Inv Fl IO
REMIC
3.663%, 3/15/08 Agy 14,626 1,094
1600-SA Inv Fl IO
REMIC
2.063%, 10/15/08 Agy 25,650 1,339
Federal National Mortgage
Association Series:
92-186 Inv Fl IO CMO
3.106%, 10/25/07 Agy 24,314 1,645
94-33S Inv Fl IO
2.225%, 3/25/09 Agy 40,221 2,118
G 94-2 S Inv Fl IO
REMIC
2.225%, 1/25/24 Agy 31,451 1,661
- ---------------------------------------------------------
GROUP TOTAL 9,625
- ---------------------------------------------------------
INDUSTRIALS (8.3%)
Alateif Freeport Finance
9.75%, 4/15/01 BBB- 1,755 1,925
## Blue Bell Funding
11.85%, 5/1/99 BB- 134 141
(b) Columbia/HCA Healthcare
7.69%, 6/15/25 A3 2,300 2,351
Comcast Corp.
9.375%, 5/15/05 B+ 2,500 2,544
Digital Equipment Corp.
8.625%, 11/1/12 BB+ 1,475 1,528
DR Structured Finance Series
94K2
9.35%, 8/15/19 BBB 1,280 1,263
Federated Department Stores,
Inc.
10.00%, 2/15/01 BB- 2,600 2,818
Fleming Cos., Inc.
10.625%, 12/15/01 BB- 1,925 2,055
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
52
<PAGE> 55
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
News America
Holdings, Inc.
10.125%, 10/15/12 BBB $ 3,312 $ 3,858
Paramount Communications
8.25%, 8/1/22 BB+ 1,750 1,725
(b) Rhone-Poulenc Rorer, Inc.
8.62%, 1/5/21 A3 2,000 2,182
RJR Nabisco, Inc.
8.75%, 4/15/04 BBB- 3,060 3,098
Scotia Pacific Holding Co.
7.95%, 7/20/15 BBB 1,633 1,672
Southland Corp.
5.00%, 12/15/03 BB+ 3,955 3,070
Time Warner, Inc.
9.15%, 2/1/23 BBB- 2,215 2,407
- ---------------------------------------------------------
GROUP TOTAL 32,637
- ---------------------------------------------------------
RATED NON-AGENCY FIXED RATE MORTGAGES (4.6%)
Beverly Finance
8.36%, 7/15/04 AA- 2,300 2,427
(+) Creekwood Capital
Corp. Series 95-1 A
8.47%, 3/16/15 AA 1,740 1,829
(b) (+) DeBartolo Capital
Corp. Series A 2
7.48%, 5/1/04 Aaa 2,600 2,699
First Federal Savings
& Loan Association
Series 92-C
8.75%, 6/1/06 AA 85 86
(+) Lakewood Mall
Finance Co. Series
95-C1 A
7.00%, 8/13/10 AA 1,900 1,890
Marine Midland Bank NA
Series 91-1 A7
8.50%, 4/25/22 AA 22 23
Mid-State Trust Series
95-4 A
8.33%, 4/1/30 AAA 2,211 2,348
Resolution Trust Corp.
Series 92-5C
8.628%, 1/25/26 AA 1,985 2,032
Ryland Acceptance
Corp. IV Series 79-A
6.65%, 7/1/11 AA 2,040 1,958
Security Pacific Home
Equity Trust Series
87-A1
8.00%, 1/1/02 AA 85 85
sec. Shearson American
Express Series A
9.625%, 12/1/12
(acquired 8/24/92-
5/25/93, cost
$412) AA 395 403
(+) Stratford Finance Corp.
6.776%, 2/1/04 AA 2,300 2,214
- ---------------------------------------------------------
GROUP TOTAL 17,994
- ---------------------------------------------------------
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
TELEPHONES (1.9%)
AT&T Corp.
8.35%, 1/15/25 AA $ 1,100 $ 1,197
Comcast Cellular Corp.
Series A,
Zero Coupon, 3/5/00 B+ 2,000 1,525
(+) Rogers Cable
Systems Series B
10.00%, 3/15/05 BB+ 1,975 2,074
Tele-Communications,
Inc.
9.25%, 1/15/23 BBB- 2,450 2,546
- ---------------------------------------------------------
GROUP TOTAL 7,342
- ---------------------------------------------------------
TRANSPORTATION (1.4%)
Delta Airlines Trust
Series 93-B2
10.06%, 1/2/16 BB+ 1,915 2,204
Jet Equipment Trust
Series:
(+) 95-C
10.69%, 5/1/15 BBB- 1,500 1,688
(+) B1
10.91%, 6/15/06 BB+ 599 679
(+) CL-C
9.71%, 2/15/15 BBB 800 839
- ---------------------------------------------------------
GROUP TOTAL 5,410
- ---------------------------------------------------------
U.S. TREASURY SECURITIES (6.4%)
(a) U.S. Treasury Bond
7.875%, 2/15/21 Tsy 19,975 22,906
U.S. Treasury Note
7.25%, 8/15/04 Tsy 2,000 2,138
- ---------------------------------------------------------
GROUP TOTAL 25,044
- ---------------------------------------------------------
UTILITIES (0.2%)
Long Island Lighting Co.
8.90%, 7/15/19 BB+ 975 978
- ---------------------------------------------------------
YANKEE (2.5%)
CFE Petacalco
Topolobamp
8.125%, 12/15/03 BB 825 639
PDV America, Inc.
7.875%, 8/1/03 BB- 2,025 1,871
# Republic of
Argentina
5.00%, 3/31/23 BB- 8,510 4,127
United Mexican States
6.25%, 12/31/19 BB 5,050 3,030
- ---------------------------------------------------------
GROUP TOTAL 9,667
- ---------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost $399,745) 412,173
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
53
<PAGE> 56
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SPECIAL PURPOSE FIXED
INCOME PORTFOLIO
++RATINGS
(STANDARD VALUE
(CONT'D) & POOR'S) SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
CONVERTIBLE PREFERRED STOCK (0.5%)
- ---------------------------------------------------------
Unisys Corp. Series A
$3.75 (Cost $2,146) B- 49,750 $ 1,859
- ---------------------------------------------------------
RIGHTS (0.0%)
- ---------------------------------------------------------
* Mexico Recovery
Rights, expiring
6/30/03 (Cost $0) 5,050,000 --
- ---------------------------------------------------------
CASH EQUIVALENTS (16.1%)
- ---------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
-------
<S> <C> <C>
U.S. TREASURY SECURITY (0.1%)
(a) U.S. Treasury Bill
Zero Coupon, 12/14/95 Tsy $ 500 495
- ---------------------------------------------------------
COMMERCIAL PAPER (11.3%)
American General
Finance Corp.
5.71%, 11/2/95 4,000 3,980
Barclays U.S. Funding
5.74%, 10/30/95 4,000 3,982
Bell Atlantic Financial
5.72%, 10/11/95 4,000 3,994
Cargill, Inc.
5.72%, 10/6/95 4,000 3,997
E.I. du Pont de Nemours &
Co.
5.69%, 10/24/95 4,000 3,985
Hershey Foods Corp.
5.70%, 10/27/95 4,000 3,984
Household Finance Corp.
5.73%, 10/16/95 4,000 3,990
Prudential Funding Corp.
5.74%, 11/7/95 4,000 3,976
Raytheon Co.
5.72%, 10/4/95 4,000 3,998
Southwestern Bell
5.75%, 10/16/95 4,000 3,990
Weyerhaeuser Mortgage Co.
5.71%, 10/25/95 4,000 3,985
- ---------------------------------------------------------
GROUP TOTAL 43,861
- ---------------------------------------------------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)+
- ---------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT (4.7%)
Chase Manhattan Bank, N.A.
6.20%, dated 9/29/95, due
10/2/95, to be repurchased
at $18,417, collateralized
by $18,488 of various U.S.
Government and Agency
Obligations, due 10/3/95-
7/7/97, valued at $18,592 $18,407 $18,407
- ---------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $62,763) 62,763
- ---------------------------------------------------------
TOTAL INVESTMENTS (122.2%) (Cost $464,654) 476,795
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-22.2%)
Dividends Receivable 47
Interest Receivable 6,597
Receivable for Fund Shares Sold 813
Receivable for Investments Sold 124
Other Assets 2
Payable for Fund Shares Redeemed (90)
Payable for Investments Purchased (77,989)
Payable for Administrative Fees (28)
Payable for Investment Advisory Fees (368)
Payable for Daily Variation on Futures
Contracts (164)
Unrealized Loss on Forward Foreign
Currency Contracts (285)
Written Interest Rate Floors at Value (14,963)
Other Liabilities (233)
-------
(86,537)
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 31,154,715 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $390,258
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 12.53
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
54
<PAGE> 57
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------------
sec. Restricted Security-Total cost of restricted
securities at September 30, 1995 amounted to
$4,674. Total market value of restricted
securities owned at September 30, 1995 was
$4,692 or 1.2% of net assets.
+ See Note A1 to Financial Statements.
++ Ratings are unaudited.
* Non-income producing security.
(a) A portion of these securities was pledged to
cover margin requirements for futures
contracts.
(b) Moody's Investor Service, Inc. rating. Security
is not rated by Standard & Poor's Corporation.
(c) Fitch rating. Security is not rated by Standard
& Poor's Corporation or Moody's Investor
Service, Inc.
/ / Securities purchased with proceeds from written
floors. See Note A6 to Financial Statements.
# Step Bond-Coupon rate is zero or below market
for an initial period and then increases to a
higher coupon rate thereafter.
## Variable or floating rate security-rate
disclosed is as of September 30, 1995.
(+) 144A security. Certain conditions for public
sale may exist.
CMO Collateralized Mortgage Obligation.
Inv Fl Inverse Floating Rate-Interest rate fluctuates
with an inverse relationship to an associated
interest rate. Indicated rate is the effective
rate at September 30, 1995.
IO Interest Only.
N/R Not rated by either Moody's Investor Service,
Inc. or Standard & Poor's Corporation.
PAC Planned Amortization Class.
REMIC Real Estate Mortgage Investment Conduit.
TBA Security is subject to delayed delivery. See
Note A8 to Financial Statements.
C$ Canadian Dollar.
DK Danish Krone.
DM German Mark.
ECU European Currency Unit.
FF French Franc.
</TABLE>
MUNICIPAL
PORTFOLIO
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (99.7%)
<TABLE>
<CAPTION>
---------------------------------------------------------
++RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 1995 & POOR'S) (000) (000)+
---------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS (96.3%)
Adelanto, CA School
District
Zero Coupon, 9/1/18 AAA $ 4,350 $ 1,024
Aldine, TX Independent
School District
Zero Coupon, 2/15/07 AAA 750 407
Allegheny County, PA
Sanitation Authority
Series B
Zero Coupon, 6/1/10 AAA 1,500 645
Austin, TX Utility
Systems Revenue Bond
Zero Coupon,
11/15/09 AAA 850 380
Benicia, CA School
District
Zero Coupon, 8/1/11 AAA 3,480 1,329
California State
Zero Coupon, 3/1/04 A 375 242
Center Township, PA
Sewer Authority Series
A
Zero Coupon, 4/15/19 AAA 855 206
Central Valley, CA
Finance Authority
5.70%, 7/1/03 BBB- 125 126
Chicago, IL
Metropolitan Water
5.25%, 12/1/04 AA 750 768
Colorado Health Facilities
Zero Coupon, 7/15/20 AAA 1,000 184
Delaware County, PA
Capital Appreciation
Zero Coupon,
11/15/10 AA 750 314
Elizabeth Forward, PA
School District
Zero Coupon
9/1/08 AAA 425 209
9/1/11 AAA 850 338
Fort Bend, TX Independent
School District
Zero Coupon, 2/15/07 AAA 1,250 672
Fort Worth, TX
Independent School
District
Zero Coupon, 2/15/08 AAA 940 471
Grand Prairie, TX
Independent School
District
Zero Coupon, 8/15/07 AAA 750 392
Grapevine Colleyville,
TX School District
Zero Coupon, 8/15/16 AAA 1,250 351
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
55
<PAGE> 58
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL
PORTFOLIO
++RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)+
---------------------------------------------------------
<S> <C> <C> <C>
Hamilton Southeastern,
IN
Zero Coupon, 1/1/15 AAA $ 1,000 $ 311
Harris County, TX Toll
Road Series A
Zero Coupon, 8/15/07 AA+ 475 248
Houston, TX Independent
School District
Zero Coupon, 8/15/12 AAA 550 202
Houston, TX Water and
Sewer System
Zero Coupon, 12/1/09 AAA 2,250 1,003
Huron, MI School District
Zero Coupon
5/1/16 AAA 1,120 320
5/1/17 AAA 755 203
Hurst Euless Bedford,
TX Independent School
District
Zero Coupon
8/15/17 AAA 965 255
8/15/18 AAA 1,100 272
Illinois Development
Finance Authority
Revenue
Zero Coupon, 12/1/09 AAA 2,000 902
Indiana Transportation
Finance Authority
Highway Revenue Bond
Zero Coupon, 12/1/16 AAA 1,695 468
Indianapolis Airport
Authority Revenue Bond
7.10%, 1/15/17 BBB 375 396
Intermountain Power
Agency, UT
Zero Coupon, 7/1/17 AA- 1,750 445
(-) 6.50%, 7/1/09 AAA 875 932
Jacksonville, FL Electric
Authority Revenue
Zero Coupon, 10/1/11 AA 325 129
Kane & De Kalb Counties,
IL Unit School District
Zero Coupon, 12/1/09 AAA 525 234
Kansas Utility
Zero Coupon, 3/1/06 AAA 225 130
Katy, TX Independent
School District
Zero Coupon, 8/15/08 AAA 1,155 563
(b) Keller, TX
Independent School
District
Zero Coupon, 8/15/12 Aaa 800 294
Kentucky State Turnpike
Authority
Zero Coupon, 1/1/10 AAA 450 198
La Joya, TX Independent
School District
Zero Coupon, 8/1/12 AAA 645 238
Lakeland, FL Electric &
Water Revenue Bond
Zero Coupon, 10/1/10 AAA 1,100 472
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Maricopa County, AZ
Unified School
District-Chandler
Zero Coupon, 7/1/07 AAA $ 250 $ 133
Maryland Transportation
Authority
Zero Coupon, 7/1/08 AAA 250 127
Mercer County, NJ
Revenue Bond
Zero Coupon, 4/1/06 AA 350 205
Michigan State Trunk Line
Zero Coupon
10/1/05 AAA 750 445
10/1/12 AAA 1,500 548
Midland, TX Independent School
District
Zero Coupon, 8/15/06 AAA 750 420
Millcreek Township, PA
Zero Coupon, 8/15/05 AAA 325 196
Mississippi Housing
Finance Corp.
Zero Coupon, 9/15/16 AA- 5,250 1,428
Mobile, AL Industrial
Development Board
Solid Waste Disposal
Revenue Bonds
6.95%, 1/1/20 BBB- 180 185
Montour, PA School
District
Zero Coupon, 1/1/11 AAA 1,750 723
Nebraska Public Power
District Revenue Bond
5.40%, 1/1/03 A+ 200 207
New Jersey Economic
Development Authority
Zero Coupon, 3/15/09 A+ 275 128
New Jersey State
Zero Coupon, 2/15/06 AA+ 500 297
New York State Dormitory
Authority
5.10%, 5/15/01 BBB+ 250 250
Noblesville, IN High
School Building Corp.
Zero Coupon
2/15/17 AAA 900 245
2/15/19 AAA 1,850 443
Norris, CA School District
Zero Coupon
5/1/15 AAA 785 236
5/1/16 AAA 400 113
North Carolina Eastern
Municipal Power
6.125%, 1/1/09 BBB+ 350 356
North Slope Borough, AK
General Obligation
Series B
Zero Coupon, 6/30/04 AAA 575 363
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
56
<PAGE> 59
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Northern Illinois
University Revenue
Bond
Zero Coupon, 4/1/15 AAA $ 675 $ 204
Okemos, MI Public School
District
Zero Coupon, 5/1/15 AAA 900 274
Oley Valley, PA School
District
Zero Coupon, 5/15/09 AAA 760 353
Orange County, CA
Revenue Bond Series A
6.00%, 6/1/10 AAA 600 603
(-) Penn Hills Township, PA
Zero Coupon, 6/1/12 N/R 1,025 341
# Pennsylvania State General
Obligation
0.00%, 4/15/03 AAA 775 792
Pennsylvania State
Higher Education-La
Salle
University
Zero Coupon, 5/1/14 AAA 1,525 512
Philadelphia, PA
Gas Works
5.80%, 7/1/01 BBB 350 360
Philadelphia, PA General
Obligation Series A
5.125%, 5/15/03 AAA 250 254
5.40%, 11/15/03 AAA 600 620
Philadelphia, PA Municipal
Authority
4.90%, 4/1/03 AAA 500 499
Prairie, TX Independent
School District
Zero Coupon, 8/15/10 AAA 1,300 546
Romulos School
District, MI
Zero Coupon, 5/1/18 AAA 3,375 850
Rosemont, IL
Zero Coupon, 12/1/10 AAA 1,000 409
Round Rock, TX School
District
5.10%, 2/15/03 AAA 300 306
(b) Saline County, KS
Zero Coupon, 12/1/15 Aaa 750 215
San Antonio, TX
Electric & Gas Revenue
Bond
Zero Coupon, 2/1/05 AAA 200 123
Schuylkill County, PA
Redevelopment
Authority
7.125%, 6/1/13 AAA 750 836
Skokie, IL Park
District Series B
Zero Coupon, 12/1/12 AAA 1,750 626
Steel Valley, PA School
District
Zero Coupon
11/1/11 A 740 274
11/1/17 A 650 158
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Washington County, PA
Authority Lease
Zero Coupon, 6/1/12 AAA $ 1,600 $ 604
Washington State Public
Power Supply
Zero Coupon, 7/1/10 AAA 475 197
7.00%, 7/1/07 AA 375 417
Washington State,
Series B
5.50%, 5/1/10 AA 750 743
Westmoreland County, PA
Zero Coupon, 6/1/15 AAA 850 262
- ---------------------------------------------------------
GROUP TOTAL 34,699
- ---------------------------------------------------------
INDUSTRIALS (2.4%)
# Building Materials Corp.
0.00%, 7/1/04 BB 400 252
Comcast Corp.
9.375%, 5/15/05 B+ 225 229
G-I Holdings, Inc.
Zero Coupon, 10/1/98 B+ 300 218
(+) Host Marriott Travel Plaza
9.50%, 5/15/05 BB- 175 170
- ---------------------------------------------------------
GROUP TOTAL 869
- ---------------------------------------------------------
TELEPHONES (0.7%)
Adelphia Communications
Corp. Series B
9.875%, 3/1/05 B 150 140
(+) Rogers Cable Systems
10.00%, 3/15/05 BB+ 125 131
- ---------------------------------------------------------
GROUP TOTAL 271
- ---------------------------------------------------------
TRANSPORTATION (0.3%)
(+) Jet Equipment Trust
Series 95-C
10.69%, 5/1/15 BBB- 100 113
- ---------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost $34,474) 35,952
- ---------------------------------------------------------
CONVERTIBLE PREFERRED STOCK (0.6%)
- ---------------------------------------------------------
<CAPTION>
SHARES
------
<S> <C> <C> <C>
Unisys Corp.
Series A $3.75
(Cost $244) B- 5,950 222
- ---------------------------------------------------------
CASH EQUIVALENTS (4.0%)
- ---------------------------------------------------------
MONEY MARKET INSTRUMENTS (2.8%)
Dreyfus Basic Municipal Money
Market Fund 502,350 502
Vanguard Municipal Fund Money
Market Portfolio 501,960 502
- ---------------------------------------------------------
GROUP TOTAL 1,004
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
57
<PAGE> 60
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL
PORTFOLIO
++RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)+
---------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY SECURITIES (0.7%)
(a) U.S. Treasury Bill
Zero Coupon, 2/1/96 Tsy $ 250 $ 245
- ---------------------------------------------------------
REPURCHASE AGREEMENT (0.5%)
Chase Manhattan Bank, N.A.
6.20%, dated 9/29/95, due
10/2/95, to be repurchased at
$183, collateralized by $184
of various U.S. Government
and Agency Obligations, due
10/3/95-7/7/97, valued at
$185 183 183
- ---------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $1,432) 1,432
- ---------------------------------------------------------
TOTAL INVESTMENTS (104.3%) (Cost $36,150) 37,606
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-4.3%)
Dividends Receivable 6
Interest Receivable 146
Dividends Payable (61)
Payable for Investments Purchased (1,244)
Payable for Administrative Fees (6)
Payable for Investment Advisory Fees (17)
Payable for Daily Variation on Futures
Contracts (44)
Unrealized Loss on Swap Agreements (259)
Payable to Custodian Bank (9)
Other Liabilities (78)
-------
(1,566)
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 3,353,887 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $36,040
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 10.75
- ---------------------------------------------------------
+ See Note A1 to Financial Statements.
++ Ratings are unaudited.
(a) A portion of these securities was pledged to cover
margin requirements for futures contracts.
(b) Moody's Investor Service, Inc. rating. Security is
not rated by Standard & Poor's Corporation.
# Step Bond-Coupon rate is zero or below market for
an initial period and then increases to a higher
coupon rate thereafter.
(-) Security is subject to delayed delivery. See Note
A8 to Financial Statements.
(+) 144A security. Certain conditions for public sale
may exist.
N/R Not rated by either Moody's Investor Service, Inc.
or Standard & Poor's Corporation.
</TABLE>
PA MUNICIPAL
PORTFOLIO
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (97.1%)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
++RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 1995 & POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS (93.4%)
Aliquippa School District, PA
Zero Coupon, 6/1/12 A $ 685 $ 259
Allegheny County, PA
Zero Coupon, 5/1/03 AAA 325 223
Allegheny County, PA
Sanitation Authority
Zero Coupon, 12/1/16 AAA 750 211
Allegheny County, PA
Sanitation Authority
Series B
Zero Coupon, 6/1/09 AAA 1,210 561
Berks County, PA
Zero Coupon
11/15/18 AAA 1,250 319
5/15/19 AAA 1,250 300
11/15/20 AAA 1,000 225
Bucks County, PA
Water & Sewer
Authority Revenue
Bond
Zero Coupon, 12/1/05 AAA 375 222
(b) 5.50%, 2/1/08 Aaa 285 287
Canon McMillan School
District, PA
Zero Coupon, 3/1/10 AAA 825 360
Center Township, PA
Sewer Authority
Zero Coupon
4/15/17 AAA 615 168
4/15/18 AAA 715 183
Central Valley, CA
Finance Authority
5.70%, 7/1/03 BBB- 100 100
Chartiers Valley, PA
Zero Coupon, 2/1/06 AAA 425 247
Clinton County, PA
Industrial Development
Authority
6.25%, 11/15/06 BBB 150 154
Delaware County, PA
Capital Appreciation
Zero Coupon,
11/15/09 AA 500 226
Elizabeth Forward, PA
School District
Zero Coupon
9/1/06 AAA 400 225
9/1/11 AAA 400 159
Girard Area, PA School
District
Zero Coupon
10/1/18 AAA 700 175
10/1/19 AAA 250 59
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
58
<PAGE> 61
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Huron, MI School District
Zero Coupon, 5/1/18 AAA $ 1,500 $ 378
(-) Intermountain
Power Agency, Utah
6.50%, 7/1/09 AAA 300 320
Kane & De Kalb
Counties, IL
Unit School District
Zero Coupon, 12/1/09 AAA 200 89
Lancaster, PA
Parking Authority
Zero Coupon,
12/15/11 AAA 590 231
Laurel Highlands, PA
Zero Coupon, 9/1/09 AAA 500 229
Lycoming County, PA
Zero Coupon, 11/1/11 AAA 1,000 394
Mars, PA Area School
District
Zero Coupon, 9/1/22 AAA 1,200 234
Millcreek Township, PA
Zero Coupon, 8/15/05 AAA 375 226
Mobile, AL Industrial
Development Board
Solid Waste Disposal
Revenue Bonds
6.95%, 1/1/20 BBB- 80 82
Montour, PA School
District Zero Coupon
1/1/13 AAA 300 109
1/1/18 AAA 1,145 299
North Slope Borough, AK
General Obligation
Series B
Zero Coupon, 6/30/04 AAA 285 180
Northwestern PA
School District
Zero Coupon, 1/15/09 AAA 450 213
Oley Valley, PA
School District
Zero Coupon, 5/15/09 AAA 760 353
(-)Penn Hills
Township, PA
Zero Coupon, 6/1/12 N/R 450 150
Pennsylvania Convention
Center Authority
6.25%, 9/1/04 BBB- 250 259
6.70%, 9/1/16 AAA 500 556
Pennsylvania State
General Obligation
# 0.00%, 4/15/03 AAA 300 307
Zero Coupon, 7/1/05 AAA 375 229
Philadelphia, PA Gas
Works
5.80%, 7/1/01 BBB 200 206
Philadelphia, PA General
Obligation
5.125%, 5/15/03 AAA 100 101
(b) Philadelphia, PA Hospitals
10.875%, 7/1/08 Aaa 150 203
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Philadelphia, PA
School District
5.20%, 7/1/03 AAA $ 200 $ 205
Pittsburgh, PA General
Obligation
Zero Coupon, 9/1/04 AAA 350 223
6.50%, 4/1/11 AAA 300 313
Pittsburgh, PA Water &
Sewer
Zero Coupon, 9/1/05 AAA 375 227
Robinson Township, PA
6.90%, 5/15/18 AAA 120 142
Scranton, PA Health &
Welfare Authority
6.625%, 7/1/09 AAA 130 140
Southeastern Area
Schools, PA
Zero Coupon
10/1/06 A 590 315
Steel Valley, PA School
District
Zero Coupon, 11/1/11 A 430 159
Stroud Township, PA
Sewer Authority
Zero Coupon, 11/15/05 AAA 375 223
Upper Darby Township,
PA
Zero Coupon, 7/15/11 AAA 525 210
Washington County, PA
Authority Lease
7.875%, 12/15/18 AAA 300 375
Zero Coupon, 6/1/12 AAA 400 151
Washington County, West
PA Power Co.
4.95%, 3/1/03 A 150 150
Westmoreland County, PA
Zero Coupon
8/1/14 AAA 1,475 482
8/15/18 AAA 3,440 865
Yough, PA School District
Zero Coupon, 10/1/13 AAA 1,445 500
- ---------------------------------------------------------
GROUP TOTAL 14,691
- ---------------------------------------------------------
INDUSTRIALS (2.1%)
# Building Materials Corp.
0.00%, 7/1/04 BB 150 94
Comcast Corp.
9.375%, 5/15/05 B+ 75 76
G-I Holdings, Inc.
Zero Coupon, 10/1/98 B+ 125 91
(+) Host Marriott Travel Plaza
9.50%, 5/15/05 BB- 75 73
- ---------------------------------------------------------
GROUP TOTAL 334
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
59
<PAGE> 62
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PA MUNICIPAL
PORTFOLIO
++RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
TELEPHONES (0.9%)
Adelphia
Communications Corp.
Series B
9.875%, 3/1/05 B $ 100 $ 93
(+) Rogers Cable Systems
10.00%, 3/15/05 BB+ 50 52
- ---------------------------------------------------------
GROUP TOTAL 145
- ---------------------------------------------------------
TRANSPORTATION (0.7%)
(+) Jet Equipment
Trust
Series 95-C
10.69%, 5/1/15 BBB- 100 113
- ---------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost
$13,967) 15,283
- ---------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS (0.9%)
- ---------------------------------------------------------
<CAPTION>
SHARES
------
<S> <C> <C> <C>
Unisys Corp.
Series A $3.75
(Cost $147) B- 3,700 138
- ---------------------------------------------------------
CASH EQUIVALENTS (5.7%)
- ---------------------------------------------------------
MONEY MARKET INSTRUMENTS (4.2%)
Dreyfus PA Municipal
Money Market Fund 331,358 331
Vanguard PA Money
Market Fund 331,676 332
- ---------------------------------------------------------
GROUP TOTAL 663
- ---------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
------
<S> <C> <C> <C>
U.S. TREASURY SECURITY (0.8%)
U.S. Treasury Bill
Zero Coupon, 8/22/96 Tsy $ 125 119
- ---------------------------------------------------------
REPURCHASE AGREEMENT (0.7%)
Chase Manhattan Bank, N.A.
6.20%, dated 9/29/95, due
10/2/95, to be repurchased
at $119, collateralized by
$119 of various U.S.
Government and Agency
Obligations, due
10/3/95-7/7/97, valued at
$120
(Cost $119) 119 119
- ---------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $901) 901
- ---------------------------------------------------------
TOTAL INVESTMENTS (103.7%) (Cost $15,015) 16,322
- ---------------------------------------------------------
<CAPTION>
VALUE
(000)+
- ---------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (-3.7%)
Cash $ 1
Dividends Receivable 3
Interest Receivable 59
Payable for Investments Purchased (459)
Payable for Administrative Fees (3)
Payable for Investment Advisory Fees (3)
Unrealized Loss on Swap Agreements (131)
Other Liabilities (55)
-------
(588)
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 1,441,849 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $15,734
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 10.91
- ---------------------------------------------------------
+ See Note A1 to Financial Statements.
++ Ratings are unaudited.
(b) Moody's Investor Service, Inc. rating. Security
is not rated by Standard & Poor's Corporation.
# Step Bond-Coupon rate is zero or below market for
an initial period and then increases to a higher
coupon rate thereafter.
(-) Security is subject to delayed delivery. See Note
A8 to Financial statements.
(+) 144A security. Certain conditions for public sale
may exist.
N/R Not rated by either Moody's Investor Service,
Inc. or Standard & Poor's Corporation.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
60
<PAGE> 63
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
GLOBAL FIXED
INCOME PORTFOLIO
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (80.9%)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
++RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 1995 & POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
AUSTRALIAN DOLLAR (2.1%)
Commonwealth of
Australia
12.00%, 11/15/01 AAA A$ 1,330 $ 1,182
- ---------------------------------------------------------
BRITISH POUND (5.1%)
United Kingdom
Treasury Bills
8.00%, 12/7/00 AAA L 1,065 1,710
9.75%, 8/27/02 AAA 635 1,096
- ---------------------------------------------------------
GROUP TOTAL 2,806
- ---------------------------------------------------------
CANADIAN DOLLAR (6.3%)
(+) Global Econ2 EI
Zero Coupon,
11/1/98 AAA (1) 600 158
(+) Global Econ2 PIP
Zero Coupon,
11/1/98 AAA (1) 600 52
Government of Canada
6.50%, 8/1/96 AA+ C$ 1,470 1,091
8.50%, 4/1/02 AA+ 1,050 819
9.75%, 6/1/21 AA+ 1,575 1,368
- ---------------------------------------------------------
GROUP TOTAL 3,488
- ---------------------------------------------------------
DANISH KRONE (3.9%)
Kingdom of Denmark
8.00%, 5/15/03 AAA DK 5,550 1,011
9.00%, 11/15/00 AAA 5,875 1,137
- ---------------------------------------------------------
GROUP TOTAL 2,148
- ---------------------------------------------------------
FRENCH FRANC (6.0%)
Government of France
O.A.T.
8.50%, 3/28/00 AAA FF 8,600 1,860
8.50%, 10/25/19 AAA 6,700 1,425
- ---------------------------------------------------------
GROUP TOTAL 3,285
- ---------------------------------------------------------
GERMAN MARK (14.4%)
Government of
Germany
6.75%, 6/21/99 AAA DM 2,000 1,465
8.375%, 5/21/01 AAA 4,995 3,872
Treuhandanstalt
7.125%, 1/29/03 AAA 3,600 2,614
- ---------------------------------------------------------
GROUP TOTAL 7,951
- ---------------------------------------------------------
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
IRISH PUNT (1.9%)
Irish Gilts
8.00%, 10/18/00 AAA IP 655 $ 1,065
- ---------------------------------------------------------
ITALIAN LIRA (5.4%)
Republic of Italy BTPS
9.50%, 12/1/99 AA IL 3,535,000 2,065
10.00%, 8/1/03 AA 1,550,000 884
- ---------------------------------------------------------
GROUP TOTAL 2,949
- ---------------------------------------------------------
JAPANESE YEN (10.0%)
Asian Development
Bank
5.00%, 2/5/03 AAA Y 116,000 1,349
Credit Locale de
France
6.00%, 10/31/01 AAA 87,000 1,053
Export-Import Bank
of Japan
4.38%, 10/1/03 AAA 97,000 1,092
(a) International Bank for
Reconstruction &
Development
6.75%, 6/18/01 AAA 164,000 2,044
- ---------------------------------------------------------
GROUP TOTAL 5,538
- ---------------------------------------------------------
NETHERLANDS GUILDER (3.6%)
Netherlands Government
8.50%, 3/15/01 AAA NG 2,850 1,985
- ---------------------------------------------------------
SWEDISH KRONA (1.5%)
Government of Sweden
13.00%, 6/15/01 AAA SK 4,875 818
- ---------------------------------------------------------
U.S. DOLLAR (20.7%)
CORPORATES (1.4%)
## Caterpillar Financial
Services
6.125%, 1/30/96 A- $ 450 450
## Ford Motor Credit
Corp.
6.141%, 6/17/96 A 320 321
- ---------------------------------------------------------
GROUP TOTAL 771
- ---------------------------------------------------------
U.S. TREASURY SECURITIES (19.3%)
U.S. Treasury Bond
8.75%, 8/15/20 Tsy 2,900 3,626
U.S. Treasury Notes
6.25%, 2/15/03 Tsy 2,300 2,313
6.75%, 5/31/99 Tsy 1,750 1,793
7.50%, 5/15/02 Tsy 1,650 1,775
8.50%, 11/15/00 Tsy 1,000 1,107
- ---------------------------------------------------------
GROUP TOTAL 10,614
- ---------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost $42,304) 44,600
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
61
<PAGE> 64
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL FIXED
INCOME PORTFOLIO
FACE
AMOUNT VALUE
(CONT'D) (000) (000)+
- ---------------------------------------------------------
CASH EQUIVALENTS (16.1%)
- ---------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER (5.0%)
Cargill, Inc.
5.75% 10/20/95 $ 550 $ 548
Pitney-Bowes, Inc.
5.74%, 10/18/95 550 549
R.R. Donnelley & Sons Co.
5.80%, 10/6/95 550 549
Siemens Corp.
5.70%, 10/4/95 550 550
Warner-Lambert Co.
5.75%, 10/6/95 550 549
- ---------------------------------------------------------
GROUP TOTAL 2,745
- ---------------------------------------------------------
REPURCHASE AGREEMENTS (11.1%)
Chase Manhattan Bank, N.A. 6.20%
dated 9/29/95, due
10/2/95, to be
repurchased at $2,054,
collateralized by $2,064
of various U.S.
Government and Agency
Obligations, due
10/3/95-7/7/97, valued at
$2,076 2,053 2,053
Goldman Sachs Co. 6.00%,
dated 9/29/95, due
10/2/95, to be
repurchased at $2,053,
collateralized by $1,626
of U.S. Treasury Bonds
9.25%, due 2/15/16,
valued at $2,109 2,052 2,052
Lehman Brothers 6.10%,
dated 9/29/95, due
10/2/95, to be
repurchased at $2,053,
collateralized by $2,022
of U.S. Treasury Notes
4.75%-7.875%, due
8/31/98-11/15/99, valued
at $2,103 2,052 2,052
- ---------------------------------------------------------
GROUP TOTAL 6,157
- ---------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $8,902) 8,902
- ---------------------------------------------------------
TOTAL INVESTMENTS (97.0%) (Cost $51,206) 53,502
- ---------------------------------------------------------
<CAPTION>
VALUE
(000)+
- ---------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (3.0%)
Cash $ 2
Interest Receivable 1,363
Receivable for Withholding Tax Reclaim 5
Receivable for Fund Shares Sold 5
Receivable for Daily Variation on
Futures Contracts 261
Unrealized Gain on Forward Foreign
Currency Contracts 149
Payable for Administrative Fees (4)
Payable for Investment Advisory Fees (52)
Unrealized Loss on Swap Contracts (48)
Other Liabilities (36)
-------
1,645
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 4,989,676 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $55,147
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 11.05
- ---------------------------------------------------------
+ See Note A1 to Financial Statements.
++ Ratings are unaudited.
(a) A portion of these securities was pledged to
cover margin requirements for futures contracts.
## Variable or floating rate securities-rate
disclosed is as of September 30, 1995.
(+) 144A security. Certain conditions for public sale
may exist.
(1) Amount represents shares held by the Portfolio.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
62
<PAGE> 65
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
INTERNATIONAL FIXED INCOME PORTFOLIO
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (74.1%)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
++RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 1995 & POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
AUSTRALIAN DOLLAR (1.7%)
Commonwealth of
Australia
12.00%, 11/15/01 AAA A$ 2,445 $ 2,172
- ---------------------------------------------------------
CANADIAN DOLLAR (5.0%)
(+) Global Econ2 EI
Zero Coupon,
11/1/98 AAA (1) 600 157
(+) Global Econ2 PIP
Zero Coupon,
11/1/98 AAA (1) 600 52
Government of Canada
6.50%, 8/1/96 AA+ C$ 3,855 2,861
9.75%, 6/1/21 AA+ 3,825 3,323
- ---------------------------------------------------------
GROUP TOTAL 6,393
- ---------------------------------------------------------
BRITISH POUND (9.0%)
United Kingdom
Treasury Bills
8.00%, 12/7/00 AAA L 5,105 8,198
8.00%, 6/10/03 AAA 475 750
9.75%, 8/27/02 AAA 1,500 2,590
- ---------------------------------------------------------
GROUP TOTAL 11,538
- ---------------------------------------------------------
DANISH KRONE (4.2%)
Kingdom of Denmark
8.00%, 5/15/03 AAA DK 16,750 3,053
9.00%, 11/15/00 AAA 11,725 2,269
- ---------------------------------------------------------
GROUP TOTAL 5,322
- ---------------------------------------------------------
FRENCH FRANC (4.8%)
(a) Government of France
O.A.T.
8.50%, 10/25/19 AAA FF 28,970 6,162
- ---------------------------------------------------------
GERMAN MARK (17.1%)
Government of
Germany
6.75%, 6/21/99 AAA DM 9,065 6,642
8.375%, 5/21/01 AAA 10,815 8,383
European Economic
Community
6.50%, 3/10/00 AAA 2,250 1,626
International Bank for
Reconstruction &
Development
7.125%, 4/12/05 AAA 3,925 2,797
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Treuhandanstalt
7.125%, 1/29/03 AAA DM 3,330 $ 2,418
- ---------------------------------------------------------
GROUP TOTAL 21,866
- ---------------------------------------------------------
IRISH PUNT (1.9%)
Irish Gilts
8.00%, 10/18/00 AAA IP 1,515 2,463
- ---------------------------------------------------------
ITALIAN LIRA (7.2%)
Republic of Italy BTPS
8.50%, 8/1/99 AA IL 2,450,000 1,391
9.00%, 10/1/03 AA 2,865,000 1,540
9.50%, 12/1/99 AA 7,555,000 4,413
10.00%, 8/1/03 AA 3,180,000 1,814
- ---------------------------------------------------------
GROUP TOTAL 9,158
- ---------------------------------------------------------
JAPANESE YEN (15.3%)
Asian Development
Bank
5.00%, 2/5/03 AAA Y 330,000 3,839
(a) Credit Locale de
France
6.00%, 10/31/01 AAA 301,000 3,644
Export-Import Bank
of Japan
4.375%, 10/1/03 AAA 231,000 2,600
Inter-American
Development Bank
6.00%, 10/30/01 AAA 315,000 3,817
(a) International Bank for
Reconstruction &
Development
6.75%, 6/18/01 AAA 458,000 5,707
- ---------------------------------------------------------
GROUP TOTAL 19,607
- ---------------------------------------------------------
NETHERLANDS GUILDER (4.3%)
Netherlands Government
8.50%, 3/15/01 AAA NG 4,600 3,204
8.75%, 9/15/01 AAA 3,250 2,299
- ---------------------------------------------------------
GROUP TOTAL 5,503
- ---------------------------------------------------------
SWEDISH KRONA (2.1%)
Government of Sweden
13.00%, 6/15/01 AAA SK 16,025 2,689
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
63
<PAGE> 66
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL FIXED
INCOME PORTFOLIO
++RATINGS FACE
(STANDARD) AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
U.S. DOLLAR (1.5%)
CORPORATES (1.5%)
## Bank of Hawaii,
Honolulu
5.988%, 11/25/96 A $500 $ 500
## Caterpillar Finance
Services
6.125%, 1/30/96 A- 700 700
## Ford Motor Credit
Corp.
6.141%, 6/17/96 A+ 680 681
- ---------------------------------------------------------
GROUP TOTAL 1,881
- ---------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost $90,077) 94,754
- ---------------------------------------------------------
CASH EQUIVALENTS (23.5%)
- ---------------------------------------------------------
COMMERCIAL PAPER (8.8%)
Cargill, Inc.
5.75%, 10/20/95 1,250 1,246
Philip Morris Cos., Inc.
5.73%, 10/11/95 1,250 1,249
Pitney Bowes, Inc.
5.74%, 10/18/95 1,250 1,247
Prudential Funding Corp.
5.78%, 10/6/95 1,250 1,249
R.R. Donnelley & Sons Co.
5.80%, 10/6/95 1,250 1,249
Sara Lee Corp.
5.75%, 10/6/95 1,250 1,249
Siemens Corp.
5.78%, 10/4/95 1,250 1,249
Warner-Lambert Co.
5.75%, 10/6/95 1,250 1,249
Xerox Corp.
5.72%, 10/19/95 1,250 1,246
- ---------------------------------------------------------
GROUP TOTAL 11,233
- ---------------------------------------------------------
REPURCHASE AGREEMENTS (14.7%)
Chase Manhattan Bank, N.A. 6.20%,
dated 9/29/95, due
10/2/95, to be
repurchased at $7,189,
collateralized by
$7,217 of various U.S.
Government and Agency
Obligations, due
10/3/95-7/7/97, valued
at $7,258 7,185 7,185
Goldman Sachs Co. 6.00%,
dated 9/29/95, due
10/2/95, to be
repurchased at $5,803,
collateralized by
$4,597 of U.S.
Treasury Bonds 9.25%,
due 2/15/16, valued at
$5,961 5,800 5,800
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)+
- ---------------------------------------------------------
<S> <C> <C>
Lehman Brothers 6.10%,
dated 9/29/95, due
10/2/95, to be
repurchased at $5,803,
collateralized by
$5,716 of U.S.
Treasury Notes
4.75%-7.875%, due
8/31/98-11/15/99,
valued at $5,945 $5,800 $ 5,800
- ---------------------------------------------------------
GROUP TOTAL 18,785
- ---------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $30,018) 30,018
- ---------------------------------------------------------
TOTAL INVESTMENTS (97.6%) (Cost $120,095) 124,772
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (2.4%)
Cash 1,387
Interest Receivable 3,147
Receivable for Withholding Tax Reclaim 13
Receivable for Fund Shares Sold 40
Receivable for Daily Variation on
Futures Contracts 991
Payable for Fund Shares Redeemed (1)
Payable for Investments Purchased (1,392)
Payable for Administrative Fees (10)
Payable for Investment Advisory Fees (123)
Unrealized Loss on Swap Contracts (114)
Unrealized Loss on Forward Foreign
Currency Contracts (777)
Other Liabilities (51)
--------
3,110
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 11,610,604 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $127,882
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 11.01
- ---------------------------------------------------------
+ See Note A1 to Financial Statements.
++ Ratings are unaudited.
(a) A portion of these securities was pledged to
cover margin requirements for futures contracts.
## Variable or floating rate securities-rate
disclosed is as of September 30, 1995.
(+) 144A securities. Certain conditions for public
sale may exist.
(1) Amount represents shares held by Portfolio.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
64
<PAGE> 67
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
INTERMEDIATE
DURATION PORTFOLIO
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (90.5%)
<TABLE>
<CAPTION>
- --------------------------------------------------------
++RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 1995 & POOR'S) (000) (000)+
- --------------------------------------------------------
<S> <C> <C> <C>
ADJUSTABLE RATE MORTGAGES (10.9%)
## Government National
Mortgage Association II:
Various Pools:
5.50%, 9/20/24 Agy $ 257 $ 259
6.00%,
8/20/95-9/20/24 Agy 958 965
6.50%,
1/20/22-11/20/24 Agy 859 875
- --------------------------------------------------------
GROUP TOTAL 2,099
- --------------------------------------------------------
AGENCY FIXED RATE MORTGAGES (19.6%)
Federal Home Loan
Mortgage Corporation:
Gold Pools:
November TBA:
7.00%, 11/15/24 Agy 500 493
7.50%,
8/15/24-11/15/25 Agy 1,351 1,357
Conventional
Pools:
11.00%, 7/1/13 Agy 158 175
11.50%, 3/1/13 Agy 258 289
Federal National
Mortgage Association:
Conventional
Pools:
10.00%, 5/1/22 Agy 155 169
10.50%, 12/1/10 Agy 207 227
Government National
Mortgage Association:
November TBA
7.50%, 8/15/24 Agy 1,050 1,059
- --------------------------------------------------------
GROUP TOTAL 3,769
- --------------------------------------------------------
ASSET BACKED CORPORATES (9.4%)
ALPS Series 94-1 A4
CMO
7.80%, 7/15/99 AA 125 129
Case Equipment Loan
Trust Series:
95-A A
7.30%, 3/15/02 AAA 91 92
95-A B
7.65%, 3/15/02 A 100 102
(+) Cityscape Home
Equity Loan Series
95-2 A1
7.29%, 2/25/09 AAA 150 150
## Discover Credit Master
Trust I Series
93-1 A
6.145%, 10/16/01 AAA 200 200
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- --------------------------------------------------------
<S> <C> <C> <C>
General Motors
Acceptance Corp.
Series:
92-E A
4.75%, 8/15/97 AAA $ 115 $ 115
93-A A Grantor
Trust
4.15%, 3/15/98 AAA 46 46
Green Tree Financial Series
94-5 A1
6.60%, 11/15/19 AA 87 87
IBM Credit Receivables
Lease Asset Master Trust
Series 93-1 A
4.55%, 11/15/00 AAA 111 109
Olympic Automobile
Receivables Trust Series
94-B B
6.95%, 6/15/01 AAA 175 176
Onyx Acceptance Trust
Series 94-1 A
6.90%, 1/17/00 AAA 165 166
Premier Auto Trust Series
92-2 A
6.375%, 9/15/97 AAA 64 64
92-3 B
6.25%, 11/15/97 A 86 86
Western Financial Auto
Grantor Trust Series:
93-2 A2
4.70%, 10/1/98 AAA 123 121
94-1 A1
5.10%, 6/1/99 AAA 174 172
- --------------------------------------------------------
GROUP TOTAL 1,815
- --------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-
NON-AGENCY COLLATERAL SERIES (10.4%)
(b) American Southwest
Financial Securities
Corp.
Series 95-C1 A1B
7.40%, 11/17/04 Aaa 150 154
Asset Securitization
Corp.
Series 95-D1 A1
7.59%, 8/11/27 AAA 150 156
Citicorp Mortgage
Securities, Inc.
Series:
93-9 A1
7.00%, 3/25/20 AAA 164 164
(c) (+) 95 2 B2
7.50%, 4/25/25 A 175 169
Countrywide Mortgage
Backed Securities, Inc.
Series 93-C A11
6.50%, 1/25/24 AAA 172 160
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
65
<PAGE> 68
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE
DURATION PORTFOLIO
++RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)+
- --------------------------------------------------------
<S> <C> <C> <C>
FBS Mortgage Corporation
Series 92-BB M
8.625%, 7/25/23 AAA $ 171 $ 175
J.P. Morgan Commercial
Mortgage Finance Corp.
Series 95-C1 A1
7.268%, 7/25/10 AAA 105 106
Mortgage Capital
Funding, Inc.
Series: 95-MC1 A1B
7.60%, 5/25/27 AAA 150 156
Old Stone Credit Corp.
Series 92-3 B1
6.35%, 9/25/07 AAA 127 124
Residential Funding
Mortgage Securities Co.,
Inc.
Series:
92-S2 M
8.00%, 1/25/22 AA 93 94
95-S11 A 16
7.50%, 9/25/25 AAA 125 125
Rural Housing Trust
Series:
87-1 D
6.33%, 4/1/26 AAA 195 190
87-1 M
3.33%, 4/1/26 A- 241 219
- --------------------------------------------------------
GROUP TOTAL 1,992
- --------------------------------------------------------
FEDERAL AGENCY (5.6%)
Federal National
Mortgage Association
8.70%, 6/10/99 Agy 1,000 1,081
- --------------------------------------------------------
FINANCE (14.9%)
Allstate Corp.
5.875%, 6/15/98 A 125 123
Barclays American Corp.
7.875%, 8/15/98 AA 125 130
## Caterpillar Financial
Services
5.888%, 6/20/97 A 150 150
Commercial Credit Co.
6.50%, 6/1/05 A+ 100 97
Countrywide Funding
6.55%, 4/14/00 A 200 199
Dean Witter Discover
& Co.
6.875%, 3/1/03 A 100 100
(+) Farmers Insurance
8.625%, 5/1/24 BBB- 250 236
Fireman's Fund
Mortgage Corp.
8.875%, 10/15/01 BBB+ 150 162
(+) First Hawaiian Bank,
Series A
6.93%, 12/1/03 A 250 245
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- --------------------------------------------------------
<S> <C> <C> <C>
(b) FNBC Series 93-A
8.08%, 1/5/18 A1 $ 150 $ 157
General Motors
Acceptance Corp.
6.75%, 6/10/02 BBB+ 175 175
Heller Financial, Inc.
6.45%, 2/15/97 A 81 81
8.85%, 4/15/96 A 125 127
## Household Finance
Corp.
Series 89-2 A
6.04%, 12/20/04 AAA 63 63
(+) Metropolitan Life
Insurance
7.45%, 11/1/23 AA 250 231
## NationsBank Texas
5.875%, 6/18/97 A+ 175 175
(+) Principal Mutual Life
Insurance Co.
7.875%, 3/1/24 AA- 250 241
## Wells Fargo & Co.
5.813%, 1/28/97 A- 175 175
- --------------------------------------------------------
GROUP TOTAL 2,867
- --------------------------------------------------------
FOREIGN GOVERNMENTS (12.5%)
Government of Canada
8.50%, 4/1/02 AA+ C$ 825 643
Government of France
O.A.T.
8.50%, 3/28/00 AAA FF 500 108
8.50%, 11/25/02 AAA 1,500 326
9.50%, 1/25/01 AAA 1,400 316
Kingdom of Denmark
9.00%, 11/15/00 AAA DK 1,595 309
Treuhandanstalt
7.125%, 1/29/03 AAA DM 565 410
7.75%, 10/1/02 AAA 255 192
United Kingdom
9.125%, 2/21/01 AAA ECU 75 105
- --------------------------------------------------------
GROUP TOTAL 2,409
- --------------------------------------------------------
INDUSTRIALS (3.9%)
Columbia/HCA Healthcare
7.69%, 6/15/25 BBB+ $ 105 107
Ford Motor Corp.
5.20%, 1/1/97 A+ 200 198
News America
Holdings, Inc.
10.125%, 10/15/12 BBB 100 116
RJR Nabisco, Inc.
8.75%, 4/15/04 BBB- 125 127
Scotia Pacific Holding Co.
7.95%, 7/20/15 BBB 91 93
Time Warner, Inc.
8.375%, 3/15/23 BBB- 105 108
- --------------------------------------------------------
GROUP TOTAL 749
- --------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
66
<PAGE> 69
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- --------------------------------------------------------
<S> <C> <C> <C>
RATED NON-AGENCY FIXED RATE MORTGAGES (1.7%)
(+) Lakewood Mall Finance
Co.
Series 95-C1 A
7.00%, 8/13/10 AA $ 100 $ 100
Mid-State Trust
Series 95-4 A
8.33%, 4/1/30 AAA 93 99
## Resolution Trust Corp.
Series 92-5C
8.628%, 1/25/26 AA 132 135
- --------------------------------------------------------
GROUP TOTAL 334
- --------------------------------------------------------
U.S. TREASURY SECURITY (1.3%)
(a) U.S. Treasury Notes
6.25%, 2/15/03 Tsy 250 251
- --------------------------------------------------------
YANKEE (0.3%)
Hydro-Quebec
9.40%, 2/1/21 A+ 40 48
- --------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost $16,980) 17,414
- --------------------------------------------------------
CASH EQUIVALENT (17.0%)
- --------------------------------------------------------
REPURCHASE AGREEMENT (17.0%)
Chase Manhattan Bank, N.A. 6.20%,
dated 9/29/95, due
10/2/95, to be
repurchased at $3,266
collateralized by $3,278
of various U.S.
Government and Agency
Obligations, due
10/3/95-7/7/97, valued at
$3,296
(Cost $3,264) 3,264 3,264
- --------------------------------------------------------
TOTAL INVESTMENTS (107.5%) (Cost
$20,244) 20,678
- --------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-7.5%)
Interest Receivable 276
Receivable for Investments Sold 1,242
Payable for Investments Purchased (2,907)
Payable for Administrative Fees (2)
Payable for Investment Advisory Fees (18)
Payable for Daily Variation on
Futures Contracts (12)
Unrealized Loss on Forward Foreign
Currency Contracts (1)
Other Liabilities (19)
-------
(1,441)
- --------------------------------------------------------
<CAPTION>
VALUE
(000)+
- --------------------------------------------------------
<S> <C>
NET ASSETS (100%)
- --------------------------------------------------------
Applicable to 1,800,519 outstanding
shares of beneficial interest
(unlimited
authorization, no par value) $19,237
- --------------------------------------------------------
NET ASSET VALUE PER SHARE $ 10.68
- --------------------------------------------------------
+ See Note A1 to Financial Statements.
++ Ratings are unaudited.
(a) A portion of these securities was pledged to
cover margin requirements for futures contracts.
(b) Moody's Investor Service, Inc. rating. Security
is not rated by Standard & Poor's Corporation.
(c) Fitch rating. Security is not rated by Standard &
Poor's Corporation or Moody's Investor Service,
Inc.
## Variable or floating rate securities-rate
disclosed is as of September 30, 1995.
(+) 144A security. Certain conditions for public sale
may exist.
CMO Collateralized Mortgage Obligation.
TBA Security is subject to delayed delivery. See Note
A8 to Financial Statements.
C$ Canadian Dollar.
DK Danish Krona.
DM German Mark.
ECU European Currency Unit.
FF French Franc.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
67
<PAGE> 70
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
BALANCED
PORTFOLIO
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (38.7%)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
++RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 1995 & POOR'S) (000) (000)+
- ------------------------------------------------------------------------
<S> <C> <C> <C>
ADJUSTABLE RATE MORTGAGES (3.8%)
## Government National
Mortgage Association II:
Various Pools:
6.00%,
2/20/24-9/20/24 Agy $ 6,538 $ 6,590
6.50%,
1/20/22-1/20/25 Agy 3,087 3,132
7.00%, 4/20/22 Agy 1,514 1,540
7.375%, 6/20/23 Agy 1,264 1,290
- -------------------------------------------------------------------------
GROUP TOTAL 12,552
- -------------------------------------------------------------------------
AGENCY FIXED RATE MORTGAGES (9.1%)
Federal Home Loan
Mortgage Corporation
Gold Pools:
November TBA
7.50%,
8/15/24-11/15/25 Agy 6,925 6,964
Conventional
Pools:
11.00%,
5/1/20-9/1/20 Agy 1,570 1,740
12.00%, 3/1/15 Agy 624 705
Federal National
Mortgage
Association
Conventional
Pools:
10.50%,
12/1/16-4/1/22 Agy 2,468 2,705
October TBA
7.50%, 8/15/23 Agy 3,000 3,019
November TBA:
7.00%, 11/15/24 Agy 4,100 4,039
7.50%, 11/15/25 Agy 2,875 2,888
Government National
Mortgage Association
November TBA
7.50%, 8/15/24 Agy 8,200 8,267
- -------------------------------------------------------------------------
GROUP TOTAL 30,327
- -------------------------------------------------------------------------
ASSET BACKED CORPORATES (0.4%)
ALPS Series:
94-1 A4 CMO
7.80%, 7/15/99 AA 375 385
94-1 C CMO
9.35%, 3/15/00 BBB 622 643
#(+) Equitable Asset Trust
Series 93-A
5.00%, 10/15/08 AAA 184 183
- -------------------------------------------------------------------------
GROUP TOTAL 1,211
- -------------------------------------------------------------------------
<PAGE>
<CAPTION>
- -------------------------------------------------------------------------
++RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 1995 & POOR'S) (000) (000)+
- -------------------------------------------------------------------------
<S> <C> <C> <C>
ASSET BACKED MORTGAGES (0.2%)
Security Pacific
Home Equity Trust
Series:
(b) 91-A A2
8.90%, 3/10/06 Aaa $ 597 $ 604
91-A B
10.50%, 3/10/06 A+ 202 211
- --------------------------------------------------------------------------
GROUP TOTAL 815
- --------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-
AGENCY COLLATERAL SERIES (0.7%)
(b) Collateralized Mortgage
Obligation Trust Series
86-14 A2 Inv Fl
12.00%, 4/1/09 Aaa 6 6
Federal Home Loan
Mortgage Corporation
Series
92-1398 I Inv Fl
10.612%, 10/15/07 Agy 745 769
Federal National
Mortgage Association
Series:
90-80 S Inv Fl
17.232%, 7/25/20 Agy 23 27
90-106 J PAC
8.50%, 9/25/20 Agy 745 771
92-33 S Inv Fl
12.90%, 3/25/22 Agy 330 355
Goldman Sachs Trust IV
Series:
89-D 2 Inv Fl
17.716%, 5/1/19 AAA 297 361
89-E-2 Inv Fl
12.573%, 10/27/19 AAA 65 78
- --------------------------------------------------------------------------
GROUP TOTAL 2,367
- --------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-
NON-AGENCY COLLATERAL SERIES (6.0%)
American Housing Trust
Series V IG
9.125%, 4/25/21 AAA 305 316
American Southwest
Financial Securities
Corp. Series:
(c) 93-2 A1
7.30%, 1/18/09 AA 1,393 1,406
(b) 95-C1 A1B
7.40%, 11/17/04 Aaa 900 924
(c) sec. BBS 4 B2
8.528%, 5/28/22
(acquired
2/26/93, cost
$118) A 117 119
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
68
<PAGE> 71
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Chemical Mortgage
Securities, Inc.
Series 93-1M
7.45%, 2/25/23 AA $ 455 $ 446
Citicorp Mortgage
Securities, Inc. Series:
90-11A 5
9.50%, 7/25/20 AAA 264 268
94-7A 5
6.25%, 4/25/24 AAA 825 711
CMC Securities Corp.
IV Series 94-G A4
7.00%, 9/25/24 AAA 675 626
(+) Equitable Life
Assurance Society
of the U.S.
6.633%, 7/23/03 AA 700 693
#sec. First Boston
Mortgage Corp.
Series 92-4 B1
8.125%, 10/25/22
acquired
1/25/93-2/26/93,
cost $255) A 260 254
(+) FSA Finance,
Inc. Series 95-1A
7.42%, 6/1/07 AA 646 662
GE Capital Mortgage
Services, Inc. Series:
(+) 94-6 M
6.50%, 4/25/24 AA 1,456 1,341
94-24 A4
7.00%, 7/25/24 AAA 858 797
(c) Nomura Asset
Securities Corp.
Series 94-MD1 A3
8.026%, 3/15/18 A 525 554
Prudential Home
Mortgage Securities
Co., Inc. Series:
90-5 A3
9.50%, 5/25/05 AAA 236 236
90-8 A5 PAC-1 (11)
9.50%, 9/25/20 AAA 490 490
(+) 92-A 2B4
7.90%, 4/28/22 AA 370 311
(+) 93-B B 2
7.837%, 4/28/23 A 1,773 1,728
(c) (+) 94-A 3B3
6.803%, 4/28/24 A 1,129 1,025
Residential Funding
Mortgage Securities
Co., Inc. Series:
93-MZ1 A2
7.47%, 3/2/23 AA 1,700 1,666
<PAGE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------------------
<S> <C> <C> <C>
sec. 93-MZ2 A2
7.47%, 5/30/23
(acquired
5/12/93, cost
$651) AA $ 650 $ 643
Rural Housing Trust
Series:
87-1 D
6.33%, 4/1/26 AAA 1,009 983
87-1 M
3.33%, 4/1/26 A- 1,202 1,096
87-2 C
6.83%, 4/1/26 AAA 566 561
Ryland Mortgage
Securities Corp
Series:
92-A 1A
8.302%, 3/29/30 A- 548 549
93-A1 A
7.45%, 1/28/23 AAA 1,010 976
94-7B 4A2
7.50%, 8/25/25 AAA 850 819
- ---------------------------------------------------------------------
GROUP TOTAL 20,200
- ---------------------------------------------------------------------
ENERGY (0.5%)
Clark R&M Holdings
Zero Coupon,
2/15/00 B+ 700 448
Maxus Energy Corp.
10.83%, 9/1/04 BB- 750 785
Mobile Energy Services
8.665%, 1/1/17 BBB- 400 419
- ---------------------------------------------------------------------
GROUP TOTAL 1,652
- ---------------------------------------------------------------------
FINANCE (3.6%)
## Bank of Hawaii
Honolulu
5.988%, 11/25/96 A 750 750
Conseco, Inc.
8.125%, 2/15/03 BB+ 870 828
(+) Farmers
Insurance Exchange
8.625%, 5/1/24 BBB- 725 683
Fireman's Fund
Mortgage Corp.
8.875%, 10/15/01 BBB+ 500 541
(+) First Hawaiian Bank,
Series A
6.93%, 12/1/03 A 600 588
First Union REIT
8.875%, 10/1/03 BB+ 450 412
(b) FNBC Series 93-A
8.08%, 1/5/18 A1 1,075 1,123
Home Holdings, Inc.
8.625%, 12/15/03 B- 419 337
John Hancock
7.375%, 2/15/24 AA 625 580
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
69
<PAGE> 72
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED
PORTFOLIO (CONT'D)
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ----------------------------------------------------------------
<S> <C> <C> <C>
(+) Mass Mutual
7.625%, 11/15/23 AA- $ 600 $ 583
(+) Metropolitan
Life Insurance
7.45%, 11/1/23 AA 850 785
# Mutual Life
Insurance Co. of
New York
0.00%, 8/15/24 BBB 950 745
(+) Nationwide
Mutual Life
Insurance
7.50%, 2/15/24 AA- 1,325 1,227
(+) Principal Mutual Life
Insurance Co.
7.875%, 3/1/24 AA- 775 746
(+) Prudential Insurance
Co.
8.30%, 7/1/25 A 950 951
Reliance Group
Holdings
9.00%, 11/15/00 BB+ 375 375
(+) United Savings
of Texas
9.05%, 5/15/98 BB+ 275 273
## World Savings &
Loan Association
5.875%, 3/15/96 A+ 700 700
- ----------------------------------------------------------------
GROUP TOTAL 12,227
- ----------------------------------------------------------------
FOREIGN GOVERNMENTS (4.8%)
Government of Canada
6.50%, 6/1/04 AA+ C$ 975 665
8.50%, 4/1/02 AA+ 4,300 3,356
Government of France
O.A.T.
8.50%, 11/25/02 AAA FF 17,800 3,867
8.50%, 4/25/23 AAA 15,085 3,202
Kingdom of Denmark
9.00%, 11/15/00 AAA DK 10,165 1,967
Treuhandanstalt
7.125%, 1/29/03 AAA DM 1,830 1,329
7.75%, 10/1/02 AAA 1,460 1,098
United Kingdom
9.125%, 2/21/01 AAA ECU 500 697
- ----------------------------------------------------------------
GROUP TOTAL 16,181
- ----------------------------------------------------------------
/ / HEDGED MORTGAGES (1.0%)
Federal Home Loan
Mortgage Corporation
Series:
1415-S Inv Fl IO
CMO
17.563%, 11/15/07 Agy $ 522 204
1476-S Inv Fl IO
REMIC PAC
4.106%, 2/15/08 Agy 5,089 447
1485-S Inv Fl IO
REMIC
3.663%, 3/15/08 Agy 5,507 412
<PAGE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ----------------------------------------------------------------
<S> <C> <C> <C>
1600-SA Inv Fl IO
REMIC
2.063%, 10/15/08 Agy $ 7,950 $ 414
Federal National
Mortgage Association
Series:
92-186 Inv Fl IO
CMO
3.106%, 10/25/07 Agy 8,865 600
94-33 S Inv Fl IO
2.225%, 3/25/09 Agy 13,311 701
G 94-2 S Inv Fl IO
REMIC
2.225%, 1/25/24 Agy 9,827 519
- ----------------------------------------------------------------
GROUP TOTAL 3,297
- ----------------------------------------------------------------
INDUSTRIALS (3.7%)
Alateif Freeport
Finance
9.75%, 4/15/01 BBB- 525 576
(b) Columbia/HCA
Healthcare
7.69%, 6/15/25 A3 750 767
Comcast Corp.
9.375%, 5/15/05 B+ 775 789
Digital Equipment
Corp.
8.625%, 11/1/12 BB+ 400 414
DR Structured
Finance Series 94K2
9.35%, 8/15/19 BBB 375 370
Federated Department
Stores
10.00%, 2/15/01 BB- 825 894
(a) Fleming Cos.,
Inc.
10.625%, 12/15/01 BB- 750 801
G.I. Holdings, Inc.
Zero Coupon,
10/1/98 B+ 1,300 944
(+) Host Marriott
Travel Plaza
9.50%, 5/15/05 BB- 650 632
Marvel Parent
Holdings, Inc.
Zero Coupon,
4/15/98 B- 1,250 895
News America
Holdings, Inc.
10.125%, 10/15/12 BBB 890 1,037
Paramount
Communications
8.25%, 8/1/22 BB+ 700 690
(b) Rhone-Poulenc
Rorer, Inc.
8.62%, 1/5/21 A3 400 436
RJR Nabisco, Inc.
8.75%, 4/15/04 BBB- 975 987
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
70
<PAGE> 73
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
Scotia Pacific
Holding Co.
7.95%, 7/20/15 BBB $ 664 $ 680
Southland Corp.
5.00%, 12/15/03 BB+ 1,115 864
Time Warner, Inc.
9.15%, 2/1/23 BBB- 700 761
- ---------------------------------------------------------
GROUP TOTAL 12,537
- ---------------------------------------------------------
RATED NON-AGENCY FIXED RATE MORTGAGES (1.1%)
(+) Creekwood
Capital Corp.
Series 95-1 A
8.47%, 3/16/15 AA 572 601
(b) (+) DeBartolo
Capital Corp.
Series A 2
7.48%, 5/1/04 Aaa 900 934
First Federal
Savings & Loan
Association
Series 92-C
8.75%, 6/1/06 AA 2 2
Marine Midland Bank
NA, Series
91-1A7
8.50%, 4/25/22 AA 3 3
Mid-State Trust
Series 95-4 A
8.33%, 4/1/30 AAA 663 705
Resolution Trust
Corp. Series 92-5C
8.628%, 1/25/26 AA 485 497
Ryland Acceptance
Corp. IV Series
79-A
6.65%, 7/1/11 AA 110 105
Security Pacific
Home Equity Trust
Series 87-A1
8.00%, 1/1/02 AA 2 2
(+) Stratford Finance
Corp.
6.776%, 2/1/04 AA 800 770
- ---------------------------------------------------------
GROUP TOTAL 3,619
- ---------------------------------------------------------
TELEPHONES (0.6%)
Comcast Cellular Corp.
Series A,
Zero Coupon,
3/5/00 B+ 1,000 763
(+) Rogers Cable Systems
Series B
10.00%, 3/15/05 BB+ 600 630
Tele-Communications,
Inc.
9.25%, 1/15/23 BBB- 700 728
- ---------------------------------------------------------
GROUP TOTAL 2,121
- ---------------------------------------------------------
<PAGE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION (0.5%)
Delta Airlines Trust
Series
93-B2
10.06%, 1/2/16 BB+ $ 500 $ 575
Jet Equipment Trust
Series:
(+) 95-C
10.69%, 5/1/15 BBB- 500 563
(+) B1
10.91%, 6/15/06 BB+ 200 226
(+) CL-C
9.71%, 2/15/15 BBB 225 236
- ---------------------------------------------------------
GROUP TOTAL 1,600
- ---------------------------------------------------------
U.S. TREASURY SECURITY (1.6%)
U.S. Treasury Bond
7.875%, 2/15/21 Tsy 4,550 5,218
- ---------------------------------------------------------
UTILITIES (0.1%)
Long Island Lighting Co.
8.90%, 7/15/19 BB+ 325 326
- ---------------------------------------------------------
YANKEE (1.0%)
PDV America, Inc.
7.875%, 8/1/03 BB- 825 762
# Republic of Argentina
5.00%, 3/31/23 BB- 2,950 1,431
United Mexican States
6.25%, 12/31/19 BB 1,700 1,020
- ---------------------------------------------------------
GROUP TOTAL 3,213
- ---------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost $127,013) 129,463
- ---------------------------------------------------------
COMMON STOCKS (56.8%)
- ---------------------------------------------------------
<CAPTION>
SHARES
------
<S> <C> <C>
BANKS (2.7%)
Chemical Banking Corp. 44,500 2,709
Citicorp 32,300 2,285
First Fidelity Bancorp 6,100 412
First of America Bank
Corp. 10,800 464
First Union Corp. 12,500 638
NationsBank Corp. 38,826 2,611
- ---------------------------------------------------------
GROUP TOTAL 9,119
- ---------------------------------------------------------
BASIC RESOURCES (2.8%)
Champion International
Corp. 5,000 269
EI DuPont de Nemours Co. 61,500 4,228
Georgia Pacific Corp. 12,500 1,094
Scott Paper Co. 30,500 1,479
Temple-Inland, Inc. 19,000 1,012
WR Grace & Co. 20,000 1,335
- ---------------------------------------------------------
GROUP TOTAL 9,417
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
71
<PAGE> 74
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED
PORTFOLIO VALUE
(CONT'D) SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
BEVERAGE & PERSONAL PRODUCTS (2.4%)
Anheuser Busch, Cos., Inc. 17,100 $ 1,066
Avon Products, Inc. 16,300 1,170
PepsiCo, Inc. 77,500 3,953
Procter & Gamble Co. 24,600 1,894
- ---------------------------------------------------------
GROUP TOTAL 8,083
- ---------------------------------------------------------
CONSUMER DURABLES (2.2%)
Armstrong World
Industries, Inc. 6,000 333
Chrysler Corp. 14,600 774
Eastman Kodak Co. 16,900 1,001
Eaton Corp. 17,900 949
General Motors Corp. 58,700 2,752
Goodyear Tire & Rubber Co. 37,900 1,492
- ---------------------------------------------------------
GROUP TOTAL 7,301
- ---------------------------------------------------------
CONSUMER SERVICES (1.8%)
Capital Cities ABC, Inc. 11,200 1,317
News Corp. Limited ADR 50,100 996
Service Corp.
International 28,400 1,111
* Tele-Communications,
Inc., Class A 48,200 844
* Tele-Communications-Liberty
Media Group 25,050 670
Time Warner, Inc. 26,600 1,057
- ---------------------------------------------------------
GROUP TOTAL 5,995
- ---------------------------------------------------------
CREDIT & FINANCE/INVESTMENT COMPANIES (1.3%)
Federal Home Loan Mortgage
Corporation 14,100 975
Federal National Mortgage
Association 20,350 2,106
Transamerica Corp. 19,219 1,369
- ---------------------------------------------------------
GROUP TOTAL 4,450
- ---------------------------------------------------------
ENERGY (5.2%)
Amoco Corp. 26,900 1,725
Atlantic Richfield Co. 20,700 2,223
British Petroleum plc ADR 20,100 1,806
Burlington Resources, Inc. 22,800 883
Chevron Corp. 21,400 1,041
Coastal Corp. 40,000 1,345
El Paso Natural Gas Co. 16,200 446
Mobil Corp. 24,950 2,486
Norsk Hydro A.S. 13,200 569
Royal Dutch Petroleum Co.
ADR 27,200 3,338
Unocal Corp. 49,046 1,398
- ---------------------------------------------------------
GROUP TOTAL 17,260
- ---------------------------------------------------------
FOOD, TOBACCO & OTHER (3.1%)
Archer Daniels Midland Co. 66,255 1,019
Campbell Soup Co. 20,100 1,010
Philip Morris Cos., Inc. 50,800 4,242
<PAGE>
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
RJR Nabisco Holdings Corp. 61,420 $ 1,988
UST, Inc. 27,100 776
Unilever N.V. ADR 10,400 1,352
- ---------------------------------------------------------
GROUP TOTAL 10,387
- ---------------------------------------------------------
HEALTH CARE (4.7%)
Allergan, Inc. 30,100 1,005
American Home Products
Corp. 18,500 1,570
Baxter International, Inc. 31,100 1,279
Becton Dickinson & Co. 26,100 1,641
Bristol-Myers Squibb Co. 43,700 3,185
Columbia HCA Healthcare
Corp. 42,040 2,044
* Humana, Inc. 33,600 676
Johnson & Johnson 23,550 1,746
U.S. Healthcare, Inc. 25,700 909
Warner Lambert Co. 15,700 1,495
- ---------------------------------------------------------
GROUP TOTAL 15,550
- ---------------------------------------------------------
HEAVY INDUSTRY/TRANSPORTATION (5.8%)
* AMR Corp. 13,600 981
Burlington Northern, Inc. 23,305 1,690
CSX Corp. 6,600 555
Cummins Engine Co., Inc. 24,000 924
General Electric Co. 63,200 4,029
ITT Corp. 8,700 1,079
Minnesota Mining &
Manufacturing Co. 7,200 407
Tenneco, Inc. 34,700 1,605
Textron, Inc. 16,000 1,092
Union Pacific Corp. 45,400 3,008
United Technologies Corp. 33,100 2,925
WMX Technologies, Inc. 36,785 1,048
- ---------------------------------------------------------
GROUP TOTAL 19,343
- ---------------------------------------------------------
INSURANCE (1.2%)
Aetna Life & Casualty Co. 17,300 1,269
AFLAC, Inc. 17,600 730
Exel Ltd. 37,300 2,168
- ---------------------------------------------------------
GROUP TOTAL 4,167
- ---------------------------------------------------------
MID CAP GROWTH (2.8%)
Adobe Systems, Inc. 4,300 223
* Airgas, Inc. 4,200 112
* American Mobile
Satellite 8,500 203
* Boca Research, Inc. 1,800 44
* Boston Chicken, Inc. 5,200 136
* Broderbund Software,
Inc. 2,100 160
Cardinal Health, Inc. 3,000 166
* Cellstar Corp. 3,600 113
* Cellular Communications,
Inc., Class A 2,100 114
* Ceridian Corp. 3,800 169
* CIDCO, Inc. 2,700 95
Cintas Corp. 4,100 180
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
72
<PAGE> 75
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
Citicasters, Inc. 2,500 $ 83
* CNS, Inc. 4,100 54
Comcast Corp., Class A
Special 6,000 120
* Comcast UK Cable
Partners 4,900 77
Computron Software, Inc. 3,600 62
* Cordis Corp. 1,300 110
Cott Corp. 10,700 102
Danaher Corp. 4,100 134
* Eckerd Corp. 3,600 144
* Electronics for Imaging,
Inc. 1,600 115
Firefox Communications,
Inc. 2,200 54
* Fiserv, Inc. 2,800 81
Frontier Corp. 8,400 224
* Gartner Group, Inc.,
Class A 4,400 144
General Cable plc ADR 3,300 53
* Glenayre Technologies,
Inc. 2,550 184
Globalstar
Telecommunications Ltd. 6,600 141
* Health Management
Associates, Class A 10,300 331
* Healthcare Compare Corp. 2,000 78
HighwayMaster
Communications, Inc. 1,000 13
HFS, Inc. 3,100 162
* International Cabletel,
Inc. 7,600 213
* Inter-Tel, Inc. 2,600 46
Kent Electronics Corp. 2,200 97
La Quinta Motor Inns, Inc. 4,800 134
Lin Television Corp. 1,800 56
* Lincare Holdings, Inc. 5,900 152
* LSI Logic Corp. 1,800 104
Maxis, Inc. 1,700 75
* McAfee Associates, Inc. 1,300 67
* Millicom International
Cellular S.A. 2,600 84
Mylan Labs, Inc. 3,150 63
* National Education Corp. 4,800 38
Nokia Corp. ADR 1,800 126
* North American Biologicals,
Inc. 3,500 29
OfficeMax, Inc. 4,800 116
* OrNda Healthcorp 5,100 108
* Paging Network, Inc. 4,100 197
Palmer Wireless, Inc. 4,300 96
PanAmSat Corp. 6,800 104
Papa John's International, Inc. 2,700 122
Paychex, Inc. 4,300 199
P-Com, Inc. 1,300 58
PMI Group, Inc. 1,700 81
Post Properties, Inc. 2,000 62
Project Software &
Development, Inc. 1,700 44
* Qualcomm, Inc. 1,700 78
* Robert Mondavi Corp.,
Class A 4,200 107
* Rotech Medical Corp. 4,200 104
Security Capital
Industrial Trust 4,600 75
Security Capital Pacific
Trust 3,700 70
<PAGE>
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
Sinclair Broadcast Group, Inc. 5,300 $ 152
Sirrom Capital Corp. 5,400 98
Softkey International,
Inc. 1,300 58
Stewart Enterprises, Inc.,
Class A 2,550 92
Stratacom, Inc. 1,800 99
* Sunglass Hut International,
Inc. 2,100 105
Tanger Factory Outlet
Center 2,100 52
* Tele-Communications,
Inc., Class A 16,575 290
* Tele-Communications-Liberty
Media Group, Class A 5,143 138
Tele-Communications
International, Inc. 5,400 101
Telephone & Data Systems, Inc. 5 --
* Tellabs, Inc. 3,700 155
* Tommy Hilfiger Corp. 4,600 150
Transaction Systems
Architect, Inc., Class A 3,300 88
* United International
Holdings, Inc., Class A 4,800 88
* United Video Satellite
Group 2,700 80
U.S. Robotics Corp. 1,000 85
USA Detergents, Inc. 5,000 103
Videotron Holdings plc ADR 1,900 32
* Viking Office Products,
Inc. 4,100 171
* Vivra, Inc. 3,200 102
Wolverine World Wide, Inc. 2,500 68
- ---------------------------------------------------------
GROUP TOTAL 9,393
- ---------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (0.3%)
DeBartolo Realty Corp. 21,800 305
Developers Diversified
Realty Corp. 7,700 232
Security Capital Pacific
Trust 18,447 350
- ---------------------------------------------------------
GROUP TOTAL 887
- ---------------------------------------------------------
RETAIL (3.3%)
Circuit City Stores, Inc. 29,400 930
* Federated Department
Stores, Inc. 38,100 1,081
Home Depot, Inc. 39,000 1,555
* Kroger Co. 30,900 1,054
* Office Depot, Inc. 24,000 723
OfficeMax, Inc. 28,950 702
Sears Roebuck & Co. 61,600 2,272
Wal-Mart Stores, Inc. 66,700 1,659
Wendy's International,
Inc. 55,700 1,177
- ---------------------------------------------------------
GROUP TOTAL 11,153
- ---------------------------------------------------------
TECHNOLOGY (3.9%)
* Compaq Computer 37,300 1,804
Intel Corp. 36,300 2,183
International Business
Machines Corp. 18,500 1,746
Motorola, Inc. 14,300 1,092
* National Semiconductor 54,600 1,508
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
73
<PAGE> 76
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED
PORTFOLIO VALUE
(CONT'D) SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
* Oracle Corporation 18,150 $ 697
* Seagate Technology 43,800 1,845
Texas Instruments, Inc. 26,600 2,125
- ---------------------------------------------------------
GROUP TOTAL 13,000
- ---------------------------------------------------------
UTILITIES (6.5%)
* AirTouch Communications, Inc. 30,300 928
Consolidated Edison Co. of
New York 16,800 510
Entergy Corp. 38,400 1,003
Florida Progress Corp. 17,000 550
Frontier Corp. 43,200 1,150
GTE Corp. 71,700 2,814
Houston Industries, Inc. 14,900 657
MCI Communications Corp. 55,200 1,439
Ohio Edison Co. 45,700 1,040
Pacific Gas & Electric Co. 35,800 1,070
PECO Energy Co. 26,000 744
Public Service Enterprise
Group, Inc. 20,300 604
SBC Communications, Inc. 42,400 2,332
Sprint Corp. 51,800 1,813
Unicom Corp. 40,700 1,231
U.S. West, Inc. 46,300 2,182
Vodafone Group plc ADR 41,500 1,702
- ---------------------------------------------------------
GROUP TOTAL 21,769
- ---------------------------------------------------------
VALUE (6.8%)
Allied Signal, Inc. 4,100 181
Allstate Corp. 4,727 167
American General Corp. 8,600 321
Amoco Corp. 2,800 180
Anheuser-Busch Cos., Inc. 4,200 262
Archer Daniels Midland
Industries, Inc. 14,490 223
Armstrong World Industries, Inc. 6,500 361
Atlantic Richfield Co. 2,100 225
Bank of Boston Corp. 6,461 308
Bard (C.R.), Inc. 4,700 143
Beckman Instruments, Inc. 10,900 330
Bergen Brunswig Corp.,
Class A 8,000 171
Boatmen's Bancshares, Inc. 3,100 115
Boise Cascade Corp. 1,700 69
Bristol-Myers Squibb Co. 3,400 248
British Petroleum plc ADR 4,100 368
Brunswick Corp. 3,900 80
Burlington Northern, Inc. 5,200 377
Cabot Oil & Gas Corp.,
Class A 2,500 133
Capital One Financial
Corp. 8,600 253
Caterpillar, Inc. 3,000 171
Central Maine Power Co. 12,500 164
Chemical Banking Corp. 4,500 274
Citicorp 1,900 134
* Compaq Computer Corp. 5,100 247
Crestar Financial Corp. 4,570 255
<PAGE>
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
CSX Corp. 1,500 $ 126
Cummins Engine Co., Inc. 7,500 289
Cyprus Amax Minerals Co. 8,000 225
Dayton-Hudson Corp. 2,200 167
Deere & Co. 3,100 252
Dexter Corp. 6,700 171
Dillard Department Stores,
Inc., Class A 5,400 172
Eastman Chemical Co. 725 46
Eaton Corp. 6,000 318
EI Du Pont De Nemours & Co. 3,700 254
El Paso Natural Gas Co. 7,800 215
Entergy Corp. 9,400 246
* Federal Express Corp. 4,100 340
Federal Home Loan Mortgage
Corp. 1,900 131
Federal National Mortgage
Association 1,900 197
First of America Bank
Corp. 4,385 189
* FMC Corp. 2,600 198
* Foundation Health Corp. 6,700 255
General Motors Corp. 7,296 342
General Public Utilities
Corp. 11,500 358
Goodyear Tire & Rubber Co. 7,300 287
Great Western Financial 7,300 173
International Business
Machines Corp. 3,200 302
ITT Corp. 2,000 248
Lockheed Martin Corp. 3,845 258
Long Island Lighting Co. 10,500 181
Lubrizol Corp. 5,100 166
Mallinckrodt Group, Inc. 7,800 309
MAPCO, Inc. 5,800 299
MCI Communications Corp. 10,100 263
Melville Corp. 5,900 204
* National Semiconductor
Corp. 13,000 359
New York State Electric &
Gas Corp. 4,500 118
Northern Trust Corp. 1,200 55
Olin Corp. 4,100 282
* PacifiCare Health
Systems, Inc., Class B 3,800 258
PECO Energy Co. 10,400 298
PHH Corp. 3,300 149
Philip Morris Cos., Inc. 6,300 526
PNC Bank Corp. 6,300 176
Premark International,
Inc. 5,600 285
Providian Corp. 8,400 349
Raytheon Corp. 3,000 255
Reebok International Ltd. 5,000 172
Rhone-Poulenc Rorer, Inc. 6,100 278
RJR Nabisco Holdings Corp. 11,100 359
Rockwell International
Corp. 4,700 222
Rohm & Haas Co. 4,600 278
Ryder Systems, Inc. 7,700 195
SAFECO Corp. 1,100 72
Scitex Corp., Ltd. 11,500 217
* Seagate Technology 8,100 341
Sears, Roebuck & Co. 5,100 188
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
74
<PAGE> 77
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
Shawmut National Corp. 4,700 $ 158
Signet Banking Corp. 8,319 218
Springs Industries, Inc.,
Class A 5,300 208
Sprint Corp. 6,300 221
St. Paul Cos., Inc. 4,700 274
Standard Register Co. 12,700 273
TCF Financial Corp. 2,400 140
Tecumseh Products Co.,
Class A 10,200 490
* Tenet Healthcare Corp. 15,100 262
Texas Instruments, Inc. 3,400 272
Textron, Inc. 3,600 246
Torchmark Corp. 2,000 84
Trinova Corp. 4,800 162
Ultramar Corp. 8,900 211
United Technologies Corp. 1,900 168
Universal Corp. 400 9
V.F. Corp. 5,200 265
* Western Digital Corp. 14,600 232
Weyerhaeuser Co. 3,100 141
Whirlpool Corp. 2,700 155
Williams Cos., Inc. 4,600 179
YPF SA ADR 7,100 128
- ---------------------------------------------------------
GROUP TOTAL 22,869
- ---------------------------------------------------------
TOTAL COMMON STOCKS (Cost $160,136) 190,143
- ---------------------------------------------------------
CONVERTIBLE PREFERRED STOCK (0.2%)
- ---------------------------------------------------------
<CAPTION>
++RATINGS
(STANDARD
& POOR'S)
---------
<S> <C> <C> <C>
Unisys Corp. Series A
$3.75 (Cost $964) B- 22,200 830
- ---------------------------------------------------------
RIGHTS (0.0%)
- ---------------------------------------------------------
* Mexico Recovery Rights,
expiring 6/30/03 (Cost
$0) 1,700 --
- ---------------------------------------------------------
CASH EQUIVALENTS (13.0%)
- ---------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
------
<S> <C> <C>
Short-term Investments
Held as Collateral for
Loaned Securities (0.3%) $ 858 858
- ---------------------------------------------------------
U.S. TREASURY SECURITIES (0.1%)
- ---------------------------------------------------------
U.S. Treasury Bills
(a) Zero Coupon,
10/19/95 Tsy 150 150
(a) Zero Coupon,
1/11/96 Tsy 350 345
- ---------------------------------------------------------
GROUP TOTAL 495
- ---------------------------------------------------------
<PAGE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)+
- ---------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER (5.0%)
Alabama Power
5.71%, 10/27/95 $ 1,200 $ 1,195
American General Finance
Corp.
5.71%, 11/2/95 1,200 1,194
Barclays U.S. Funding
5.74%, 10/30/95 1,200 1,194
Bell Atlantic Financial
5.72%, 10/11/95 1,200 1,198
Cargill
5.72%, 10/6/95 1,200 1,199
General Electric Capital
Corp.
5.74%, 10/12/95 1,200 1,198
Hershey Foods
5.70%, 10/27/95 1,200 1,195
Household Finance Corp.
5.73%, 10/16/95 1,200 1,197
McDonald's Corp.
5.72%, 10/11/95 1,200 1,198
Motorola Credit
5.70%, 10/17/95 1,200 1,197
Raytheon Co.
5.72%, 10/4/95 1,200 1,199
U.S. West, Inc.
5.71%, 11/7/95 1,200 1,193
Weyerhaeuser Mortgage Co.
5.71%, 10/25/95 1,200 1,195
Xerox Credit Corp.
5.75%, 10/3/95 1,200 1,200
- ---------------------------------------------------------
GROUP TOTAL 16,752
- ---------------------------------------------------------
REPURCHASE AGREEMENT (7.6%)
Chase Manhattan Bank, N.A.
6.20%, dated 9/29/95, due
10/2/95, to be
repurchased at $25,290
collateralized by $25,386
of various U.S.
Government and Agency
Obligations, due
10/3/95-7/7/97, valued at
$25,529 25,277 25,277
- ---------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $43,382) 43,382
- ---------------------------------------------------------
TOTAL INVESTMENTS (108.7%) (Cost $331,495) 363,818
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-8.7%)
Dividends Receivable 425
Interest Receivable 2,044
Receivable for Fund Shares Sold 2
Receivable for Investments Sold 1,121
Other Assets 1
Payable for Fund Shares Redeemed (61)
Payable for Investments Purchased (26,142)
Payable for Administrative Fees (25)
Payable for Investment Advisory Fees (362)
Payable for Daily Variation on Futures
Contracts (42)
Written Interest Rate Floors, at Value (5,106)
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
75
<PAGE> 78
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED
PORTFOLIO VALUE
(CONT'D) (000)+
- ---------------------------------------------------------
<S> <C>
Unrealized Loss on Forward Foreign
Currency Contracts $ (69)
Collateral on Securities Loaned, at
Value (858)
Other Liabilities (116)
--------
(29,188)
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 25,626,411 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $334,630
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 13.06
- ---------------------------------------------------------
sec. Restricted Security-Total cost of restricted
securities at September 30, 1995 amounted to
$1,024. Total market value of restricted
securities owned at September 30, 1995 was
$1,016 or 0.3% of net assets.
+ See Note A1 to Financial Statements.
++ Ratings are unaudited.
* Non-Income Producing Security.
(a) A portion of these securities was pledged to
cover margin requirements for futures
contracts.
(b) Moody's Investor Service, Inc. rating. Security
is not rated by Standard & Poor's Corporation.
(c) Fitch rating. Security is not rated by Standard
& Poor's Corporation or Moody's Investor
Service, Inc.
/ / Securities purchased with proceeds from written
floors. See Note A6 to Financial Statements.
# Step Bond-Coupon rate is zero or below market
for an initial period and then increases to a
higher coupon rate thereafter.
## Variable or floating rate securities-rate
disclosed is as of September 30, 1995.
(+) 144A security. Certain conditions for public
sale may exist.
ADR American Depositary Receipt.
Inv Fl Inverse Floating Rate-Interest rate fluctuates
with an inverse relationship to an associated
interest rate. Indicated rate is the effective
rate at September 30, 1995.
IO Interest Only.
CMO Collateralized Mortgage Obligation.
PAC Planned Amortization Class.
REMIC Real Estate Mortgage Investment Conduit.
TBA Security is subject to delayed delivery. See
Note A8 to Financial Statements.
C$ Canadian Dollar.
DK Danish Krona.
DM German Mark.
ECU European Currency Unit.
FF French Franc.
</TABLE>
MULTI-ASSET-CLASS
PORTFOLIO
STATEMENT OF NET ASSETS
EQUITY (44.2%)
<TABLE>
<CAPTION>
---------------------------------------------------------
VALUE
SEPTEMBER 30, 1995 SHARES (000)+
---------------------------------------------------------
<S> <C> <C>
U.S. COMMON STOCKS (44.2%)
- ---------------------------------------------------------
BANKS (2.1%)
Chemical Banking Corp. 10,000 $ 609
Citicorp 6,700 474
First Fidelity Bancorp 1,600 108
First of America Bank Corp. 2,441 105
First Union Corp. 2,400 122
NationsBank Corp. 8,802 592
- ---------------------------------------------------------
GROUP TOTAL 2,010
- ---------------------------------------------------------
BASIC RESOURCES (2.1%)
EI DuPont de Nemours Co. 13,775 947
Georgia Pacific Corp. 2,900 254
Scott Paper Co. 6,700 325
Temple-Inland, Inc. 4,300 229
W.R. Grace & Co. 4,700 314
- ---------------------------------------------------------
GROUP TOTAL 2,069
- ---------------------------------------------------------
BEVERAGE & PERSONAL PRODUCTS (1.9%)
Anheuser Busch Cos., Inc. 4,000 250
Avon Products, Inc. 4,100 294
PepsiCo, Inc. 17,400 887
Procter & Gamble Co. 5,300 408
- ---------------------------------------------------------
GROUP TOTAL 1,839
- ---------------------------------------------------------
CONSUMER DURABLES (1.7%)
Armstrong World Industries,
Inc. 1,100 61
Chrysler Corp. 3,200 170
Eastman Kodak Co. 3,800 225
Eaton Corp. 4,000 212
General Motors Corp. 13,421 629
Goodyear Tire & Rubber Co. 8,500 335
- ---------------------------------------------------------
GROUP TOTAL 1,632
- ---------------------------------------------------------
CONSUMER SERVICES (1.4%)
Capital Cities ABC, Inc. 2,200 259
News Corp. Limited ADR 12,600 250
Service Corp. International 6,300 246
* Tele-Communications, Inc.,
Class A 11,100 194
* Tele-Communications-Liberty
Media Group, Class A 7,175 192
Time Warner, Inc. 5,700 227
- ---------------------------------------------------------
GROUP TOTAL 1,368
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
76
<PAGE> 79
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)+
---------------------------------------------------------
<S> <C> <C>
CREDIT & FINANCE/INVESTMENT COMPANIES (1.1%)
Federal Home Loan Mortgage
Corporation 2,900 $ 200
Federal National Mortgage
Association 5,000 518
Transamerica Corp. 4,100 292
- ---------------------------------------------------------
GROUP TOTAL 1,010
- ---------------------------------------------------------
ENERGY (3.9%)
Amoco Corp. 6,200 398
Atlantic Richfield Co. 4,650 499
British Petroleum plc ADR 4,709 423
Burlington Resources, Inc. 4,600 178
Chevron Corp. 4,700 229
Coastal Corp. 8,300 279
El Paso Natural Gas Co. 3,400 94
Mobil Corp. 5,700 568
Norsk Hydro AS ADR 3,000 129
Royal Dutch Petroleum Co.
ADR 5,900 724
Unocal Corp. 9,502 271
- ---------------------------------------------------------
GROUP TOTAL 3,792
- ---------------------------------------------------------
FOOD, TOBACCO & OTHER (2.4%)
Archer Daniels Midland Co. 14,595 225
Campbell Soup Co. 4,400 221
Philip Morris Cos., Inc. 11,200 935
RJR Nabisco Holdings Corp. 13,440 435
Unilever N.V. ADR 2,700 351
UST, Inc. 6,000 172
- ---------------------------------------------------------
GROUP TOTAL 2,339
- ---------------------------------------------------------
HEALTH CARE (3.6%)
Allergan, Inc. 6,900 230
American Home Products Corp. 4,350 369
Baxter International, Inc. 6,800 280
Becton, Dickinson & Co. 5,600 352
Bristol-Myers Squibb Co. 9,800 714
Columbia HCA Healthcare
Corp. 9,562 465
* Humana, Inc. 7,600 153
Johnson & Johnson 5,300 393
U.S. Healthcare, Inc. 5,900 209
Warner Lambert Co. 3,500 333
- ---------------------------------------------------------
GROUP TOTAL 3,498
- ---------------------------------------------------------
HEAVY INDUSTRY/TRANSPORTATION (4.3%)
* AMR Corp. 3,000 216
Burlington Northern, Inc. 4,443 322
CSX Corp. 1,100 93
Cummins Engine Co., Inc. 5,400 208
General Electric Co. 13,900 886
ITT Corp. 1,800 223
Minnesota Mining &
Manufacturing Co. 2,200 124
Tenneco, Inc. 7,600 352
<CAPTION>
VALUE
SHARES (000)+
---------------------------------------------------------
<S> <C> <C>
Textron, Inc. 3,500 $ 239
Union Pacific Corp. 10,300 682
United Technologies Corp. 6,900 610
WMX Technologies, Inc. 8,600 245
- ---------------------------------------------------------
GROUP TOTAL 4,200
- ---------------------------------------------------------
INSURANCE (0.9%)
Aetna Life & Casualty Co. 3,800 278
AFLAC, Inc. 3,000 125
Exel Ltd. 8,500 494
- ---------------------------------------------------------
GROUP TOTAL 897
- ---------------------------------------------------------
MID CAP GROWTH (2.2%)
* CIDCO, Inc. 3,200 113
Cott Corp. 10,300 98
* Fiserv, Inc. 6,600 191
Globalstar
Telecommunications Ltd. 4,600 98
* Health Management
Associates, Inc., Class A 4,100 132
* International Cabletel,
Inc. 5,300 148
La Quinta Motor Inns, Inc. 4,800 134
* Lincare Holdings, Inc. 4,500 116
* Paging Network, Inc. 4,700 226
Paychex, Inc. 4,650 215
Security Capital Industrial
Trust 5,000 81
Sirrom Capital Corp. 8,800 160
* Tellabs, Inc. 3,000 126
* Tommy Hilfiger Corp. 4,300 140
* Viking Office Products,
Inc. 3,900 162
- ---------------------------------------------------------
GROUP TOTAL 2,140
- ---------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (0.2%)
DeBartolo Realty Corp. 3,700 52
Developers Diversified
Realty Corp. 1,400 42
Security Capital Pacific
Trust 3,000 57
- ---------------------------------------------------------
GROUP TOTAL 151
- ---------------------------------------------------------
RETAIL (2.6%)
Circuit City Stores, Inc. 6,300 199
* Federated Department
Stores, Inc. 8,400 238
Home Depot, Inc. 8,700 347
* Kroger Corp. 7,000 239
* Office Depot, Inc. 4,800 145
OfficeMax, Inc. 6,600 160
Sears Roebuck & Co. 13,300 490
Wal-Mart Stores, Inc. 14,200 353
Wendy's International, Inc. 14,100 298
- ---------------------------------------------------------
GROUP TOTAL 2,469
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
77
<PAGE> 80
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MULTI-ASSET-CLASS
PORTFOLIO VALUE
(CONT'D) SHARES (000)+
---------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (2.9%)
* Compaq Computer Corp. 8,500 $ 411
Intel Corp. 7,200 433
International Business
Machines Corp. 4,100 387
Motorola, Inc. 2,700 206
* National Semiconductor 12,200 337
* Oracle System Corp. 4,550 175
* Seagate Technology 9,700 409
Texas Instruments, Inc. 5,900 471
- ---------------------------------------------------------
GROUP TOTAL 2,829
- ---------------------------------------------------------
UTILITIES (5.0%)
* Airtouch Communications,
Inc. 6,300 193
Consolidated Edison Co. of
New York 5,200 158
Entergy Corp. 8,600 225
Florida Progress Corp. 4,900 159
Frontier Corp. 9,800 261
GTE Corp. 15,000 589
Houston Industries, Inc. 2,800 124
MCI Communications Corp. 13,000 339
Ohio Edison Co. 9,400 213
Pacific Gas & Electric Co. 7,600 227
PECO Energy Co. 5,900 169
Public Service Enterprise
Group, Inc. 4,900 146
SBC Communications, Inc. 9,400 517
Sprint Corp. 12,100 424
Unicom Corp. 9,000 272
US West, Inc. 10,500 494
Vodafone Group plc ADR 8,400 344
- ---------------------------------------------------------
GROUP TOTAL 4,854
- ---------------------------------------------------------
VALUE (5.9%)
Baxter International, Inc. 12,700 522
Chrysler Corp. 16,900 896
Citicorp. 10,700 757
Dillard Department Stores,
Inc., Class A 14,700 469
MAPCO, Inc. 12,700 654
SAFECO Corp. 4,200 276
Sprint Corp. 10,600 371
Texas Instruments, Inc. 12,200 974
Textron, Inc. 5,300 362
Whirlpool Corp. 6,700 386
- ---------------------------------------------------------
GROUP TOTAL 5,667
- ---------------------------------------------------------
TOTAL U.S. COMMON STOCKS (Cost $36,564) 42,764
- ---------------------------------------------------------
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
---------------------------------------------------------
<S> <C> <C> <C>
U.S. FIXED INCOME (18.4%)
- ---------------------------------------------------------
FIXED INCOME SECURITIES (18.3%)
- ---------------------------------------------------------
ADJUSTABLE RATE MORTGAGES (2.0%)
## Government National
Mortgage Association II:
Conventional
Pools:
5.00%, 12/20/24 Agy $ 346 $ 344
6.00%,
10/20/23-5/20/24 Agy 1,270 1,275
6.50%,
10/20/23-7/20/24 Agy 272 277
- ---------------------------------------------------------
GROUP TOTAL 1,896
- ---------------------------------------------------------
<PAGE>
AGENCY FIXED RATE MORTGAGES (5.0%)
Federal Home Loan
Mortgage Corporation:
Gold Pools:
November TBA
7.00%, 6/15/24 Agy 800 788
7.50%,
8/15/24-11/15/25 Agy 1,100 1,105
Conventional
Pools:
11.00%, 9/1/16 Agy 185 205
11.50%, 7/1/15 Agy 155 174
Federal National
Mortgage Association:
Conventional
Pools:
November TBA
7.00%, 11/15/24 Agy 625 616
7.50%, 11/15/25 Agy 625 628
Government National
Mortgage Association
Conventional
Pools:
10.50%, 2/15/19 Agy 41 46
11.00%,
7/15/10-7/15/19 Agy 166 185
November TBA
7.50%, 8/15/24 Agy 1,100 1,109
- ---------------------------------------------------------
GROUP TOTAL 4,856
- ---------------------------------------------------------
ASSET BACKED CORPORATES (0.2%)
ALPS Series:
94-1 A4 CMO
7.80%, 7/15/99 AA 100 103
94-1 C CMO
9.35%, 3/15/00 BBB 99 103
- ---------------------------------------------------------
GROUP TOTAL 206
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
78
<PAGE> 81
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
---------------------------------------------------------
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS-
AGENCY COLLATERAL SERIES (0.1%)
Federal National
Mortgage
Association Series:
92-33 S Inv Fl
12.90%, 3/25/22 Agy $ 50 $ 54
Goldman Sachs Trust
IV Series
89 D-2 Inv Fl
17.716%, 5/1/19 AAA 49 60
- ---------------------------------------------------------
GROUP TOTAL 114
- ---------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-
NON-AGENCY COLLATERAL SERIES (2.6%)
American Housing
Trust Series V 1G
9.125%, 4/25/21 AAA 170 176
American Southwest
Financial
Securities Corp.
Series:
(c) 93-2 A1
7.30%, 1/18/09 AA 147 148
(b) 95-C1 A1B
7.40%, 11/17/04 Aaa 150 154
Asset Securitization
Corp. Series 95-D1
A1
7.59%, 8/11/27 AAA 125 130
Countrywide Mortgage
Backed Securities,
Inc. Series:
93-C A11
6.50%, 1/25/24 AAA 147 137
GE Capital Mortgage
Services, Inc.
Series:
94-24 A4
7.00%, 7/25/24 AAA 220 204
J.P. Morgan
Commercial Mortgage
Finance Corp.
Series:
95-C1 A1
7.268%, 7/25/10 AAA 85 86
Mid-State Trust
Series
88-2 A4
9.625%, 4/1/03 AAA 188 206
Mortgage Capital
Funding, Inc.
Series
95-MC1 A1B
7.60%, 5/25/27 AAA 125 130
Residential Funding
Mortgage Securities
Co., Inc. Series:
92-S2 M
8.00%, 1/25/22 AA 93 94
(c) sec. 93-MZ3 A2
6.97%, 8/28/23
(acquired
7/17/95, cost
$93) AA 100 94
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
---------------------------------------------------------
<S> <C> <C> <C>
sec. 93-S43 A10
6.50%, 11/25/23
(acquired
6/12/95, cost
$136) AAA $ 147 $ 137
sec. 94-S1 A19
6.75%, 1/25/24
(acquired
5/22/95, cost
$179) AAA 196 186
95-S11 M
7.50%, 9/25/25 AAA 100 100
Rural Housing Trust
Series:
87-1D
6.33%, 4/1/26 AAA 162 158
87-1M
3.33%, 4/1/26 A- 165 151
87-2C
6.83%, 4/1/26 AAA 162 160
sec.(b) Security Asset Sales,
Inc.
Series 95-B M
7.41%, 9/25/24
(acquired
5/16/95, cost
$93) Aa3 100 97
- ---------------------------------------------------------
GROUP TOTAL 2,548
- ---------------------------------------------------------
ENERGY (0.2%)
Maxus Energy Corp.
10.83%, 9/1/04 BB- 115 120
Mobile Energy Services
8.665%, 1/1/17 BBB- 100 105
- ---------------------------------------------------------
GROUP TOTAL 225
- ---------------------------------------------------------
FINANCE (1.4%)
Conseco, Inc.
8.125%, 2/15/03 BB+ 125 119
First Union REIT
8.875%, 10/1/03 BB+ 100 92
(b) FNBC Series 93-A
8.08%, 1/5/18 A1 100 104
Home Holdings, Inc.
8.625%, 12/15/03 B- 95 76
John Hancock Surplus
Note
7.375%, 2/15/24 AA 250 232
(+) Metropolitan Life
Insurance
7.45%, 11/1/23 AA 250 231
(+) Nationwide Mutual Life
Insurance
7.50%, 2/15/24 AA- 250 232
(+) Prudential Insurance Co.
8.30%, 7/1/25 A 150 150
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
79
<PAGE> 82
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MULTI-ASSET-CLASS
PORTFOLIO
++RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)+
---------------------------------------------------------
<S> <C> <C> <C>
Reliance Group Holdings
9.00%, 11/15/00 BB+ $ 50 $ 50
(+) United Savings of Texas
9.05%, 5/15/98 BB+ 50 50
- ---------------------------------------------------------
GROUP TOTAL 1,336
- ---------------------------------------------------------
INDUSTRIALS (1.7%)
Alateif Freeport Finance
9.75%, 4/15/01 BBB- 70 77
(b) Columbia/HCA
Healthcare
7.69%, 6/15/25 A3 125 128
Comcast Corp.
9.375%, 5/15/05 B+ 105 107
Digital Equipment Corp.
8.625%, 11/1/12 BB+ 100 104
DR Structured
Finance Series 94K2
9.35%, 8/15/19 BBB 30 30
Federated Department
Stores
10.00%, 2/15/01 BB- 120 130
Fleming Cos., Inc.
10.625%, 12/15/01 BB- 100 107
News America
Holdings, Inc.
10.125%, 10/15/12 BBB 125 146
Paramount
Communications
8.25%, 8/1/22 BB+ 95 94
(b) Rhone-Poulenc
Rorer, Inc.
8.62%, 1/5/21 A3 100 109
RJR Nabisco, Inc.
8.75%, 4/15/04 BBB- 135 137
Scotia Pacific
Holding Co.
7.95%, 7/20/15 BBB 114 116
Southland Corp.
5.00%, 12/15/03 BB+ 165 128
Time Warner, Inc.
9.15%, 2/1/23 BBB- 100 109
Unisys Corp.
9.75%, 9/15/16 BB- 86 84
- ---------------------------------------------------------
GROUP TOTAL 1,606
- ---------------------------------------------------------
RATED NON-AGENCY FIXED RATE MORTGAGES (0.2%)
Beverly Finance
8.36%, 7/15/04 AA- 100 105
Mid-State Trust
Series 95-4A
8.33%, 4/1/30 AAA 93 99
- ---------------------------------------------------------
GROUP TOTAL 204
- ---------------------------------------------------------
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
TELEPHONES (0.3%)
AT&T Corp.
8.35%, 1/15/25 AA $ 55 $ 60
Comcast Cellular
Corp. Series A
Zero Coupon,
3/5/00 B+ 75 57
(+) Rogers Cable
Systems, Series B
10.00%, 3/15/05 BB+ 85 89
Tele-Communications,
Inc.
9.25%, 1/15/23 BBB- 105 109
- ---------------------------------------------------------
GROUP TOTAL 315
- ---------------------------------------------------------
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
TRANSPORTATION (0.4%)
<S> <C> <C> <C>
Delta Airlines Trust
Series 93-B2
10.06%, 1/2/16 BB+ 75 86
Jet Equipment Trust
Series:
(+) 95-C
10.69%, 5/1/15 BBB- 100 113
(+) A11
10.00%, 6/15/12 A 125 144
(+) B1
10.91%, 6/15/06 BB+ 25 28
- ---------------------------------------------------------
GROUP TOTAL 371
- ---------------------------------------------------------
U.S. TREASURY SECURITIES (3.9%)
U.S. Treasury Bonds
7.875%, 2/15/21 Tsy 350 401
(a) 8.75%, 8/15/20 Tsy 2,000 2,501
U.S. Treasury Note
7.25%, 8/15/04 Tsy 825 882
- ---------------------------------------------------------
GROUP TOTAL 3,784
- ---------------------------------------------------------
UTILITIES (0.0%)
Long Island Lighting
Co.
8.90%, 7/15/19 BB+ 40 40
- ---------------------------------------------------------
YANKEE (0.3%)
PDV America, Inc.
7.875%, 8/1/03 BB- 75 69
# Republic of
Argentina
5.00%, 3/31/23 BB- 300 146
United Mexican
States
6.25%, 12/31/19 BB 125 75
- ---------------------------------------------------------
GROUP TOTAL 290
- ---------------------------------------------------------
CONVERTIBLE PREFERRED STOCK (0.1%)
- ---------------------------------------------------------
Unisys Corp.
Series A $3.75 B- (1)2,000 75
- ---------------------------------------------------------
TOTAL U.S. FIXED INCOME (Cost $17,327) 17,866
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
80
<PAGE> 83
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
INTERNATIONAL FIXED INCOME (6.5%)
- ---------------------------------------------------------
FIXED INCOME SECURITIES (6.5%)
- ---------------------------------------------------------
AUSTRALIAN DOLLAR (0.1%)
Australian Government
Bond
12.00%, 11/15/01 AAA A$ 100 $ 89
- ---------------------------------------------------------
BRITISH POUND (0.8%)
United Kingdom Treasury
Bills
8.00%, 12/7/00 AAA L 295 474
9.75%, 8/27/02 AAA 150 259
- ---------------------------------------------------------
GROUP TOTAL 733
- ---------------------------------------------------------
CANADIAN DOLLAR (0.6%)
Government of Canada
8.50%, 4/1/02 AA C$ +550 429
9.75%, 6/1/21 AA+ 225 195
- ---------------------------------------------------------
GROUP TOTAL 624
- ---------------------------------------------------------
DANISH KRONE (0.5%)
Kingdom of Denmark
8.00%, 5/15/03 AAA DK 1,700 309
9.00%, 11/15/00 AAA 760 147
- ---------------------------------------------------------
GROUP TOTAL 456
- ---------------------------------------------------------
FRENCH FRANC (1.3%)
Government of France
O.A.T.
8.50%, 3/28/00 AAA FF 2,556 553
8.50%, 10/25/19 AAA 3,300 702
- ---------------------------------------------------------
GROUP TOTAL 1,255
- ---------------------------------------------------------
GERMAN MARK (1.9%)
Government of Germany
6.75%, 6/21/99 AAA DM 625 458
8.375%, 5/21/01 AAA 920 713
International Bank
for Reconstruction
and Development
7.125%, 4/12/05 N/R 175 125
Treuhandanstalt
7.125%, 1/29/03 AAA 690 501
- ---------------------------------------------------------
GROUP TOTAL 1,797
- ---------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
IRISH PUNT (0.2%)
Irish Gilts
8.00%, 10/18/00 AAA IP 110 $ 179
- ---------------------------------------------------------
ITALIAN LIRA (0.7%)
Republic of Italy BTPS
9.50%, 12/1/99 AA IL 870,000 508
10.00%, 8/1/03 AA 255,000 145
- ---------------------------------------------------------
GROUP TOTAL 653
- ---------------------------------------------------------
NETHERLANDS GUILDER (0.2%)
Netherlands Government
8.50%, 3/15/01 AAA NG 350 244
- ---------------------------------------------------------
SWEDISH KRONA (0.1%)
Government of Sweden
13.00%, 6/15/01 AAA SK 800 134
- ---------------------------------------------------------
UNITED STATES (0.1%)
## Caterpillar
Financial Services
6.125%, 1/30/96 A- $ 150 150
- ---------------------------------------------------------
TOTAL INTERNATIONAL FIXED INCOME (Cost $6,130) 6,314
- ---------------------------------------------------------
INTERNATIONAL EQUITY (12.6%)
- ---------------------------------------------------------
COMMON STOCKS (10.9%)
- ---------------------------------------------------------
<CAPTION>
SHARES
------
<S> <C> <C>
ARGENTINA (0.4%)
Banco Frances del Rio de la
Plata SA ADR 10,000 216
YPF SA ADR 10,600 191
- ---------------------------------------------------------
GROUP TOTAL 407
- ---------------------------------------------------------
AUSTRALIA (0.6%)
* Qantas Airways Ltd. 154,000 274
(+)* Qantas Airways Ltd. ADR 2,000 35
Western Mining Corp.
Holdings Ltd. 30,600 200
- ---------------------------------------------------------
GROUP TOTAL 509
- ---------------------------------------------------------
AUSTRIA (0.0%)
Flughafen Wein AG 2,000 126
- ---------------------------------------------------------
BRAZIL (0.3%)
Telebras SA ADR 5,600 263
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
81
<PAGE> 84
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MULTI-ASSET-CLASS
PORTFOLIO VALUE
(CONT'D) SHARES (000)+
---------------------------------------------------------
<S> <C> <C>
FRANCE (1.0%)
Christian Dior SA 2,400 $ 218
Ecco 1,240 216
Lafarge SA 2,310 152
(a) Michelin, Class B 2,850 125
PSA Peugeot Citroen 700 96
Usinor Sacilor 8,099 144
- ---------------------------------------------------------
GROUP TOTAL 951
- ---------------------------------------------------------
GERMANY (1.3%)
Degussa AG 580 181
Deutsche Bank AG 4,300 205
Felten & Guillaume 940 174
(a) Hoechst AG 1,200 292
Munich Ruekvers AG 80 163
Veba AG 5,100 202
- ---------------------------------------------------------
GROUP TOTAL 1,217
- ---------------------------------------------------------
HONG KONG (0.5%)
Orient Overseas
International Ltd. 352,000 206
* Orient Telecom &
Technology Holding Ltd. 366,000 122
Semi-Tech (Global) Ltd. 125,000 188
- ---------------------------------------------------------
GROUP TOTAL 516
- ---------------------------------------------------------
INDONESIA (0.1%)
Asia Pacific Resources 12,000 96
- ---------------------------------------------------------
ITALY (0.6%)
Fiat S.p.A. ADR 9,600 178
* Montedison S.p.A. 197,400 137
Telecom Italia Mobile S.p.A. 68,900 115
Telecom Italia S.p.A. 68,900 113
- ---------------------------------------------------------
GROUP TOTAL 543
- ---------------------------------------------------------
JAPAN (1.9%)
(a) Ezaki Glico Co. Ltd. 27,000 231
Hibiya Engineering 19,000 207
Hitachi Ltd. 26,000 284
Mikuni Coca Cola Bottling 15,000 171
Orix Corp. 8,000 295
Sonton Food Industry 16,000 207
Uni-Charm 10,000 218
Yurtec Corp. 12,600 261
- ---------------------------------------------------------
GROUP TOTAL 1,874
- ---------------------------------------------------------
KOREA (0.4%)
* Cheil Foods & Chemicals 4,750 152
* LG International 14,000 226
- ---------------------------------------------------------
GROUP TOTAL 378
- ---------------------------------------------------------
<CAPTION>
VALUE
SHARES (000)+
- ---------------------------------------------------------
<S> <C> <C>
MEXICO (0.2%)
Grupo Televisa SA GDS 8,100 $ 162
- ---------------------------------------------------------
NETHERLANDS (0.8%)
DSM N.V. 2,930 235
Philips Electronics N.V. 6,300 307
Royal Dutch Petroleum Co. 2,050 252
- ---------------------------------------------------------
GROUP TOTAL 794
- ---------------------------------------------------------
NORWAY (0.1%)
Norsk Hydro AS 2,600 112
- ---------------------------------------------------------
PORTUGAL (0.2%)
Portucel Industrial Empresa 27,200 202
- ---------------------------------------------------------
SINGAPORE (0.1%)
Singapore Press Holdings
(Foreign) 3,600 55
- ---------------------------------------------------------
SPAIN (0.4%)
Acerinox SA 1,650 188
Iberdrola SA 20,400 154
- ---------------------------------------------------------
GROUP TOTAL 342
- ---------------------------------------------------------
SWEDEN (0.2%)
Volvo AB, Class B 9,350 229
- ---------------------------------------------------------
SWITZERLAND (0.3%)
BBC Brown Boveri Ltd. AG
(Bearer) 130 151
Union Bank of Switzerland 156 160
- ---------------------------------------------------------
GROUP TOTAL 311
- ---------------------------------------------------------
TURKEY (0.1%)
Turk Otomobil Fabrikasi
AS ADR 80,000 63
- ---------------------------------------------------------
UNITED KINGDOM (1.3%)
Abbey National plc 21,400 183
B.A.T Industries plc 17,500 146
British Petroleum Co. plc 22,700 170
(a) Hanson plc 61,000 195
Redland plc 21,600 129
Royal Insurance Holdings plc 26,800 149
South Wales Electricity plc 12,300 179
Unilever plc 6,100 122
- ---------------------------------------------------------
GROUP TOTAL 1,273
- ---------------------------------------------------------
UNITED STATES (0.1%)
* Millicom International
Cellular SA 4,500 145
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
82
<PAGE> 85
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
FIXED INCOME SECURITIES (1.7%)
- ---------------------------------------------------------
UNITED STATES (1.7%)
CORPORATES (1.5%)
## Ford Motor Credit Corp.
6.141%, 6/17/96 A $ 500 $ 501
## Wells Fargo & Co.
5.878%, 11/18/96 A- 500 500
## World Savings & Loan
Association
5.875%, 3/15/96 A+ 450 450
- ---------------------------------------------------------
GROUP TOTAL 1,451
- ---------------------------------------------------------
YANKEE (0.2%)
##(b) Central Bank of
Argentina Bocon PIK
Pre 4
3.313%, 9/1/02 B2 325 203
- ---------------------------------------------------------
TOTAL INTERNATIONAL EQUITY (Cost $11,797) 12,222
- ---------------------------------------------------------
HIGH YIELD (6.5%)
- ---------------------------------------------------------
FIXED INCOME SECURITIES (6.5%)
(Unless otherwise noted)
- ---------------------------------------------------------
CABLE (0.5%)
Adelphia
Communications
Corp., Series B
9.875%, 3/1/05 B+ 160 149
(+)# Bell Cablemedia
0.00%, 9/15/05 BB- 125 73
Comcast Corp.
(Convertible)
1.125%, 4/15/07 B+ 190 100
# Marcus Cable Co.
0.00%, 12/15/05 B 125 73
# Telewest
Communications
0.00%, 10/01/07 BB 125 74
- ---------------------------------------------------------
GROUP TOTAL 469
- ---------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-
NON-AGENCY COLLATERAL SERIES (0.1%)
(b) Citicorp Mortgage
Securities, Inc. Series
90-8 A7
9.50%, 6/25/05 Ba1 84 72
- ---------------------------------------------------------
CONSUMER SERVICES/PRODUCT (0.7%)
Coleman Holdings
Zero Coupon,
5/27/98 B 155 121
Flagstar Corp.
11.25%, 11/1/04 CCC+ 96 74
** Heileman Acquisition Co.
9.625%, 1/31/04 CC 50 14
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
(+) Host Marriott
Travel Plaza
9.50%, 5/15/05 BB- $ 205 $ 199
Marvel Parent
Holdings, Inc., Zero
Coupon, 4/15/98 B- 350 251
(+)# Six Flags Theme
Parks, Inc.
0.00%, 6/15/05 B 75 57
- ---------------------------------------------------------
GROUP TOTAL 716
- ---------------------------------------------------------
<PAGE>
ENERGY (0.3%)
Clark R&M Holdings,
Zero Coupon,
2/15/00 B+ 125 80
Maxus Energy Corp
9.875%, 10/15/02 BB- 150 149
# TransAmerican
Refining Corp.
Series 1
0.00%, 2/15/02 B- 65 45
* TransAmerican Refining
Corp. (Warrants,
expiring 2/15/02) (1) 1,110 4
- ---------------------------------------------------------
GROUP TOTAL 278
- ---------------------------------------------------------
FINANCE (0.6%)
Conseco, Inc.
8.125%, 2/15/03 BB+ 100 95
First Union REIT
8.875%, 10/01/03 BB+ 75 69
Home Holdings, Inc.
8.625%, 12/15/03 B- 60 48
MDC Holdings, Inc.
11.125%, 12/15/03 B 75 69
# Mutual Life
Insurance Co. of New
York
0.00%, 8/15/24 BBB 250 196
Reliance Group
Holdings
9.75%, 11/15/03 BB- 75 75
sec. Riggs National Corp.
Series B 10.75%
(Preferred Stock)
(acquired
7/29/94, cost
$37) N/R (1) 1,500 41
- ---------------------------------------------------------
GROUP TOTAL 593
- ---------------------------------------------------------
FOREIGN GOVERNMENT (0.1%)
Mexican Cetes
Zero Coupon,
1/25/96 BBB+ MP 528 75
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
83
<PAGE> 86
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MULTI-ASSET-CLASS
PORTFOLIO
++RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)+
---------------------------------------------------------
<S> <C> <C> <C>
INDUSTRIALS (0.6%)
AK Steel Corp.
10.75%, 4/1/04 B+ $ 90 $ 96
## Blue Bell Funding Notes
11.85%, 5/1/99 BB- 25 26
# Building Materials Corp.
0.00%, 7/1/04 BB 50 31
Fleming Cos., Inc.
10.625%, 12/15/01 BB- 145 155
G.I. Holdings, Inc.
Zero Coupon,
10/1/98 B+ 264 192
(+) Terex Corp.
13.75%, 5/15/02 B 50 41
TLC Beatrice
11.50%, 10/1/05 BB- 75 76
- ---------------------------------------------------------
GROUP TOTAL 617
- ---------------------------------------------------------
SUPERMARKETS (0.3%)
Big V Supermarkets, Inc.
11.00%, 2/15/04 B- 55 44
* Grand Union Co.
(Common Stock) (1)4,331 57
Ralph's Grocery Co.
10.45%, 6/15/04 B 60 58
Southland Corp.
5.00%, 12/15/03 BB+ 150 117
- ---------------------------------------------------------
GROUP TOTAL 276
- ---------------------------------------------------------
TECHNOLOGY (0.2%)
Unisys Corp.
9.75%, 9/15/16 BB- 55 54
Unisys Corp. Series A
$3.75
(Convertible
Preferred Stock) B- (1) 4,550 171
- ---------------------------------------------------------
GROUP TOTAL 225
- ---------------------------------------------------------
TELEPHONES (0.6%)
Comcast Cellular Corp.
Series:
A Zero Coupon,
3/5/00 B+ 50 38
B Zero Coupon,
3/5/00 B+ 125 96
# Dial Call
Communications, Inc.
0.00%, 4/15/04 CCC- 75 39
* Dial Call
Communications
(Warrants, expiring
4/25/99) (1) 75 --
# Nextel Communications
0.00%, 8/15/04 CCC- 440 217
Tele-Communications,
Inc.
9.25%, 1/15/23 BBB 200 208
- ---------------------------------------------------------
GROUP TOTAL 598
- ---------------------------------------------------------
<CAPTION>
++RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION (0.3%)
Delta Airlines Trust
Series 93 B2
10.06%, 1/2/16 BB+ $ 50 $ 58
Jet Equipment Trust
Series:
(+) 95-C
10.69%, 5/1/15 BBB- 100 113
(+) B1
10.91%, 6/15/06 BB+ 25 28
USAir Inc. Series 93-A3
10.375%, 3/1/13 B+ 110 103
- ---------------------------------------------------------
GROUP TOTAL 302
- ---------------------------------------------------------
UTILITIES (0.2%)
Cleveland Electric Series:
B 9.50%, 5/15/05 BB 50 50
sec. Q $91.50 (Preferred
Stock)
(acquired
5/9/95,
cost $50) N/R (1) 60 53
First PV Funding Corp.
10.15%, 1/15/16 B+ 50 51
- ---------------------------------------------------------
GROUP TOTAL 154
- ---------------------------------------------------------
YANKEE (2.0%)
## Brazil Par Series YL 4
4.25%, 4/15/24 B1 595 289
Brazil (Eligible Interest)
6.69%, 4/15/06 N/R 525 349
##(b) Central Bank of
Argentina
Bocon PIK:
Pre 2
3.313%, 4/1/01 B2 150 123
Pre 4
3.313%, 9/1/02 B2 375 234
(b) Republic of Argentina
# 5.00%, 3/31/23 B1 425 206
## 6.813%,
3/31/05 B1 250 155
## Republic of Ecuador
(Discount)
6.813%, 2/28/25 N/R 375 184
United Mexican States
6.25%, 12/31/19 BB 625 375
- ---------------------------------------------------------
GROUP TOTAL 1,915
- ---------------------------------------------------------
TOTAL HIGH YIELD (Cost $6,170) 6,290
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
84
<PAGE> 87
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C>
FOREIGN CURRENCY (0.1%)
French Franc FF 1 $ --
German Mark DM 3 2
Hong Kong Dollar HK 22 3
Italian Lira IL 142,957 89
Japanese Yen Y 96 1
Netherlands Guilder NG 11 7
- ---------------------------------------------------------
TOTAL FOREIGN CURRENCY (Cost $102) 102
- ---------------------------------------------------------
CASH EQUIVALENT (16.1%)
- ---------------------------------------------------------
REPURCHASE AGREEMENT (16.1%)
Chase Manhattan Bank, N.A.
6.20%, dated 9/29/95, due
10/2/95, to be repurchased
at $15,569, collateralized
by $15,628 of various U.S.
Government and Agency
Obligations, due 10/3/95-
7/7/97, valued at $15,716
(Cost $15,561) $ 15,561 15,561
- ---------------------------------------------------------
TOTAL INVESTMENTS (104.4%) (Cost $93,651) 101,119
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-4.4%)
Cash 1
Dividends Receivable 115
Interest Receivable 530
Receivable for Withholding Tax
Reclaims 6
Receivable for Investments Sold 547
Receivable for Fund Shares Sold 249
Receivable for Daily Variation on
Futures Contracts 340
Unrealized Gain on Forward Foreign
Currency Contracts 96
Payable for Investments Purchased (5,401)
Payable for Fund Shares Redeemed (576)
Payable for Administrative Fees (11)
Payable for Investment Advisory Fees (64)
Unrealized Loss on Swap Contracts (42)
Other Liabilities (70)
-------
(4,280)
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 8,536,164 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $96,839
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 11.34
- ---------------------------------------------------------
- ---------------------------------------------------------
sec. Restricted Security-Total cost of restricted
securities at September 30, 1995 amounted to
$588. Total market value of restricted
securities owned at September 30, 1995, was
$608 or 0.6% of net assets.
+ See Note A1 to Financial Statements.
++ Ratings are unaudited.
* Non-Income Producing Security.
** Non-Income Producing, Defaulted Security.
(a) A portion of these securities was pledged to
cover margin requirements for futures
contracts.
(b) Moody's Investor Service, Inc. rating. Security
is not rated by Standard & Poor's Corporation.
(c) Fitch rating. Security is not rated by Standard
& Poor's Corporation or Moody's Investor
Service, Inc.
# Step Bond-Coupon rate is low or zero for an
initial period and then increases to a higher
coupon rate thereafter.
## Variable or floating rate securities-rate
disclosed is as of September 30, 1995.
(+) 144A security. Certain conditions for public
sale may exist.
(1) Amount represents shares held by the Portfolio.
ADR American Depositary Receipt.
GDS Global Depositary Share.
CMO Collateralized Mortgage Obligation.
Inv Fl Inverse Floating Rate-Interest rate fluctuates
with an inverse relationship to an associated
interest rate. Indicated rate is the effective
rate at September 30, 1995.
N/R Not rated by Moody's Investor Service, Inc. or
Standard & Poor's Corporation.
PIK Payment-In-Kind Security.
TBA Security is subject to delayed delivery. See
Note A8 to Financial Statements.
MP Mexican Peso.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
85
<PAGE> 88
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
SMALL INTER-
CAP SELECT NATIONAL
VALUE EQUITY VALUE EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------
Year Ended September 30, 1995
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME +
Dividends $ 26,109 $ 32,158 $ 6,880 $ 539 $ 22,408
Interest 4,589 8,815 508 182 5,415
- ------------------------------------------------------------------------------------------------------------------------------
Total Income 30,698 40,973 7,388 721 27,823
- ------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Services--Note B 5,078 6,840 2,683 $117 5,437
Less: Waived Fees -- -- -- (31) 86 --
Administrative Fee--Note C 836 1,130 300 27 922
Custodian Fee 110 124 73 14 1,100
Other Expenses 118 194 70 15 156
- ------------------------------------------------------------------------------------------------------------------------------
Total Expenses 6,142 8,288 3,126 142 7,615
- ------------------------------------------------------------------------------------------------------------------------------
Expense Offset--Note H (79) (124) (15) -- (479)
- ------------------------------------------------------------------------------------------------------------------------------
Net Expenses 6,063 8,164 3,111 142 7,136
- ------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 24,635 32,809 4,277 579 20,687
- ------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities 118,188 121,671 50,198 431 (33,892)
Foreign Currency Transactions -- -- -- -- (18,899)
Futures and Swaps -- 1,366 -- -- 1,521
- ------------------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) 118,188 123,037 50,198 431 (51,270)
- ------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)--Note D
Investment Securities 145,262 173,454 10,603 4,466 (28,120)
Foreign Currency Transactions -- -- -- -- 20,225
Futures and Swaps -- -- -- -- (3,085)
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized Appreciation (Depreciation) 145,262 173,454 10,603 4,466 (10,980)
- ------------------------------------------------------------------------------------------------------------------------------
Net Gain (Loss) 263,450 296,491 60,801 4,897 (62,250)
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $288,085 $329,300 $65,078 $5,476 ($41,563)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Net of $2,675 withholding tax for International Equity Portfolio.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
86
<PAGE> 89
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
DOMESTIC
MID CAP MID CAP EMERGING FIXED FIXED
GROWTH VALUE MARKETS INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------
DECEMBER 30, FEBRUARY 28, YEAR ENDED
YEAR ENDED 1994* TO 1995* TO YEAR ENDED SEPTEMBER
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER SEPTEMBER 30, 30,
(In Thousands) 1995 1995 30, 1995 1995 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends + $ 1,434 $194 $ 334 $ 677 $ --
Interest 1,003 6 250 100,623 1,903
- ------------------------------------------------------------------------------------------------------------------------------
Total Income 2,437 200 584 101,300 1,903
- ------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory
Services--Note B 1,504 $ 14 $136 4,893 $ 98
Less: Waived Fees -- (14) -- (51) 85 -- (23) 75
Administrative Fee--Note C 247 3 17 1,072 24
Custodian Fee 32 11 74 183 11
Reimbursement from Investment
Adviser -- (25) -- -- --
Other Expenses 50 28 39 235 23
- ------------------------------------------------------------------------------------------------------------------------------
Total Expenses 1,833 17 215 6,383 133
- ------------------------------------------------------------------------------------------------------------------------------
Expense Offset--Note H (32) (1) (1) (124) (2)
- ------------------------------------------------------------------------------------------------------------------------------
Net Expenses 1,801 16 214 6,259 131
- ------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 636 184 370 95,041 1,772
- ------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities 47,679 331 2,176 11,859 (31)
Foreign Currency Transactions -- -- (72) (8,759) (16)
Futures and Written Floors -- -- -- 92 (20)
- ------------------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) 47,679 331 2,104 3,192 (67)
- ------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)--Note D
Investment Securities 33,071 161 583 88,685 1,636
Foreign Currency Transactions -- -- (2) 991 54
Futures, Written Floors and
Swaps -- -- -- (10,203) 14
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized Appreciation
(Depreciation) 33,071 161 581 79,473 1,704
- ------------------------------------------------------------------------------------------------------------------------------
Net Gain (Loss) 80,750 492 2,685 82,665 1,637
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $81,386 $676 $3,055 $177,706 $3,409
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations.
+ Net of $17 withholding tax for the Emerging Markets Portfolio.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
87
<PAGE> 90
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
MORTGAGE-
HIGH CASH FIXED BACKED LIMITED
YIELD RESERVES INCOME SECURITES DURATION
PORTFOLIO PORTFOLIO PORTFOLIO II PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------
Year Ended September 30, 1995
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 1,850 $ -- $ -- $ -- $ --
Interest 20,896 2,086 10,952 6,455 4,617
- ------------------------------------------------------------------------------------------------------------------------------
Total Income 22,746 2,086 10,952 6,455 4,617
- ------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Services--Note B 764 $ 90 567 $353 $217
Less: Waived Fees -- (39) 51 -- (5) 348 (11) 206
Administrative Fee--Note C 168 31 126 79 62
Custodian Fee 40 14 32 21 7
Other Expenses 39 22 42 27 36
- ------------------------------------------------------------------------------------------------------------------------------
Total Expenses 1,011 118 767 475 311
- ------------------------------------------------------------------------------------------------------------------------------
Expense Offset--Note H (14) (2) (18) (4) (7)
- ------------------------------------------------------------------------------------------------------------------------------
Net Expenses 997 116 749 471 304
- ------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 21,749 1,970 10,203 5,984 4,313
- ------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities (2,282) -- 2,068 1,761 (402)
Foreign Currency Transactions (243) -- (1,045) -- --
Futures, Written Floors and Swaps (495) -- 103 (1,211) --
- ------------------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) (3,020) -- 1,126 550 (402)
- ------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)--Note D
Investment Securities 9,786 -- 8,795 4,127 1,669
Foreign Currency Transactions 82 -- 205 -- --
Futures, Written Floors and Swaps (317) -- 124 (119) --
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized Appreciation
(Depreciation) 9,551 -- 9,124 4,008 1,669
- ------------------------------------------------------------------------------------------------------------------------------
Net Gain (Loss) 6,531 -- 10,250 4,558 1,267
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $28,280 $1,970 $ 20,453 $10,542 $5,580
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
88
<PAGE> 91
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
SPECIAL INTER-
PURPOSE GLOBAL NATIONAL
FIXED PA FIXED FIXED
INCOME MUNICIPAL MUNICIPAL INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------
Year Ended September 30, 1995
(In Thousands)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 186 $ 28 $ 14 $ -- $ --
Interest + 32,618 2,379 1,004 3,765 7,554
- -----------------------------------------------------------------------------------------------------------------------------
Total Income 32,804 2,407 1,018 3,765 7,554
- -----------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Services--Note B 1,574 $147 $ 63 190 395
Less: Waived Fees -- (37) 110 (31) 32 -- --
Administrative Fee--Note C 348 51 30 43 90
Custodian Fee 57 7 4 23 39
Other Expenses 72 28 18 39 53
- -----------------------------------------------------------------------------------------------------------------------------
Total Expenses 2,051 196 84 295 577
- -----------------------------------------------------------------------------------------------------------------------------
Expense Offset--Note H (31) -- -- (11) (12)
- -----------------------------------------------------------------------------------------------------------------------------
Net Expenses 2,020 196 84 284 565
- -----------------------------------------------------------------------------------------------------------------------------
Net Investment Income 30,784 2,211 934 3,481 6,989
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities 6,604 (294) (1,207) 513 3,952
Foreign Currency Transactions (3,097) -- -- (176) 309
Futures, Written Floors and Swaps 1,570 (284) (116) 8 577
- -----------------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) 5,077 (578) (1,323) 345 4,838
- -----------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)--Note D
Investment Securities 28,479 3,531 2,456 3,227 4,834
Foreign Currency Transactions 209 -- -- 284 (836)
Futures, Written Floors and Swaps (3,435) (253) (86) 178 649
- -----------------------------------------------------------------------------------------------------------------------------
Unrealized Appreciation (Depreciation) 25,253 3,278 2,370 3,689 4,647
- -----------------------------------------------------------------------------------------------------------------------------
Net Gain (Loss) 30,330 2,700 1,047 4,034 9,485
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $61,114 $4,911 $ 1,981 $ 7,515 $16,474
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Net of $212 withholding tax for the International Fixed Income Portfolio.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
89
<PAGE> 92
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------
INTERMEDIATE MULTI-
DURATION BALANCED ASSET-CLASS
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------
October 3,
1994* to
September 30, Year Ended September 30,
(In Thousands) 1995 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME +
Dividends $ -- $ 4,235 $ 936
Interest 1,402 11,508 2,721
- ------------------------------------------------------------------------------------------------------------------------------
Total Income 1,402 15,743 3,657
- ------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Services--Note B $ 74 1,385 $ 320
Less: Waived Fees (17) 57 -- (100) 220
Administrative Fee--Note C 17 263 81
Custodian Fee 7 64 48
Other Expenses 23 60 67
- ------------------------------------------------------------------------------------------------------------------------------
Total Expenses 104 1,772 416
- ------------------------------------------------------------------------------------------------------------------------------
Expense Offset--Note H (1) (20) (3)
- ------------------------------------------------------------------------------------------------------------------------------
Net Expenses 103 1,752 413
- ------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 1,299 13,991 3,244
- ------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities 456 9,030 1,185
Foreign Currency Transactions (71) (657) (14)
Futures, Written Floors and Swaps 71 260 313
- ------------------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) 456 8,633 1,484
- ------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)--Note D
Investment Securities 434 38,032 8,004
Foreign Currency Transactions (1) 146 110
Futures, Written Floors and Swaps 10 (1,124) (54)
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized Appreciation (Depreciation) 443 37,054 8,060
- ------------------------------------------------------------------------------------------------------------------------------
Net Gain (Loss) 899 45,687 9,544
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $2,198 $59,678 $12,788
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations
+ Net of $32 withholding tax for the Multi-Asset-Class Portfolio
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
90
<PAGE> 93
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------
SMALL
CAP
VALUE EQUITY VALUE
PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
----------------- ------------------- ----------------
(In Thousands) 1994 1995 1994 1995 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 22,904 $ 24,635 $ 24,863 $ 32,809 $ 2,217 $ 4,277
Realized Net Gain (Loss) 86,779 118,188 75,662 123,037 35,717 50,198
Change in Unrealized Appreciation
(Depreciation)--Note D (43,212) 145,262 (52,807) 173,454 (18,220) 10,603
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 66,471 288,085 47,718 329,300 19,714 65,078
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS--Note A:
Net Investment Income (20,513) (23,680) (22,279) (31,719) (2,478) (2,689)
Realized Net Gain (45,422) (79,195) (111,446) (67,107) (9,706) (37,063)
- ------------------------------------------------------------------------------------------------------------------------------
Total Distributions (65,935) (102,875) (133,725) (98,826) (12,184) (39,752)
- ------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
Issued 389,211 302,389 326,442 370,928 146,243 109,087
In Lieu of Cash Distributions 59,886 91,963 126,377 91,153 11,208 38,342
Redeemed (230,471) (289,313) (271,798) (287,940) (31,854) (50,543)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share
Transactions 218,626 105,039 181,021 174,141 125,597 96,886
- ------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 219,162 290,249 95,014 404,615 133,127 122,212
NET ASSETS:
Beginning of Period 762,175 981,337 1,098,003 1,193,017 175,029 308,156
- ------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD (2) $981,337 $1,271,586 $1,193,017 $1,597,632 $308,156 $430,368
- ------------------------------------------------------------------------------------------------------------------------------
(1) Shares Issued and Redeemed
Shares Issued 31,659 22,270 15,339 17,166 8,595 6,533
In Lieu of Cash Distributions 4,951 8,147 6,120 4,623 694 2,674
Shares Redeemed (18,622) (22,729) (12,906) (13,063) (1,829) (3,105)
- ------------------------------------------------------------------------------------------------------------------------------
17,988 7,688 8,553 8,726 7,460 6,102
- ------------------------------------------------------------------------------------------------------------------------------
(2) Net Assets Consist of:
Paid in Capital $838,712 $ 943,751 $1,029,874 $1,207,235 $264,121 $361,017
Undistributed (Overdistributed) Net
Investment Income 6,840 7,826 7,727 8,769 1,232 2,767
Undistributed (Overdistributed) Realized Net
Gain (Loss) 78,757 117,719 60,500 113,258 32,023 45,201
Unrealized Appreciation (Depreciation) on
Investment Securities 57,028 202,290 94,916 268,370 10,780 21,383
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $981,337 $1,271,586 $1,193,017 $1,597,632 $308,156 $430,368
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
91
<PAGE> 94
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------
INTER-
SELECT NATIONAL MID CAP
EQUITY EQUITY GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
---------------- --------------------- ----------------
(In Thousands) 1994 1995 1994 1995 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 3,137 $ 579 $ 9,616 $ 20,687 $ 387 $ 636
Realized Net Gain (Loss) 35,010 431 110,405 (51,270) 32,706 47,679
Change in Unrealized Appreciation
(Depreciation)--Note D (31,227) 4,466 (3,795) (10,980) (45,589) 33,071
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 6,920 5,476 116,226 (41,563) (12,496) 81,386
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS--Note A:
Net Investment Income (4,294) (575) (11,034) -- (172) (541)
Realized Net Gain (17,881) (9,116) (17,292) (104,076) (29,300) (34,250)
In Excess of Realized Net Gain -- -- -- (8,055) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total Distributions (22,175) (9,691) (28,326) (112,131) (29,472) (34,791)
- ------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
Issued 9,300 4,847 252,739 315,862 102,489 78,991
In Lieu of Cash Distributions 21,599 9,691 25,259 111,406 29,290 33,984
Redeemed (281,539) (9,897) (124,706) (245,455) (96,275) (89,018)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions (250,640) 4,641 153,292 181,813 35,504 23,957
- ------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (265,895) 426 241,192 28,119 (6,464) 70,552
NET ASSETS:
Beginning of Period 295,050 29,155 891,675 1,132,867 309,459 302,995
- ------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD (2) $ 29,155 $29,581 $1,132,867 $1,160,986 $302,995 $373,547
- ------------------------------------------------------------------------------------------------------------------------------
(1) Shares Issued and Redeemed
Shares Issued 523 411 17,651 25,439 6,060 4,693
In Lieu of Cash Distributions 1,244 1,026 1,762 9,346 1,748 2,527
Shares Redeemed (16,110) (615) (9,083) (19,983) (5,881) (5,734)
- ------------------------------------------------------------------------------------------------------------------------------
(14,343) 822 10,330 14,802 1,927 1,486
- ------------------------------------------------------------------------------------------------------------------------------
(2) Net Assets Consist of:
Paid in Capital $ 20,779 $25,226 $ 915,979 $1,095,826 $233,437 $257,408
Undistributed (Overdistributed) Net
Investment Income 160 161 (11,377) 11,109 346 427
Undistributed (Overdistributed) Realized
Net Gain (Loss) 9,101 613 123,212 (40,022) 30,481 43,910
Unrealized Appreciation (Depreciation)
on:
Investment Securities (885) 3,581 120,885 92,765 38,731 71,802
Foreign Currency Transactions -- -- (18,901) 1,324 -- --
Futures, Written Floors and Swaps -- -- 3,069 (16) -- --
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $ 29,155 $29,581 $1,132,867 $1,160,986 $302,995 $373,547
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
92
<PAGE> 95
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------
MID CAP EMERGING FIXED
VALUE MARKETS INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------
DECEMBER 30, FEBRUARY 28, YEAR ENDED
1994* TO 1995* TO SEPTEMBER 30,
SEPTEMBER 30, SEPTEMBER 30, -------------------
In Thousands) 1995 1995 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 184 $ 370 $ 72,402 $ 95,041
Realized Net Gain (Loss) 331 2,104 (18,950) 3,192
Change in Unrealized Appreciation (Depreciation) -- Note D 161 581 (106,555) 79,473
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from
Operations 676 3,055 (53,103) 177,706
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:--Note A
Net Investment Income -- -- (67,194) (69,099)
Realized Net Gain -- -- (35,051) --
In Excess of Realized Net Gain -- -- (9,589) --
- ------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- (111,834) (69,099)
- ------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
Issued 4,259 39,405 567,463 431,740
In Lieu of Cash Distributions -- -- 94,187 52,586
Redeemed (428) (1) (211,494) (300,481)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions 3,831 39,404 450,156 183,845
- ------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 4,507 42,459 285,219 292,452
NET ASSETS:
Beginning of Period -- -- 909,738 1,194,957
- ------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD (2) $4,507 $42,459 $1,194,957 $1,487,409
- ------------------------------------------------------------------------------------------------------------------------------
(1) Shares Issued and Redeemed
Shares Issued 373 3,651 49,027 38,850
In Lieu of Cash Distributions -- -- 8,044 4,797
Shares Redeemed (38) (1) (18,469) (27,170)
- ------------------------------------------------------------------------------------------------------------------------------
335 3,650 38,602 16,477
- ------------------------------------------------------------------------------------------------------------------------------
(2) Net Assets Consist of:
Paid in Capital $3,831 $39,404 $1,252,353 $1,436,198
Undistributed (Overdistributed) Net Investment Income 184 301 9,156 26,685
Undistributed (Overdistributed) Realized Net Gain (Loss) 331 2,173 (13,248) (1,643)
Unrealized Appreciation (Depreciation) on:
Investment Securities 161 583 (51,825) 36,860
Foreign Currency Transactions -- (2) (1,514) (523)
Futures and Written Floors -- -- 35 (10,168)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $4,507 $42,459 $1,194,957 $1,487,409
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of Operations.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
93
<PAGE> 96
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
DOMESTIC
FIXED HIGH CASH
INCOME YIELD RESERVES
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
--------------- ------------------ --------------
(In Thousands) 1994 1995 1994 1995 1994 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 4,074 $ 1,772 $ 11,819 $ 21,749 $ 718 $ 1,970
Realized Net Gain (Loss) 2,347 (67) 1,830 (3,020) -- --
Change in Unrealized Appreciation
(Depreciation)--Note D (7,005) 1,704 (11,989) 9,551 -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net
Assets Resulting from Operations (584) 3,409 1,660 28,280 718 1,970
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS--Note A:
Net Investment Income (5,245) (776) (8,273) (19,609) (718) (1,970)
Realized Net Gain (4,534) -- (1,494) (1,760) -- --
In Excess of Realized Net Gain (924) -- -- (1,069) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total Distributions (10,703) (776) (9,767) (22,438) (718) (1,970)
- -----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
Issued 5,841 39,260 170,574 94,962 101,048 95,030
In Lieu of Cash Distributions 9,301 600 4,372 11,160 525 1,868
Redeemed (57,684) (42,867) (34,266) (74,148) (74,357) (90,207)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions (42,542) (3,007) 140,680 31,974 27,216 6,691
- -----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (53,829) (374) 132,573 37,816 27,216 6,691
NET ASSETS:
Beginning of Period 90,350 36,521 50,396 182,969 10,717 37,933
- -----------------------------------------------------------------------------------------------------------------------------
END OF PERIOD (2) $ 36,521 $ 36,147 $ 182,969 $ 220,785 $ 37,933 $ 44,624
- -----------------------------------------------------------------------------------------------------------------------------
(1) Shares Issued and Redeemed
Shares Issued 564 3,820 18,359 11,056 101,048 95,030
In Lieu of Cash Distributions 874 60 477 1,334 525 1,868
Shares Redeemed (5,271) (4,304) (3,747) (8,485) (74,357) (90,207)
- -----------------------------------------------------------------------------------------------------------------------------
(3,833) (424) 15,089 3,905 27,216 6,691
- -----------------------------------------------------------------------------------------------------------------------------
(2) Net Assets Consist of:
Paid in Capital $ 38,847 $ 35,012 $ 186,889 $ 218,863 $ 37,933 $ 44,624
Undistributed (Overdistributed)
Net Investment Income (405) 531 4,535 6,985 -- --
Undistributed (Overdistributed)
Realized Net Gain (Loss) (840) (19) 1,640 (4,519) -- --
Unrealized Appreciation
(Depreciation) on:
Investment Securities (1,017) 619 (10,276) (490) -- --
Foreign Currency Transactions (54) -- (81) 1 -- --
Futures, Written Floors and Swaps (10) 4 262 (55) -- --
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $ 36,521 $ 36,147 $ 182,969 $ 220,785 $ 37,933 $ 44,624
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
94
<PAGE> 97
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------
MORTGAGE-
FIXED BACKED LIMITED
INCOME SECURITIES DURATION
PORTFOLIO II PORTFOLIO PORTFOLIO
------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
----------------- ------------------ -----------------
(In Thousands) 1994 1995 1994 1995 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 7,387 $ 10,203 $ 5,197 $ 5,984 $ 4,829 $ 4,313
Realized Net Gain (Loss) (3,146) 1,126 (4,159) 550 (3,989) (402)
Change in Unrealized Appreciation
(Depreciation)--Note D (10,522) 9,124 (3,748) 4,008 (1,834) 1,669
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (6,281) 20,453 (2,710) 10,542 (994) 5,580
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS--Note A:
Net Investment Income (6,702) (6,958) (3,661) (6,794) (5,042) (3,757)
Realized Net Gain (1,897) -- (1,520) -- (392) --
In Excess of Realized Net Gain (1,286) -- (217) -- (237) (62)
- ------------------------------------------------------------------------------------------------------------------------------
Total Distributions (9,885) (6,958) (5,398) (6,794) (5,671) (3,819)
- ------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
Issued 66,086 56,653 82,386 8,451 116,947 60,552
In Lieu of Cash Distributions 6,560 3,751 4,457 3,732 5,282 2,459
Redeemed (21,414) (26,856) (9,466) (85,683) (181,780) (27,361)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share
Transactions 51,232 33,548 77,377 (73,500) (59,551) 35,650
- ------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 35,066 47,043 69,269 (69,752) (66,216) 37,411
NET ASSETS:
Beginning of Period 94,836 129,902 50,249 119,518 128,991 62,775
- ------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD (2) $129,902 $176,945 $119,518 $ 49,766 $ 62,775 $100,186
- ------------------------------------------------------------------------------------------------------------------------------
(1) Shares Issued and Redeemed
Shares Issued 5,973 5,324 7,914 871 11,139 5,907
In Lieu of Cash Distributions 588 357 431 378 509 243
Shares Redeemed (2,016) (2,538) (927) (8,515) (17,521) (2,691)
- ------------------------------------------------------------------------------------------------------------------------------
4,545 3,143 7,418 (7,266) (5,873) 3,459
- ------------------------------------------------------------------------------------------------------------------------------
(2) Net Assets Consist of:
Paid in Capital $136,969 $170,517 $125,703 $ 52,004 $ 67,491 $103,141
Undistributed (Overdistributed) Net Investment
Income 539 2,756 1,881 1,071 793 1,354
Undistributed (Overdistributed) Realized Net
Gain (Loss) (1,578) 576 (4,258) (3,509) (4,152) (4,621)
Unrealized Appreciation (Depreciation) on:
Investment Securities (5,699) 3,096 (3,432) 695 (1,357) 312
Foreign Currency Transactions (210) (5) -- -- -- --
Futures and Written Floors (119) 5 (376) (495) -- --
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $129,902 $176,945 $119,518 $ 49,766 $ 62,775 $100,186
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
95
<PAGE> 98
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------------------------
SPECIAL
PURPOSE PA
FIXED INCOME MUNICIPAL MUNICIPAL
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
----------------- ---------------- ---------------
(In Thousands) 1994 1995 1994 1995 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 21,886 $ 30,784 $ 1,778 $ 2,211 $ 1,165 $ 934
Realized Net Gain (Loss) (4,362) 5,077 (36) (578) (85) (1,323)
Change in Unrealized Appreciation
(Depreciation)--Note D (30,469) 25,253 (3,542) 3,278 (1,891) 2,370
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (12,945) 61,114 (1,800) 4,911 (811) 1,981
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS--Note A:
Net Investment Income (18,927) (22,759) (1,778) (2,232) (1,273) (922)
In Excess of Net Investment Income -- -- (224) -- (4) --
Realized Net Gain (11,660) -- -- -- -- --
In Excess of Realized Net Gain (2,052) -- -- -- (77) --
- ------------------------------------------------------------------------------------------------------------------------------
Total Distributions (32,639) (22,759) (2,002) (2,232) (1,354) (922)
- ------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
Issued 171,455 107,483 29,621 15,286 20,914 4,150
In Lieu of Cash Distributions 30,681 20,635 1,381 1,281 1,122 803
Redeemed (72,006) (160,946) (15,565) (21,755) (11,989) (13,793)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share
Transactions 130,130 (32,828) 15,437 (5,188) 10,047 (8,840)
- ------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 84,546 5,527 11,635 (2,509) 7,882 (7,781)
NET ASSETS:
Beginning of Period 300,185 384,731 26,914 38,549 15,633 23,515
- ------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD (2) $384,731 $390,258 $38,549 $36,040 $23,515 $15,734
- ------------------------------------------------------------------------------------------------------------------------------
(1) Shares Issued and Redeemed
Shares Issued 14,307 9,436 2,788 1,556 1,939 436
In Lieu of Cash Distributions 2,499 1,768 131 125 105 78
Shares Redeemed (5,832) (13,433) (1,493) (2,167) (1,113) (1,392)
- ------------------------------------------------------------------------------------------------------------------------------
10,974 (2,229) 1,426 (486) 931 (878)
- ------------------------------------------------------------------------------------------------------------------------------
(2) Net Assets Consist of:
Paid in Capital $399,939 $367,111 $40,773 $35,324 $24,867 $15,340
Undistributed (Overdistributed) Net Investment
Income 3,059 8,633 47 26 (4) 12
Undistributed (Overdistributed) Realized Net Gain
(Loss) (1,481) 6,047 (125) (442) (154) (794)
Unrealized Appreciation (Depreciation) on:
Investment Securities (16,338) 12,141 (2,075) 1,456 (1,149) 1,307
Foreign Currency Transactions (470) (261) -- -- -- --
Futures, Written Floors and Swaps 22 (3,413) (71) (324) (45) (131)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $384,731 $390,258 $38,549 $36,040 $23,515 $15,734
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
96
<PAGE> 99
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------
INTER-
GLOBAL NATIONAL INTERMEDIATE
FIXED INCOME FIXED INCOME DURATION
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------
APRIL 29, OCTOBER 3,
YEAR ENDED 1994* TO YEAR ENDED 1994* TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
--------------- -----------
(In Thousands) 1994 1995 1994 1995 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 2,819 $ 3,481 $ 1,377 $ 6,989 $ 1,299
Realized Net Gain (Loss) (1,510) 345 (116) 4,838 456
Change in Unrealized Appreciation
(Depreciation)--Note D (1,391) 3,689 (160) 4,647 443
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net
Assets Resulting from Operations (82) 7,515 1,101 16,474 2,198
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:--Note A
Net Investment Income (2,172) (3,155) (328) (5,736) (832)
Realized Net Gain (145) -- -- -- --
In Excess of Realized Net Gain (18) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total Distributions (2,335) (3,155) (328) (5,736) (832)
- ------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
Issued 32,239 14,273 67,417 77,909 22,039
In Lieu of Cash Distributions 2,203 2,953 328 5,364 832
Redeemed (42,123) (9,505) (1,639) (33,008) (5,000)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions (7,681) 7,721 66,106 50,265 17,871
- ------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (10,098) 12,081 66,879 61,003 19,237
NET ASSETS:
Beginning of Period 53,164 43,066 -- 66,879 --
- ------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD (2) $43,066 $55,147 $66,879 $ 127,882 $ 19,237
- ------------------------------------------------------------------------------------------------------------------------------
(1) Shares Issued and Redeemed
Shares Issued 3,127 1,376 6,785 7,472 2,204
In Lieu of Cash Distributions 212 285 33 511 82
Shares Redeemed (4,098) (893) (165) (3,026) (485)
- ------------------------------------------------------------------------------------------------------------------------------
(759) 768 6,653 4,957 1,801
- ------------------------------------------------------------------------------------------------------------------------------
(2) Net Assets Consist of:
Paid in Capital $43,943 $51,663 $66,106 $ 116,371 $ 17,871
Undistributed (Overdistributed) Net
Investment Income 658 1,100 1,017 6,077 371
Undistributed (Overdistributed)
Realized Net Gain (Loss) (452) (222) (84) 947 552
Unrealized Appreciation (Depreciation)
on:
Investment Securities (931) 2,296 (157) 4,677 434
Foreign Currency Transactions (134) 150 17 (819) (1)
Futures and Swaps (18) 160 (20) 629 10
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $43,066 $55,147 $66,879 $ 127,882 $ 19,237
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
97
<PAGE> 100
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------
MULTI-ASSET-
BALANCED CLASS
PORTFOLIO PORTFOLIO
-----------------------------------------------------
JULY 29,
YEAR ENDED 1994* TO YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------
(In Thousands) 1994 1995 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 12,520 $ 13,991 $ 361 $ 3,244
Realized Net Gain (Loss) 781 8,633 5 1,484
Change in Unrealized Appreciation (Depreciation)--Note D (12,966) 37,054 (567) 8,060
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from
Operations 335 59,678 (201) 12,788
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:--Note A
Net Investment Income (11,150) (12,305) -- (2,649)
Realized Net Gain (3,787) (1,872) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total Distributions (14,937) (14,177) -- (2,649)
- ------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
Issued 88,420 50,017 52,351 52,541
In Lieu of Cash Distributions 14,774 14,014 -- 2,405
Redeemed (70,758) (84,498) (273) (20,123)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share
Transactions 32,436 (20,467) 52,078 34,823
- ------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 17,834 25,034 51,877 44,962
NET ASSETS:
Beginning of Period 291,762 309,596 -- 51,877
- ------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD (2) $309,596 $334,630 $51,877 $96,839
- ------------------------------------------------------------------------------------------------------------------------------
(1) Shares Issued and Redeemed
Shares Issued 7,600 4,108 5,228 5,045
In Lieu of Cash Distributions 1,293 1,234 -- 234
Shares Redeemed (6,086) (7,168) (27) (1,944)
- ------------------------------------------------------------------------------------------------------------------------------
2,807 (1,826) 5,201 3,335
- ------------------------------------------------------------------------------------------------------------------------------
(2) Net Assets Consist of:
Paid in Capital $312,065 $291,601 $52,078 $86,902
Undistributed (Overdistributed) Net Investment Income 2,632 3,480 359 948
Undistributed (Overdistributed) Realized Net Gain (Loss) 819 8,415 7 1,496
Unrealized Appreciation (Depreciation) on:
Investment Securities (5,709) 32,323 (536) 7,468
Foreign Currency Transactions (207) (61) (29) 81
Futures, Written Floors and Swaps (4) (1,128) (2) (56)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $309,596 $334,630 $51,877 $96,839
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
98
<PAGE> 101
SELECTED PER SHARE DATA AND RATIOS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period +
<TABLE>
<CAPTION>
------------------------------------------------------------
VALUE
PORTFOLIO
------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------
1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.29 $ 12.92 $ 12.67 $ 12.76 $ 12.63
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.44 0.35 0.30 0.30 0.31
Net Realized and Unrealized Gain (Loss) on
Investments 3.79 1.05 1.92 0.59 3.34
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 4.23 1.40 2.22 0.89 3.65
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.44) (0.38) (0.31) (0.29) (0.31)
Realized Net Gain (1.16) (1.27) (1.82) (0.73) (1.08)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.60) (1.65) (2.13) (1.02) (1.39)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.92 $ 12.67 $ 12.76 $ 12.63 $ 14.89
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 45.54% 12.83% 19.67% 7.45% 32.58%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $458,117 $448,329 $762,175 $981,337 $1,271,586
Ratio of Expenses to Average Net Assets ## 0.60% 0.60% 0.59% 0.61% 0.60%
Ratio of Net Investment Income to Average Net
Assets 3.67% 2.87% 2.48% 2.40% 2.43%
Portfolio Turnover Rate 64% 55% 43% 54% 56%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Reflects a 2.5 for 1 share split effective August 13, 1993.
## For the year 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.
<TABLE>
<CAPTION>
------------------------------------------------------------------
EQUITY
PORTFOLIO
-------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------
1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.86 $ 20.78 $ 22.04 $ 22.82 $ 21.05
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.44 0.43 0.41 0.44 0.52
Net Realized and Unrealized Gain (Loss) on
Investments 5.64 1.86 1.95 0.41 4.55
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 6.08 2.29 2.36 0.85 5.07
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.44) (0.42) (0.43) (0.41) (0.52)
Realized Net Gain (0.72) (0.61) (1.15) (2.21) (1.17)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.16) (1.03) (1.58) (2.62) (1.69)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 20.78 $ 22.04 $ 22.82 $ 21.05 $ 24.43
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 40.18% 11.55% 11.05% 4.11% 26.15%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $675,487 $918,989 $1,098,003 $1,193,017 $1,597,632
Ratio of Expenses to Average Net Assets ## 0.60% 0.59% 0.59% 0.60% 0.61%
Ratio of Net Investment Income to Average Net
Assets 2.36% 2.03% 1.86% 2.10% 2.39%
Portfolio Turnover Rate 33% 21% 51% 41% 67%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Reflects a 2.5 for 1 share split effective August 13, 1993.
## For the year ended September 30, 1995, the Ratio of Expenses to Average Net
Assets for the Equity Portfolio excludes the effect of expense offsets. If
expense offsets were included, the Ratio of Expenses to Average Net Assets
would be 0.60%.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
99
<PAGE> 102
SELECTED PER SHARE DATA AND RATIOS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period +
<TABLE>
<CAPTION>
-------------------------------------------------------------
SMALL
CAP
VALUE
PORTFOLIO
-------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------
1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.20 $ 11.45 $ 12.84 $ 17.55 $ 17.67
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.23 0.10 0.18 0.16 0.19
Net Realized and Unrealized Gain (Loss) on Investments 4.21 1.48 4.64 1.14 2.49
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 4.44 1.58 4.82 1.30 2.68
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.19) (0.19) (0.11) (0.24) (0.14)
Realized Net Gain -- -- -- (0.94) (1.93)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.19) (0.19) (0.11) (1.18) (2.07)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.45 $ 12.84 $ 17.55 $ 17.67 $ 18.28
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 63.07% 14.12% 37.72% 8.04% 18.39%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $52,182 $105,886 $175,029 $308,156 $430,368
Ratio of Expenses to Average Net Assets ## 0.88% 0.86% 0.88% 0.88% 0.87%
Ratio of Net Investment Income to Average Net Assets 1.70% 1.06% 1.33% 0.91% 1.20%
Portfolio Turnover Rate 53% 50% 93% 162% 119%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Reflects a 2.5 for 1 share split effective August 13, 1993.
## For the year 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.
<TABLE>
<CAPTION>
------------------------------------------------------------
SELECT
EQUITY
PORTFOLIO
------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------
1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.86 $ 16.09 $ 17.65 $ 18.41 $ 17.29
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.34 0.32 0.31 0.71 0.27
Net Realized and Unrealized Gain (Loss) on Investments 4.26 1.76 1.49 0.06 2.07
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 4.60 2.08 1.80 0.77 2.34
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.33) (0.31) (0.32) (0.70) (0.30)
Realized Net Gain (0.04) (0.21) (0.72) (1.19) (7.53)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.37) (0.52) (1.04) (1.89) (7.83)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 16.09 $ 17.65 $ 18.41 $ 17.29 $ 11.80
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 39.48% 13.26% 10.46% 4.50% 26.22%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $118,557 $205,264 $295,050 $29,155 $ 29,581
Ratio of Expenses to Average Net Assets ## 0.60% 0.60% 0.60% 0.62%++ 0.62%++
Ratio of Net Investment Income to Average Net Assets 2.41% 1.89% 1.78% 1.75% 2.48%
Portfolio Turnover Rate 29% 19% 33% 27% 73%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Reflects a 2.5 for 1 share split effective August 13, 1993.
++ Select Equity Portfolio expense ratios are net of voluntarily waived expenses
of less than 0.01% and 0.13% for the years ended September 30, 1994 and 1995.
## For the year ended September 30, 1995, the Ratio of Expenses to Average Net
Assets for the Select Equity Portfolio excludes the effect of expense
offsets. If expense offsets were included, the Ratio of Expenses to Average
Net Assets would be 0.61%.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
100
<PAGE> 103
SELECTED PER SHARE DATA AND RATIOS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period +
<TABLE>
<CAPTION>
-------------------------------------------------------------
INTERNATIONAL
EQUITY
PORTFOLIO
-------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------
1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.83 $ 11.56 $ 11.03 $ 13.18 $ 14.52
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.22 0.36 0.21 0.12 0.19
Net Realized and Unrealized Gain (Loss) on
Investments 1.83 (0.33) 2.14 1.63 (0.75)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.05 0.03 2.35 1.75 (0.56)
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.23) (0.56) (0.20) (0.16) --
Realized Net Gain (0.09) -- -- (0.25) (1.35)
In Excess of Realized Net Gain -- -- -- -- (0.10)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.32) (0.56) (0.20) (0.41) (1.45)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.56 $ 11.03 $ 13.18 $ 14.52 $ 12.51
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 21.22% 0.37% 21.64% 13.33% (3.36%)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $274,295 $512,127 $891,675 $1,132,867 $1,160,986
Ratio of Expenses to Average Net Assets ## 0.67% 0.70% 0.66% 0.64% 0.70%
Ratio of Net Investment Income to Average Net Assets 2.08% 1.41% 1.23% 0.89% 1.90%
Portfolio Turnover Rate 51% 42% 43% 69% 112%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Reflects a 2.5 for 1 share split effective August 13, 1993.
## For the year 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%.
<TABLE>
<CAPTION>
--------------------------------------------------------
MID CAP
GROWTH
PORTFOLIO
--------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------
1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.00 $ 14.92 $ 14.51 $ 18.56 $ 16.29
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.04 0.01 0.01 0.02 0.03
Net Realized and Unrealized Gain (Loss) on Investments 5.91 0.44 4.80 (0.58) 4.21
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 5.95 0.45 4.81 (0.56) 4.24
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.03) (0.03) -- (0.01) (0.03)
Realized Net Gain -- (0.83) (0.76) (1.70) (1.90)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.03) (0.86) (0.76) (1.71) (1.93)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.92 $ 14.51 $ 18.56 $ 16.29 $ 18.60
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 66.26% 2.87% 33.92% (3.28%) 30.56%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $171,163 $192,817 $309,459 $302,995 $373,547
Ratio of Expenses to Average Net Assets ## 0.60% 0.60% 0.59% 0.60% 0.61%
Ratio of Net Investment Income to Average Net Assets 0.29% 0.05% 0.07% 0.12% 0.21%
Portfolio Turnover Rate 46% 39% 69% 55% 129%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Reflects a 2.5 for 1 share split effective August 13, 1993.
## For the year ended September 30, 1995, the Ratio of Expenses to Average Net
Assets for the Mid Cap Growth Portfolio excludes the effect of expense
offsets. If expense offsets were included, the Ratio of Expenses to Average
Net Assets would be 0.60%.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
101
<PAGE> 104
SELECTED PER SHARE DATA AND RATIOS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period +
<TABLE>
-------------------------------------
MID CAP EMERGING
VALUE MARKETS
PORTFOLIO PORTFOLIO
-------------------------------------
DECEMBER 30, FEBRUARY 28,
1994** TO 1995** TO
SEPTEMBER SEPTEMBER
30, 30,
1995 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.55/ 0.10
Net Realized and Unrealized Gain (Loss) on Investments 2.90 1.53
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 3.45 1.63
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.45 $ 11.63
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 34.50% 16.30%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $ 4,507 $42,459
Ratio of Expenses to Average Net Assets ## 0.93%*++ 1.18%*++
Ratio of Net Investment Income to Average Net Assets 10.13%*/ 2.04%*
Portfolio Turnover Rate 639%/ 63%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -
* Annualized. ** Commencement of Operations.
++ Mid Cap Value Portfolio expense ratio is net of voluntarily waived and
reimbursed expenses of 2.13%* for the period ended September 30, 1995.
Emerging Markets Portfolio expense ratio is net of voluntarily waived
expenses of 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 Mid Cap Value Portfolio excludes the effect of expense
offsets. If expense offsets were included, the Ratio of Expenses to Average
Net Assets would be 0.88%.* For the period ended September 30, 1995, the
Ratio of Expenses to Average Net Assets for the Emerging Markets Portfolio
excludes the effect of expense offsets. If expense offsets were included, the
Ratio of Expenses to Average Net Assets would not significantly differ.
/Net Investment Income, the Ratio of Net Investment Income to Average Net Assets
and the Portfolio Turnover Rate reflect activity relating to a nonrecurring
initiative to invest in higher-paying dividend income producing securities.
<TABLE>
<CAPTION>
------------------------------------------------------------
FIXED
INCOME
PORTFOLIO
------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------
1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.94 $ 12.20 $ 12.67 $ 12.86 $ 10.93
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.94 0.90 0.88 0.77 0.80
Net Realized and Unrealized Gain (Loss) on
Investments 1.25 0.74 0.75 (1.28) 0.69
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.19 1.64 1.63 (0.51) 1.49
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.93) (1.02) (0.83) (0.82) (0.60)
Realized Net Gain -- (0.15) (0.61) (0.47) --
In Excess of Realized Net Gain -- -- -- (0.13) --
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.93) (1.17) (1.44) (1.42) (0.60)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.20 $ 12.67 $ 12.86 $ 10.93 $ 11.82
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 21.12% 14.35% 14.26% (4.43%) 14.19%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $831,547 $859,712 $909,738 $1,194,957 $1,487,409
Ratio of Expenses to Average Net Assets ## 0.47% 0.47% 0.47% 0.49% 0.49%
Ratio of Net Investment Income to Average Net Assets 8.25% 7.50% 7.06% 6.79% 7.28%
Portfolio Turnover Rate 143% 137% 144% 100% 140%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Reflects a 2.5 for 1 share split effective August 13, 1993.
## For the year ended September 30, 1995, the Ratio of Expenses to Average Net
Assets for the 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%.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
102
<PAGE> 105
SELECTED PER SHARE DATA AND RATIOS
- --------------------------------------------------------------------------------
or a Share Outstanding Throughout Each Period +
<TABLE>
<CAPTION>
-------------------------------------------------------
DOMESTIC FIXED INCOME PORTFOLIO
-------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.26 $ 11.34 $ 11.80 $ 11.99 $ 9.87
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.92 0.87 0.84 0.94 0.52
Net Realized and Unrealized Gain (Loss) on Investments 1.10 0.76 0.66 (1.23) 0.87
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.02 1.63 1.50 (0.29) 1.39
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.94) (1.00) (0.78) (0.95) (0.23)
Realized Net Gain -- (0.17) (0.53) (0.73) --
In Excess of Realized Net Gain -- -- -- (0.15) --
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.94) (1.17) (1.31) (1.83) (0.23)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.34 $ 11.80 $ 11.99 $ 9.87 $ 11.03
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 20.99% 15.41% 14.08% (2.87%) 14.33%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $83,200 $98,130 $90,350 $36,521 $36,147
Ratio of Expenses to Average Net Assets ## 0.48% 0.47% 0.50% 0.50%++ 0.51%++
Ratio of Net Investment Income to Average Net Assets 8.18% 7.67% 7.15% 7.65% 6.80%
Portfolio Turnover Rate 131% 136% 96% 78% 313%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Reflects a 2.5 for 1 share split effective August 13, 1993.
++ Domestic Fixed Income Portfolio expense ratios are net of voluntarily waived
expenses of 0.03% and 0.09% for the years ended September 30, 1994 and 1995,
respectively.
## For the year ended September 30, 1995, the Ratio of Expenses to Average Net
Assets for the Domestic Fixed Income Portfolio excludes the effect of expense
offsets. If expense offsets were included, the Ratio of Expenses to Average
Net Assets would be 0.50%.
<TABLE>
<CAPTION>
------------------------------------------------
HIGH YIELD PORTFOLIO
------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.07 $ 7.80 $ 8.58 $ 9.49 $ 8.97
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 1.42 0.74 0.73 0.75 0.90
Net Realized and Unrealized Gain (Loss) on Investments 0.82 0.89 0.90 (0.42) 0.19
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.24 1.63 1.63 0.33 1.09
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (1.51) (0.85) (0.72) (0.69) (0.85)
Realized Net Gain -- -- -- (0.16) (0.08)
In Excess of Realized Net Gain -- -- -- -- (0.05)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.51) (0.85) (0.72) (0.85) (0.98)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 7.80 $ 8.58 $ 9.49 $ 8.97 $ 9.08
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 36.70% 22.49% 20.12% 3.57% 13.58%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $ 6,453 $20,491 $50,396 $182,969 $220,785
Ratio of Expenses to Average Net Assets ## 0.76% 0.53%++ 0.53%++ 0.50% 0.50%
Ratio of Net Investment Income to Average Net Assets 19.45% 9.74% 8.94% 9.01% 10.68%
Portfolio Turnover Rate 106% 148% 99% 112% 96%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Reflects a 2.5 for 1 share split effective August 13, 1993.
++ High Yield Portfolio expense ratios are net of voluntarily waived expenses of
0.22% and 0.09% for the years ended September 30, 1992 and 1993,
respectively.
## For the year ended September 30, 1995, the Ratio of Expenses to Average Net
Assets for the High Yield Portfolio excludes the effect of expense offsets.
If expense offsets were included, the Ratio of Expenses to Average Net Assets
would be 0.49%.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
103
<PAGE> 106
SELECTED PER SHARE DATA AND RATIOS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period +
<TABLE>
<CAPTION>
--------------------------------------------------------
CASH RESERVES PORTFOLIO
--------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------
1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.064 0.038 0.028 0.034 0.055
Net Realized and Unrealized Gain (Loss) on
Investments -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.064 0.038 0.028 0.034 0.055
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.064) (0.038) (0.028) (0.034) (0.055)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 6.63% 3.89% 2.81% 3.40% 5.57%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $24,163 $12,935 $10,717 $37,933 $44,624
Ratio of Expenses to Average Net Assets ## 0.32%++ 0.32%++ 0.32%++ 0.32%++ 0.33%++
Ratio of Net Investment Income to Average Net Assets 6.57% 3.95% 2.78% 3.70% 5.45%
Portfolio Turnover Rate N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
++ Cash Reserves Portfolio expense ratios are net of voluntarily waived and
reimbursed expenses of 0.05%, 0.08%, 0.24%, 0.14% and 0.11% for the years
ended September 30, 1991, 1992, 1993, 1994 and 1995, respectively.
## For the year ended September 30, 1995, the Ratio of Expenses to Average Net
Assets for the Cash Reserves Portfolio excludes the effect of expense
offsets. If expense offsets were included, the Ratio of Expenses to Average
Net Assets would be 0.32%.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
FIXED INCOME MORTGAGE-BACKED
PORTFOLIO II SECURITIES PORTFOLIO
---------------------------------------------------------------------------------
YEAR
JAN. 31, ENDED
1992** TO SEPTEMBER
YEAR ENDED SEPTEMBER 30, SEPT. 30, 30,
---------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1992 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.09 $ 11.34 $ 11.67 $ 11.97 $ 10.42 $ 10.00 $ 10.44
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.81 0.77 0.69 0.63 0.71 0.29 0.63
Net Realized and Unrealized Gain (Loss) on
Investments 1.10 0.61 0.77 (1.16) 0.71 0.28 0.48
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.91 1.38 1.46 (0.53) 1.42 0.57 1.11
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.66) (0.81) (0.61) (0.67) (0.51) (0.13) (0.60)
Realized Net Gain -- (0.24) (0.55) (0.21) -- -- --
In Excess of Realized Net Gain -- -- -- (0.14) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.66) (1.05) (1.16) (1.02) (0.51) (0.13) (0.60)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.34 $ 11.67 $ 11.97 $ 10.42 $ 11.33 $ 10.44 $ 10.95
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 19.59% 13.02% 13.53% (4.76%) 14.13% 5.75% 11.03%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $42,881 $78,302 $94,836 $129,902 $176,945 $13,601 $50,249
Ratio of Expenses to Average Net Assets ## 0.49% 0.49% 0.51% 0.51% 0.51% 0.50%*++ 0.50%++
Ratio of Net Investment Income
to Average Net Assets 7.76% 7.05% 6.17% 6.07% 6.75% 8.11%* 6.92%
Portfolio Turnover Rate 190% 182% 101% 137% 153% 133% 93%
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended
September 30,
------------------
1994 1995
- ---------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.95 $ 9.95
- --------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.52 0.72
Net Realized and Unrealized Gain (Loss) on
Investments (0.83) 0.47
- --------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.31) 1.19
- --------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.45) (0.65)
Realized Net Gain (0.21) --
In Excess of Realized Net Gain (0.03) --
- --------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.69) (0.65)
- --------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.95 $ 10.49
- --------------------------------------------------------------------
TOTAL RETURN (2.95%) 12.52%
- --------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $119,518 $49,766
Ratio of Expenses to Average Net Assets ## 0.50%++ 0.50%++
Ratio of Net Investment Income
to Average Net Assets 5.30% 6.35%
Portfolio Turnover Rate 220% 107%
- --------------------------------------------------------------------
</TABLE>
- -
* Annualized. ** Commencement of Operations. + Reflects a 2.5 for 1 share split
effective August 13, 1993.
++ Mortgage-Backed Securities Portfolio expense ratios are net of voluntarily
waived expenses of 0.30%*, 0.06%, 0.01%, and 0.01% for the period ended
September 30, 1992, and the years ended September 30, 1993, 1994 and 1995,
respectively.
## For the year ended September 30, 1995, the Ratio of Expenses to Average Net
Assets for the Fixed Income Portfolio II excludes the effect of expense
offsets. If expense offsets were included, the Ratio of Expenses to Average
Net Assets would be 0.49%. For the year ended September 30, 1995, the Ratio
of Expenses to Average Net Assets for the Mortgage-Backed Securities
Portfolio excludes the effect of expense offsets. If expense offsets were
included, the Ratio of Expenses to Average Net Assets would not significantly
differ.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
104
<PAGE> 107
SELECTED PER SHARE DATA AND RATIOS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period +
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
LIMITED DURATION SPECIAL PURPOSE
PORTFOLIO FIXED INCOME PORTFOLIO
---------------------------------------------------------------------------------
MAR. 31, MAR. 31,
1992** TO YEAR ENDED 1992** TO YEAR ENDED
SEPT. 30, SEPTEMBER 30, SEPT. 30, SEPTEMBER 30,
--------------------------- -------------------------
1992 1993 1994 1995 1992 1993 1994 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $ 10.58 $ 10.72 $ 10.19 $ 11.80 $ 12.72 $ 13.40 $ 11.52
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.19 0.32 0.56 0.56 0.39 0.88 0.80 0.91
Net Realized and Unrealized Gain
(Loss) on Investments 0.49 0.22 (0.52) 0.22 0.72 0.92 (1.28) 0.75
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.68 0.54 0.04 0.78 1.11 1.80 (0.48) 1.66
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.10) (0.32) (0.51) (0.55) (0.19) (0.82) (0.78) (0.65)
Realized Net Gain -- (0.08) (0.04) -- -- (0.30) (0.53) --
In Excess of Realized Net Gain -- -- (0.02) (0.01) -- -- (0.09) --
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.10) (0.40) (0.57) (0.56) (0.19) (1.12) (1.40) (0.65)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.58 $ 10.72 $ 10.19 $ 10.41 $ 12.72 $ 13.40 $ 11.52 $ 12.53
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 6.90% 5.33% 0.40% 7.95% 9.47% 15.19% (4.00%) 14.97%
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $13,065 $128,991 $62,775 $100,186 $274,195 $300,185 $384,731 $390,258
Ratio of Expenses to Average Net Assets ## 0.49%* 0.42%++ 0.41% 0.43%++ 0.53%* 0.48% 0.58% 0.49%
Ratio of Net Investment Income to Average
Net Assets 4.99%* 3.92% 4.16% 5.96% 6.94%* 6.84% 6.66% 7.33%
Portfolio Turnover Rate 159% 217% 192% 119% 138% 124% 100% 143%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized. ** Commencement of Operations. + Reflects a 2.5 for 1 share split
effective August 13, 1993.
++ Limited Duration Portfolio expense ratio is net of voluntarily waived
expenses of 0.03% and 0.02% for the years ended September 30, 1993 and 1995,
respectively.
## For the year ended September 30, 1995, the Ratio of Expenses to Average Net
Assets for the Limited Duration Portfolio excludes the effect of expense
offsets. If expense offsets were included, the Ratio of Expenses to Average
Net Assets would be 0.42%. For the year 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%.
<TABLE>
<CAPTION>
------------------------------------------------------------------------
MUNICIPAL PORTFOLIO PA MUNICIPAL PORTFOLIO
------------------------------------------------------------------------
OCT. 1, OCT. 1,
1992** TO YEAR ENDED SEPT. 30, 1992** TO YEAR ENDED SEPT. 30,
SEPT. 30, -------------------- SEPT. 30, --------------------
1993 1994 1995 1993 1994 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 11.15 $ 10.04 $ 10.00 $ 11.26 $ 10.13
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.37 0.51 0.59 0.39 0.56 0.58
Net Realized and Unrealized Gain (Loss) on
Investments 1.04 (1.01) 0.71 1.17 (1.00) 0.77
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.41 (0.50) 1.30 1.56 (0.44) 1.35
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.26) (0.54) (0.59) (0.30) (0.64) (0.57)
In Excess of Net Investment Income -- (0.07) -- -- -- --
In Excess of Realized Net Gain -- -- -- -- (0.05) --
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.26) (0.61) (0.59) (0.30) (0.69) (0.57)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.15 $ 10.04 $ 10.75 $ 11.26 $ 10.13 $ 10.91
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 14.20% (4.64%) 13.37% 15.81% (4.08%) 13.74%
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $26,914 $38,549 $36,040 $15,633 $23,515 $15,734
Ratio of Expenses to Average Net Assets ## 0.50%*++ 0.50%++ 0.50%++ 0.50%*++ 0.50%++ 0.50%++
Ratio of Net Investment Income to Average Net
Assets 4.65%* 4.98% 5.64% 4.74%* 5.39% 5.56%
Portfolio Turnover Rate 66% 34% 58% 94% 69% 57%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized. ** Commencement of Operations. + Reflects a 2.5 for 1 share split
effective August 13, 1993.
++ Municipal Portfolio expense ratios are net of voluntarily waived expenses of
0.20%*, 0.06% and 0.09% for the years ended September 30, 1993, 1994 and
1995, respectively. PA Municipal Portfolio expense ratio is net of
voluntarily waived expenses of 0.25%*, 0.09% and 0.19% for the years ended
September 30, 1993, 1994 and 1995, respectively.
## For the year ended September 30, 1995, the Ratio of Expenses to Average Net
Assets for the Municipal Portfolio 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.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
105
<PAGE> 108
SELECTED PER SHARE DATA AND RATIOS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period +
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
GLOBAL INTERNATIONAL
FIXED INCOME FIXED INCOME
PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------
APRIL 30, YEAR ENDED APRIL 29, YEAR
1993** TO SEPT. 30, 1994** TO ENDED
SEPT. 30, ------------------ SEPT. 30, SEPT. 30,
1993 1994 1995 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.67 $ 10.20 $ 10.00 $ 10.05
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.13 0.58 0.71 0.21 0.67
Net Realized and Unrealized Gain (Loss) on
Investments 0.61 (0.61) 0.81 (0.11) 0.92
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.74 (0.03) 1.52 0.10 1.59
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.07) (0.41) (0.67) (0.05) (0.63)
Realized Net Gain -- (0.03) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.07) (0.44) (0.67) (0.05) (0.63)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.67 $ 10.20 $ 11.05 $ 10.05 $ 11.01
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 7.43% (0.29%) 15.54% 1.01% 16.36%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $53,164 $43,066 $55,147 $66,879 $127,882
Ratio of Expenses to Average Net Assets ## 0.58%*++ 0.57% 0.58% 0.60%*++ 0.54%
Ratio of Net Investment Income to Average Net
Assets 5.08%* 5.48% 6.34% 5.83%* 6.35%
Portfolio Turnover Rate 30% 117% 118% 31% 140%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -
* Annualized. ** Commencement of Operations.
++ Global Fixed Income Portfolio expense ratio is net of voluntarily waived
expenses of 0.18%* for the period ended September 30, 1993. International
Fixed Income Portfolio expense ratio is net of voluntarily waived expenses of
0.11%* for the period ended September 30, 1994.
## For the year ended September 30, 1995, the Ratio of Expenses to Average Net
Assets for the Global Fixed Income Portfolio excludes the effect of expense
offsets.
If expense offsets were included the Ratio of Expenses to Average Net Assets
would be 0.56%. For the year ended September 30, 1995, the Ratio of Expenses
to Average Net Assets for the International Fixed Income Portfolio excludes
the effect of expense offsets. If expense offsets were included, the Ratio of
Expenses to Average Net Assets would not significantly differ.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
INTERMEDIATE MULTI-ASSET-
DURATION BALANCED CLASS
PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------
OCTOBER 3, DEC. 31, YEAR ENDED JULY 29, YEAR
1994** TO 1992** TO SEPT. 30, 1994** TO ENDED
SEPT. 30, SEPT. 30, ---------------------- SEPT. 30, SEPT. 30,
1995 1993 1994 1995 1994 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 10.00 $ 11.06 $ 11.84 $ 11.28 $ 10.00 $ 9.97
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.69 0.25 0.47 0.54 0.07 0.44
Net Realized and
Unrealized Gain (Loss)
on Investments 0.42 0.66 (0.45) 1.78 (0.10) 1.33
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 1.11 0.91 0.02 2.32 (0.03) 1.77
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.43) (0.13) (0.43) (0.47) -- (0.40)
Realized Net Gain -- -- (0.15) (0.07) -- --
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.43) (0.13) (0.58) (0.54) -- (0.40)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 10.68 $ 11.84 $ 11.28 $ 13.06 $ 9.97 $ 11.34
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 11.39% 8.31% 0.19% 21.37% (0.30%) 18.28%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of
Period (Thousands) $19,237 $291,762 $309,596 $334,630 $51,877 $96,839
Ratio of Expenses to
Average Net Assets ## 0.52%*++ 0.58%* 0.58% 0.58% 0.58%*++ 0.58%++
Ratio of Net Investment
Income to Average Net
Assets 6.56%* 3.99%* 4.06% 4.55% 4.39%* 4.56%
Portfolio Turnover Rate 168% 62% 75% 95% 20% 112%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -
* Annualized. ** Commencement of Operations. + Reflects a 2.5 for 1 share split
effective August 13, 1993 except for the Intermediate Duration and
Multi-Asset-Class Portfolios.
++ Intermediate Duration Portfolio expense ratio is net of voluntarily waived
expenses of 0.08%* for the period ended September 30, 1995. Multi-Asset-Class
Portfolio expense ratio is net of voluntarily waived expenses of 0.26%* and
0.14% for the period ended September 30, 1994 and the year ended September
30, 1995, respectively.
## For the period ended September 30, 1995, the Ratio of Expenses to Average Net
Assets for the Intermediate Duration 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 year ended September 30,
1995, the Ratio of Expenses to Average Net Assets for the Balanced Portfolio
excludes the effect of expense offsets. If expense offsets were included, the
Ratio of Expenses to Average Net Assets would be 0.57%. For the year 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.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
106
<PAGE> 109
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MAS Funds (the "Fund") is registered under the Investment Company Act of 1940
as an open-end investment company. At September 30, 1995, the Fund was
comprised of twenty-five active portfolios (each referred to as the
"Portfolio"). The financial statements for the Advisory Foreign Fixed Income
Portfolio and the Advisory Mortgage Portfolio are presented separately.
A. SIGNIFICANT ACCOUNTING POLICIES. The following significant accounting
policies are in conformity with generally accepted accounting principles for
investment companies. Such policies are consistently followed by the Fund in
the preparation of its financial statements.
1. SECURITY VALUATION: Market values for equity securities listed on the New
York Stock Exchange ("NYSE") or other U.S. exchanges or NASDAQ are based on
the latest quoted sales prices as of the normal close of the NYSE at 4:00
p.m. Eastern Time on the valuation date; securities not traded on the
valuation date are valued at the mean of the most recent quoted bid and
asked prices. Equity securities not listed are valued at the mean of the
most recent bid and asked prices. Securities listed on foreign exchanges
are valued at the latest quoted sales prices. Bonds, including municipal
bonds, and other fixed income securities are valued using brokers'
quotations or on the basis of prices, provided by a pricing service, which
are based primarily on institutional size trading in similar groups of
securities. Mortgage-backed securities issued by certain government-related
organizations are valued using brokers' quotations which are based on a
matrix system which considers such factors as other security prices, yields
and maturities. Securities in the Cash Reserves Portfolio, and other
Portfolios' short term securities, are valued using the amortized cost
method of valuation, which in the opinion of the Board of Trustees,
reflects fair value. Securities for which no quotations are readily
available (including restricted securities) are valued at their fair value
as determined in good faith using methods approved by the Board of
Trustees.
Each Portfolio may invest up to 15% of its net assets, except Cash Reserves
which may invest up to 10% of net assets, in securities which are not
readily marketable, including those which are restricted as to disposition
under securities law ("restricted securities"). These securities are valued
at fair value as determined in good faith using methods approved by the
Board of Trustees.
2. FEDERAL INCOME TAXES: It is each Portfolio's intention to continue to
qualify as a regulated investment company and distribute all of its taxable
and tax-exempt income. Accordingly, no provision for Federal income taxes
is required in the financial statements.
Paid in capital, undistributed (overdistributed) net investment income and
undistributed (overdistributed) realized net gain (loss) have been adjusted
for permanent book-tax differences, if any, for the Portfolios.
Reclassifications between paid in capital and undistributed
(overdistributed) realized net gain (loss) arose principally from differing
book and tax treatments for gain (loss) on in-kind redemptions (Note G);
reclassifications between undistributed (overdistributed) net investment
income and undistributed (overdistributed) realized net gain (loss) arose
principally from differing book and tax treatments for foreign currency
transactions and, for the International Equity Portfolio, the
reclassification of gains on certain securities designated as "passive
foreign investment companies" for tax purposes.
3. REPURCHASE AGREEMENTS: Securities pledged as collateral for repurchase
agreements are held by the Portfolios' custodian bank until maturity of the
repurchase agreements. Provisions of the agreements ensure that the market
value of the collateral is at least equal to the repurchase value in the
event of default; however, in the event of default or bankruptcy by the
- --------------------------------------------------------------------------------
107
<PAGE> 110
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
other party to the agreement, realization and/or retention of the collateral
may be subject to legal proceedings.
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, the Portfolios may transfer their uninvested cash balances into
a joint trading account which invests in one or more repurchase agreements.
This joint repurchase agreement is covered by the same collateral
requirements as discussed above.
4. FUTURES: Futures contracts (secured by securities deposited with brokers as
"initial margin") are valued based upon their quoted daily settlement
prices; changes in initial settlement value (represented by cash paid to or
received from brokers as "variation margin") are accounted for as
unrealized appreciation (depreciation). When futures contracts are closed,
the difference between the opening value at the date of purchase and the
value at closing is recorded as realized gains or losses in the Statement
of Operations.
Futures contracts may be used by each Portfolio, except the Cash Reserves
Portfolio, in order to hedge against unfavorable changes in value of
securities or to attempt to realize profits from the value of the
underlying securities. Futures contracts involve market risk in excess of
the amounts recognized in the statement of net assets. Risks arise from the
possible movements in security values underlying these instruments. The
change in value of futures contracts primarily corresponds with the value
of their underlying instruments, which may not correlate with the change in
value of the hedged investments. In addition, there is the risk that a
Portfolio may not be able to enter into a closing transaction because of an
illiquid secondary market.
5. SWAP AGREEMENTS: Each Portfolio, except the Cash Reserves Portfolio, can
enter into swap agreements to exchange the return generated by one
instrument for the return generated by another instrument. The following
summarizes swaps entered into by the Portfolios:
Interest Rate Swaps: Interest rate swaps involve the exchange of
commitments to pay and receive interest based on a notional principal
amount. Net periodic interest payments to be received or paid are accrued
daily and are recorded in the Statement of Operations as an adjustment to
interest income. Interest rate swaps are marked-to-market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized appreciation or depreciation in the Statement of Operations.
Total Return Swaps: Total return swaps involve commitments to pay interest
in exchange for a market-linked return based on a notional amount. To the
extent the total return of the security or index underlying the transaction
exceeds or falls short of the offsetting interest rate obligation, the
Portfolio will receive a payment from or make a payment to the
counterparty, respectively. Total return swaps are marked-to-market daily
based upon quotations from market makers and the change, if any, is
recorded as unrealized gains or losses in the Statement of Operations.
Periodic payments received or made at the end of each measurement period,
but prior to termination, are recorded as realized gain (loss) in the
Statement of Operations.
Realized gains or losses on maturity or termination of interest rate and
total return swaps are presented in the Statement of Operations. Because
there is no organized market for these agreements, the value reported in the
Statement of Net Assets may differ from that which would be realized in the
event the Portfolio terminated its position in the agreement. Risks may
arise upon entering into these agreements from the potential inability of
the counterparties to meet the terms of the agreements and is generally
limited to the amount of net interest payments and/or any favorable
movements in the value of the underlying security, if any, to be received at
the date of default.
- --------------------------------------------------------------------------------
108
<PAGE> 111
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. WRITTEN INTEREST RATE FLOOR AGREEMENTS: A Portfolio will utilize written
interest rate floors to protect itself against fluctuations in interest
rates. When a Portfolio writes an interest rate floor, it agrees to make
periodic interest payments based on a notional principal amount to the
extent that a specified interest index falls below a specified interest
rate in exchange for the premium received. When a Portfolio writes an
interest rate floor the premium received by the Portfolio is recorded as a
liability and is amortized to interest income over the term of the
agreement. Interest rate floors are marked-to-market daily based on
quotations from market makers and the change, if any, is recorded as
unrealized appreciation or depreciation in the Statement of Operations.
Periodic payments of interest, if any, are reported as reductions to
interest income in the Statement of Operations. Realized gains or losses
from these agreements are disclosed in the Statement of Operations.
Because there is no organized market for these agreements, the value
reported in the Statement of Net Assets may differ from that which would be
realized in the event the Portfolio terminated its position in the
agreement. Entering into these agreements involves, to varying degrees,
elements of interest rate and market risk in excess of the amount
recognized in the Statement of Net Assets. Such risks involve the
possibility that there is no liquid market for these agreements and that
there may be adverse changes in interest rates and unfavorable changes in
the price of the security or index underlying these transactions.
7. STRUCTURED INVESTMENTS: Certain Portfolios may invest in structured
investments whose values are linked either directly or inversely to changes
in foreign currencies, interest rates, commodities, indices, or other
underlying instruments. A Portfolio uses these securities to increase or
decrease its exposure to different underlying instruments and to gain
exposure to markets that might be difficult to invest in through
conventional securities. Structured investments may be more volatile than
their underlying instruments, but any loss is limited to the amount of the
original investment.
8. DELAYED DELIVERY COMMITMENTS: Each Portfolio, except the Cash Reserves
Portfolio, may purchase or sell securities on a when-issued or forward
commitment basis. Payment and delivery may take place a month or more after
the date of the transaction. The price of the underlying securities and the
date when the securities will be delivered and paid for are fixed at the
time the transaction is negotiated. Collateral consisting of liquid,
high-grade debt securities or cash is maintained in an amount at least
equal to these commitments.
9. FOREIGN EXCHANGE AND FORWARD FOREIGN CURRENCY CONTRACTS: The books and
records of the Fund are maintained in U.S. dollars. Foreign currency
amounts are translated into U.S. dollars at the bid prices of such
currencies against U.S. dollars quoted by a bank. Net realized gains
(losses) on foreign currency transactions represent net foreign exchange
gains (losses) from forward foreign currency exchange contracts,
disposition of foreign currencies, currency gains or losses realized
between the trade and settlement dates on securities transactions, and the
difference between the amount of investment income and foreign withholding
taxes recorded on the Portfolio's books and the U.S. dollar equivalent
amounts actually received or paid.
A forward foreign currency contract is an agreement between two parties to
buy or sell currency at a set price on a future date. Each Portfolio
(except Domestic Fixed Income, Cash Reserves, Mortgage-Backed Securities,
and Limited Duration Fixed Income Portfolios) may enter into forward
foreign currency exchange contracts to protect securities and related
- --------------------------------------------------------------------------------
109
<PAGE> 112
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
receivables and payables against future changes in foreign exchange rates.
Fluctuations in the value of such contracts are recorded as unrealized
appreciation or depreciation; realized gains or losses, which are disclosed
in the Statement of Operations, include net gains or losses on contracts
which have been terminated by settlements. Risks may arise upon entering
into these contracts from the potential inability of counterparties to meet
the terms of their contracts and are generally limited to the amount of
unrealized gain on the contract (if any) at the date of default. Risks may
also arise from unanticipated movements in the value of the foreign currency
relative to the U.S. dollar.
10. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment
income, if any, are declared and paid quarterly except for the Municipal
and PA Municipal Portfolios which are declared and paid monthly, Small Cap
Value, International Equity, Mid Cap Growth, Mid Cap Value and Emerging
Markets Portfolios which are declared and paid annually, and Cash Reserves
Portfolio which are declared daily and paid monthly. Net realized capital
gains are distributed at least annually. The amount and character of income
and gains to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing book and tax treatments in
the timing of the recognition of gains or losses on securities, forwards
and futures, including "Post October Losses" (Note F), and permanent
differences as presented in Footnote A2.
11. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and losses
on the sale of investment securities are those of specific securities sold.
Interest income is recognized on the accrual basis.
Discounts and premiums on securities purchased are amortized over their
respective lives. Securities classified as Value and Mid Cap Growth in the
Equity, Select Equity, Balanced and Multi-Asset-Class Portfolios are those
acquired on the basis of measures of value and growth, respectively, deemed
appropriate by the Investment Adviser. Most expenses of the Fund can be
directly attributed to a particular Portfolio. Expenses which cannot be
directly attributed are apportioned among the Portfolios on the basis of
their relative net assets. "Other Expenses", as presented in the Statement
of Operations, are mainly comprised of registration and audit fees.
B. INVESTMENT ADVISORY FEE. Under the terms of an Investment Advisory
Agreement, each Portfolio pays Miller Anderson & Sherrerd, LLP (MAS) for
investment advisory services performed at a fee calculated by applying a
quarterly rate based on an annual percentage rate to each Portfolio's average
daily net assets for the quarter. For the year ended September 30, 1995, the
investment advisory fees of each of the Portfolios were:
<TABLE>
<CAPTION>
Investment Advisory
Portfolio Fee
- ---------------------------- -------------------
<S> <C>
Value 0.500%
Equity 0.500
Small Cap Value 0.750
Select Equity 0.500
International Equity 0.500
Mid Cap Growth 0.500
Mid Cap Value 0.750
Emerging Markets 0.750
Fixed Income 0.375
Domestic Fixed Income 0.375
High Yield 0.375
Cash Reserves 0.250
Fixed Income II 0.375
Mortgage-Backed Securities 0.375
Limited Duration 0.300
Special Purpose Fixed Income 0.375
Municipal 0.375
PA Municipal 0.375
Global Fixed Income 0.375
International Fixed Income 0.375
Intermediate Duration 0.375
Balanced 0.450
Multi-Asset-Class 0.450
</TABLE>
- --------------------------------------------------------------------------------
110
<PAGE> 113
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MAS has agreed to reduce the fees payable to it and, if necessary, reimburse the
following Portfolios if annual operating expenses exceed the following
percentages of average daily net assets:
<TABLE>
<CAPTION>
Annual
Portfolio Operating Expenses
- ---------------------------- -------------------
<S> <C>
Select Equity 0.610%
Mid Cap Value 0.880
Emerging Markets 1.180
Domestic Fixed Income 0.500
High Yield 0.525
Cash Reserves 0.320
Mortgage-Backed Securities 0.500
Limited Duration 0.420
Municipal 0.500
PA Municipal 0.500
Global Fixed Income 0.580
International Fixed Income 0.600
Intermediate Duration 0.520
Multi-Asset-Class 0.580
</TABLE>
On June 29, 1995, Miller Anderson & Sherrerd, LLP announced that it had agreed
to be acquired by Morgan Stanley Asset Management Holdings, Inc. (an indirect
wholly owned subsidiary of Morgan Stanley Group, Inc.) either alone or together
with one or more affiliates. In accordance with the provisions of the Investment
Company Act of 1940, as amended, on October 6, 1995, the shareholders of MAS
Funds, by affirmative vote of the majority of the outstanding shares of each
Portfolio of the Fund, approved a new Investment Advisory Agreement between the
Fund and the restructured MAS effective upon the completion of the transaction.
The acquisition is scheduled to be completed on or about November 30, 1995.
C. ADMINISTRATION FEE. MAS serves as Administrator to the Fund pursuant to an
Administration Agreement. Under the agreement, MAS receives an annual fee
accrued daily and payable monthly, of 0.08% of each of the Portfolio's average
daily net assets. This fee and various miscellaneous administrative expenses not
included in this fee, such as payments to security pricing vendors, are included
as Administrative Fees in the Statement of Operations of each Portfolio.
Effective September 1, 1995, Chase Global Funds Services Company, (until
September 1, 1995 known as Mutual Funds Service Company), serves as Transfer
Agent to the Fund and provides fund accounting and other services pursuant to a
sub-administration agreement with MAS.
D. PORTFOLIO INVESTMENT ACTIVITY.
1. PURCHASES AND SALES OF SECURITIES: For the year ended September 30, 1995,
purchases and sales of investment securities other than temporary cash
investments were:
<TABLE>
<CAPTION>
(000)
------------------------
Portfolio Purchases Sales
- ----------------------- ----------- -----------
<S> <C> <C>
Value $ 522,676 $ 589,173
Equity 877,624 854,260
Small Cap Value 442,217 416,307
Select Equity 15,014 20,443
International Equity 1,226,812 1,127,626
Mid Cap Growth 371,002 384,764
Mid Cap Value 18,629 14,911
Emerging Markets 55,082 16,729
Fixed Income 1,963,208 1,739,370
Domestic Fixed Income 75,593 78,768
High Yield 193,593 182,659
Cash Reserves -- --
Fixed Income II 258,092 216,772
Mortgage-Backed
Securities 98,941 169,098
Limited Duration 109,278 80,165
Special Purpose Fixed
Income 580,698 581,246
Municipal 22,637 28,817
PA Municipal 9,447 18,473
Global Fixed Income 53,282 53,054
International Fixed
Income 135,066 117,960
Intermediate Duration 46,519 30,133
Balanced 279,986 304,185
Multi-Asset-Class 99,726 71,137
</TABLE>
- --------------------------------------------------------------------------------
111
<PAGE> 114
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. FEDERAL INCOME TAX COST AND UNREALIZED APPRECIATION (DEPRECIATION): At
September 30, 1995, cost and unrealized appreciation (depreciation) of
securities for Federal income tax purposes were:
<TABLE>
<CAPTION>
(000)
------------------------------------------------
Portfolio Cost Appreciation Depreciation Net
- ------------------ ---------- ------------ ------------ --------
<S> <C> <C> <C> <C>
Value $1,101,228 $215,564 ($13,280) $202,284
Equity 1,363,413 281,604 (14,102) 267,502
Small Cap Value 406,904 45,214 (25,340) 19,874
Select Equity 28,471 3,947 (421) 3,526
International
Equity 1,096,706 126,153 (36,415) 89,738
Mid Cap Growth 310,269 80,651 (8,851) 71,800
Mid Cap Value 4,052 209 (53) 156
Emerging Markets 44,997 2,124 (1,672) 452
Fixed Income 1,785,978 44,629 (8,615) 36,014
Domestic Fixed
Income 46,628 656 (38) 618
High Yield 224,575 10,532 (11,959) (1,427)
Cash Reserves 45,135 -- -- --
Fixed Income II 225,526 3,602 (506) 3,096
Mortgage-Backed
Securities 71,800 1,204 (509) 695
Limited Duration 99,684 477 (219) 258
Special Purpose
Fixed Income 464,796 14,203 (2,204) 11,999
Municipal 36,150 1,762 (306) 1,456
PA Municipal 15,038 1,333 (49) 1,284
Global Fixed
Income 51,234 2,486 (218) 2,268
International
Fixed Income 120,145 4,874 (247) 4,627
Intermediate
Duration 20,246 447 (15) 432
Balanced 332,262 35,238 (3,682) 31,556
Multi-Asset-Class 93,670 8,229 (882) 7,347
</TABLE>
3. FORWARD FOREIGN CURRENCY CONTRACTS. Under the terms of the forward foreign
currency contracts open at September 30, 1995, each Portfolio is obligated
to deliver or receive currency in exchange for U.S. dollars as indicated in
the following table:
<TABLE>
<CAPTION>
(000)
---------------------------------------------------------------
Currency In Net Unrealized
to Exchange Settlement Appreciation
Portfolio Deliver For Date Value (Depreciation)
- --------- --------- --------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
INTERNATIONAL EQUITY
Purchases
US$ 252 DM 358 10/2/95 US$ 251 US$ (1)
393 L 248 10/3/95 392 (1)
-----------
US$ (2)
-----------
Sales
DM 50,102 US$ 35,000 12/21/95 US$35,214 US$ (214)
Y 2,007,960 22,000 12/21/95 20,543 1,457
Y 2,380,750 25,000 12/21/95 24,357 643
Y 2,488,587 25,000 12/21/95 25,460 (460)
Y 1,935,604 20,000 12/21/95 19,802 198
-----------
US$ 1,624
-----------
NET US$ 1,622
-----------
<CAPTION>
(000)
------------------------------------------------------------------
Currency In Net Unrealized
to Exchange Settlement Appreciation
Portfolio Deliver For Date Value (Depreciation)
- --------- --------- --------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
FIXED INCOME
Purchases
US$ 13,026 SK 95,305 10/26/95 US$13,722 US$ 696
-----------
Sales
DK 38,330 US$ 7,098 10/11/95 US$ 6,917 US$ 181
ECU 5,175 6,905 10/11/95 6,703 202
FF 5,475 1,131 10/12/95 1,112 19
FF 28,500 5,767 10/12/95 5,788 (21)
DM 21,910 15,762 10/19/95 15,351 411
SK 95,305 13,239 10/26/95 13,722 (483)
C$ 17,425 12,820 10/26/95 12,964 (144)
DM 42,160 30,325 11/6/95 29,564 761
DM 19,755 13,923 11/6/95 13,853 70
FF 45,945 9,100 12/5/95 9,324 (224)
FF 78,740 15,583 12/6/95 15,980 (397)
FF 167,825 33,253 12/7/95 34,059 (806)
FF 66,585 13,091 12/12/95 13,512 (421)
FF 18,810 3,694 12/13/95 3,817 (123)
C$ 41,025 30,204 12/14/95 30,495 (291)
-----------
US$ (1,266)
-----------
NET US$ (570)
-----------
FIXED INCOME II
Purchases
US$ 1,476 SK 10,800 10/26/95 US$ 1,555 US$ 79
208 SK 1,520 10/26/95 219 11
-----------
US$ 90
-----------
Sales
ECU 560 US$ 747 10/11/95 US$ 725 US$ 22
DK 4,155 770 10/11/95 750 20
FF 11,560 2,371 10/12/95 2,348 23
DM 2,485 1,788 10/19/95 1,741 47
SK 10,800 1,500 10/26/95 1,555 (55)
SK 1,520 211 10/26/95 219 (8)
C$ 2,200 1,619 10/26/95 1,637 (18)
DM 7,415 5,299 11/6/95 5,199 100
FF 5,430 1,075 12/5/95 1,102 (27)
FF 4,300 851 12/6/95 873 (22)
FF 18,000 3,567 12/7/95 3,653 (86)
FF 3,910 770 12/12/95 793 (23)
FF 3,855 756 12/12/95 782 (26)
FF 2,160 424 12/13/95 438 (14)
C$ 4,880 3,593 12/14/95 3,628 (35)
-----------
US$ (102)
-----------
NET US$ (12)
-----------
SPECIAL PURPOSE FIXED INCOME
Purchases
US$ 4,294 SK 31,420 10/26/95 US$ 4,524 US$ 230
-----------
Sales
DK 5,615 US$ 1,040 10/11/95 US$ 1,013 US$ 27
DK 5,200 964 10/11/95 938 26
ECU 1,735 2,315 10/11/95 2,247 68
FF 3,850 779 10/12/95 782 (3)
SK 31,420 4,365 10/26/95 4,524 (159)
C$ 4,380 3,223 10/26/95 3,259 (36)
C$ 1,165 850 10/26/95 867 (17)
DM 5,335 3,871 11/6/95 3,741 130
DM 5,900 4,210 11/6/95 4,137 73
DM 6,110 4,306 11/6/95 4,284 22
FF 6,525 1,292 12/5/95 1,324 (32)
FF 36,265 7,177 12/6/95 7,360 (183)
FF 63,770 12,636 12/7/95 12,943 (307)
FF 6,060 1,190 12/13/95 1,230 (40)
C$ 11,765 8,662 12/14/95 8,746 (84)
-----------
US$ (515)
-----------
NET US$ (285)
-----------
</TABLE>
- --------------------------------------------------------------------------------
112
<PAGE> 115
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(000)
----------------------------------------------------------------
Currency In Net Unrealized
to Exchange Settlement Appreciation
Portfolio Deliver For Date Value (Depreciation)
- --------- --------- --------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
GLOBAL FIXED INCOME
Purchases
US$ 276 FF 1,355 10/11/95 US$ 275 US$ (1)
407 Y 34,000 10/18/95 344 (63)
1,354 DM 1,865 10/24/95 1,307 (47)
1,722 FF 8,300 10/25/95 1,686 (36)
4,062 Y 392,000 11/21/95 3,990 (72)
2,080 IL 3,430,000 12/6/95 2,109 29
-----------
US$ (190)
-----------
Sales
Y 77,000 US$ 915 10/11/95 US$ 779 US$ 136
IL 1,075,000 655 10/11/95 666 (11)
FF 4,085 843 10/11/95 830 13
DM 1,865 1,356 10/24/95 1,307 49
NG 3,240 2,102 11/1/95 2,029 73
DM 2,755 1,916 11/9/95 1,932 (16)
Y 235,000 2,536 11/15/95 2,390 146
FF 6,065 1,228 11/17/95 1,231 (3)
C$ 1,845 1,360 12/5/95 1,372 (12)
IL 965,000 596 12/6/95 593 3
Y 79,000 769 12/21/95 808 (39)
-----------
US$ 339
-----------
NET US$ 149
-----------
INTERNATIONAL FIXED INCOME
Purchases
US$ 2,735 Y 270,000 10/3/95 US$ 2,726 US$ (9)
6,869 Y 578,000 10/11/95 5,848 (1,021)
2,730 Y 228,000 10/18/95 2,309 (421)
2,255 DM 3,105 10/24/95 2,176 (79)
6,407 FF 31,340 10/25/95 6,364 (43)
6,715 Y 648,000 11/21/95 6,597 (118)
770 C$ 1,045 12/5/95 777 7
5,683 IL 9,370,000 12/6/95 5,762 79
6,715 DM 9,500 12/19/95 6,676 (39)
-----------
US$ (1,644)
-----------
Sales
Y 270,000 US$ 3,226 10/3/95 US$ 2,728 US$ 498
FF 5,800 1,197 10/11/95 1,178 19
L 345 551 10/11/95 545 6
Y 85,000 879 10/11/95 860 19
DM 3,105 2,257 10/24/95 2,176 81
FF 1,555 317 10/25/95 316 1
NG 9,125 5,920 11/1/95 5,715 205
DK 1,840 340 11/13/95 332 8
Y 99,000 1,068 11/15/95 1,007 61
C$ 2,890 2,129 12/5/95 2,148 (19)
IL 4,525,000 2,795 12/6/95 2,782 13
Y 65,000 633 12/21/95 665 (32)
Y 270,000 2,767 12/21/95 2,762 5
Y 140,000 1,426 12/26/95 1,433 (7)
L 715 1,136 12/27/95 1,127 9
-----------
US$ 867
-----------
NET US$ (777)
-----------
<CAPTION>
(000)
----------------------------------------------------------------
Currency In Net Unrealized
to Exchange Settlement Appreciation
Portfolio Deliver For Date Value (Depreciation)
- --------- --------- --------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
INTERMEDIATE DURATION
Purchases
US$ 194 SK 1,420 10/26/95 US$ 204 US$ 10
-----------
Sales
DK 560 US$ 104 10/11/95 US$ 101 US$ 3
ECU 80 107 10/11/95 104 3
FF 100 20 10/12/95 20 --
DM 300 216 10/19/95 210 6
SK 1,420 197 10/26/95 204 (7)
C$ 300 220 10/26/95 223 (3)
DM 620 446 11/6/95 435 11
DM 295 208 11/6/95 207 1
FF 2,205 436 12/6/95 447 (11)
FF 1,600 315 12/12/95 325 (10)
C$ 585 431 12/14/95 435 (4)
-----------
US$ (11)
-----------
NET US$ (1)
-----------
BALANCED
Purchases
US$ 1,393 SK 10,195 10/26/95 US$ 1,467 US$ 74
-----------
Sales
DK 3,765 US$ 697 10/11/95 US$ 679 US$ 18
ECU 535 714 10/11/95 693 21
FF 3,770 775 10/12/95 766 9
SK 10,195 1,416 10/26/95 1,468 (52)
C$ 1,770 1,301 10/26/95 1,317 (16)
DM 5,605 4,002 11/6/95 3,930 72
FF 23,470 4,645 12/6/95 4,762 (117)
FF 6,465 1,281 12/7/95 1,312 (31)
FF 3,185 625 12/13/95 646 (21)
C$ 3,755 2,765 12/14/95 2,791 (26)
-----------
US$ (143)
-----------
NET US$ (69)
-----------
MULTI-ASSET-CLASS
Purchases
US$ 36 Y 3,000 10/3/95 US$ 30 US$ (6)
109 DM 150 10/24/95 105 (4)
366 Y 36,680 11/8/95 373 7
247 Y 25,400 11/15/95 258 11
234 IL 385,000 12/6/95 237 3
894 DM 1,305 12/19/95 917 23
-----------
US$ 34
-----------
Sales
Y 3,000 US$ 29 10/3/95 US$ 30 US$ (1)
FF 250 52 10/11/95 51 1
DM 150 109 10/24/95 105 4
DK 2,120 392 10/31/95 383 9
NG 400 259 11/1/95 250 9
Y 36,680 408 11/8/95 373 35
DM 120 85 11/9/95 84 1
DM 1,012 705 11/15/95 710 (5)
Y 50,800 518 11/15/95 516 2
FF 1,780 362 11/17/95 361 1
C$ 480 354 12/5/95 357 (3)
Y 19,530 200 12/8/95 199 1
DM 984 700 12/20/95 692 8
-----------
US$ 62
-----------
NET US$ 96
-----------
L -- British Pound Sterling
C$ -- Canadian Dollar
DK -- Danish Krone
ECU -- European Currency Unit
FF -- French Franc
DM -- German Mark
IL -- Italian Lira
Y -- Japanese Yen
NG -- Netherlands Guilder
SK -- Swedish Krona
</TABLE>
- --------------------------------------------------------------------------------
113
<PAGE> 116
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. FUTURES CONTRACTS: At September 30, 1995, the following Portfolios had
futures contracts open:
<TABLE>
<CAPTION>
Initial Unrealized
Aggregate Appreciation/
Number of Face Value Expiration (Depreciation)
Portfolio Contracts (000) Date (000)
- ----------------- --------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
Purchases:
INTERNATIONAL
EQUITY
CAC 40 Index 32 FF 11,428 Oct-95 US$ 9
DAX Index 67 DM 15,387 Dec-95 (374)
FTSE 100 Index 74 L 6,613 Dec-95 (114)
TOPIX Index 240 Y 3,395,960 Dec-95 463
FIXED INCOME
Muni Bond 310 US$ 35,013 Dec-95 353
U.S. Treasury
10 yr. Note 459 US$ 50,066 Dec-95 535
DOMESTIC FIXED
INCOME
Muni Bond 7 US$ 791 Dec-95 8
U.S. Treasury
10 yr. Note 3 US$ 327 Dec-95 4
FIXED INCOME II
Muni Bond 37 US$ 4,179 Dec-95 42
U.S. Treasury
10 yr. Note 14 US$ 1,526 Dec-95 17
MORTGAGE-BACKED
SECURITIES
Muni Bond 16 US$ 1,807 Dec-95 18
U.S. Treasury
10 yr. Note 47 US$ 5,152 Dec-95 29
SPECIAL PURPOSE
FIXED INCOME
Muni Bond 94 US$ 10,617 Dec-95 107
U.S. Treasury
10 yr. Note 124 US$ 13,524 Dec-95 146
MUNICIPAL
Muni Bond 23 US$ 2,596 Dec-95 28
GLOBAL FIXED
INCOME
Japanese 10 yr.
Government
Bond 4 Y 464,000 Dec-95 208
INTERNATIONAL
FIXED INCOME
French 10 yr.
Government
Bond 30 FF 17,466 Dec-95 (40)
Japanese 10 yr.
Government
Bond 15 Y 1,740,000 Dec-95 783
INTERMEDIATE
DURATION
Muni Bond 5 US$ 565 Dec-95 5
U.S. Treasury
10 yr. Note 14 US$ 1,526 Dec-95 17
BALANCED
Muni Bond 30 US$ 3,388 Dec-95 34
U.S. Treasury
10 yr. Note 55 US$ 5,999 Dec-95 64
S&P 500 Index 10 US$ 2,937 Dec-95 4
MULTI-ASSET-CLASS
CAC 40 Index 5 FF 1,824 Dec-95 (6)
DAX Index 3 DM 688 Dec-95 (16)
FTSE 100 Index 2 L 179 Dec-95 (3)
Muni Bond 4 US$ 452 Dec-95 5
S&P 500 Index 9 US$ 2,609 Dec-95 38
TOPIX Index 21 Y 301,650 Dec-95 (5)
<CAPTION>
Initial Unrealized
Aggregate Appreciation/
Number of Face Value Expiration (Depreciation)
Portfolio Contracts (000) Date (000)
- ----------------- --------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
Sales:
FIXED INCOME
U.S. Treasury 5
yr. Note 2,681 US$ 287,253 Dec-95 US$ (640)
U.S. Treasury
Long Bond 316 US$ 35,678 Dec-95 (456)
DOMESTIC FIXED
INCOME
U.S. Treasury 5
yr. Note 53 US$ 5,679 Dec-95 (12)
U.S. Treasury
Long Bond 7 US$ 790 Dec-95 (10)
HIGH YIELD
U.S. Treasury
10 yr. Note 128 US$ 14,084 Dec-95 (28)
FIXED INCOME II
U.S. Treasury 5
yr. Note 306 US$ 32,788 Dec-95 (71)
U.S. Treasury
Long Bond 38 US$ 4,290 Dec-95 (55)
MORTGAGE-BACKED
SECURITIES
U.S. Treasury 5
yr. Note 56 US$ 5,993 Dec-95 (20)
U.S. Treasury
Long Bond 16 US$ 1,807 Dec-95 (23)
SPECIAL PURPOSE
FIXED INCOME
U.S. Treasury 5
yr. Note 615 US$ 65,905 Dec-95 (135)
U.S. Treasury
Long Bond 96 US$ 10,839 Dec-95 (139)
MUNICIPAL
U.S. Treasury 5
yr. Note 84 US$ 8,982 Dec-95 (38)
U.S. Treasury
10 yr. Note 46 US$ 5,025 Dec-95 (46)
U.S. Treasury
Long Bond 8 US$ 907 Dec-95 (9)
INTERMEDIATE
DURATION
U.S. Treasury 5
yr. Note 10 US$ 1,074 Dec-95 --
U.S. Treasury
Long Bond 15 US$ 1,703 Dec-95 (12)
BALANCED
U.S. Treasury 5
yr. Note 185 US$ 19,827 Dec-95 (39)
U.S. Treasury
Long Bond 31 US$ 3,500 Dec-95 (45)
MULTI-ASSET-CLASS
U.S. Treasury 5
yr. Note 65 US$ 6,960 Dec-95 (20)
U.S. Treasury
10 yr. Note 4 US$ 440 Dec-95 (1)
U.S. Treasury
Long Bond 4 US$ 452 Dec-95 (6)
L -- British Pound
FF -- French Franc
DM -- German Mark
Y -- Japanese Yen
</TABLE>
- --------------------------------------------------------------------------------
114
<PAGE> 117
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. SWAP AGREEMENTS: At September 30, 1995, the following Portfolios had open
Swap Agreements:
<TABLE>
<CAPTION>
Unrealized
Notional Appreciation
Amount (Depreciation)
(000) Description (000)
- ---------------------------------------------------------------
<S> <C> <C>
HIGH YIELD
$7,096 Agreement with Bankers Trust ($27)
(1) Company terminating September --------
30, 1996, to pay quarterly 3
month LIBOR plus 75 basis
points times the market value
(expressed as a percentage of
par) of GPA plc's bank debt
(Corporate Credit and Deferred
Amortization Facilities)
multiplied by the notional
amount $7,096 in exchange for
its pro-rata share of the
interest paid by GPA plc under
the terms of its bank debt
adjusted for certain fees and
payments. In addition,
appreciation/depreciation in
the market value of the loan is
either paid to or by the
Portfolio quarterly in an
amount equal to the rate of
appreciation/depreciation
during the quarter times the
notional amount.
MUNICIPAL
$2,000 Agreement with Bankers Trust ($269)
Company terminating May 13,
2024 to pay fixed rate at 8.09%
semiannually and to receive 3
month LIBOR quarterly.
7,500 Agreement with Bankers Trust 10
Company terminating July 11,
2005 to pay fixed rate at 6.64%
semiannually and to receive 3
month LIBOR quarterly.
---------
($259)
---------
PA MUNICIPAL
$1,000 Agreement with Bankers Trust ($135)
Company terminating May 13,
2024 to pay fixed rate at 8.09%
semiannually and to receive 3
month LIBOR quarterly.
3,000 Agreement with Bankers Trust 4
Company terminating July 11,
2005 to pay fixed rate at 6.64%
semiannually and to receive 3
month LIBOR quarterly.
---------
($131)
---------
<CAPTION>
Unrealized
Notional Appreciation
Amount (Depreciation)
(000) Description (000)
- ---------------------------------------------------------------
<S> <C> <C>
GLOBAL FIXED INCOME
IL 3,500,000 Agreement with Union Bank of ($48)
Switzerland terminating on --------
November 27, 1995, to pay
quarterly 3 month LIBOR minus
238 basis points times the
notional amount of $1,929 and
to receive semiannually 9.00%
times the local notional amount
times 1 minus withholding tax
rate imposed by Republic of
Italy on coupon payments. In
addition, appreciation/
depreciation in the market
value of the Republic of Italy
9.00% BTPS bonds, due 10/01/03
is either paid to or by the
Portfolio in an amount equal to
the rate of appreciation/
depreciation over the life of
the swap agreement times the
notional amount.
INTERNATIONAL FIXED INCOME
IL 8,400,000 Agreement with Union Bank of ($114)
Switzerland terminating on ---------
November 27, 1995, to pay
quarterly 3 month LIBOR minus
238 basis points times the
notional amount of $4,629 and
to receive semiannually 9.00%
times the local notional amount
times 1 minus withholding tax
rate imposed by Republic of
Italy on coupon payments. In
addition, appreciation/
depreciation in the market
value of the Republic of Italy
9.00% BTPS bonds, due 10/01/03
is either paid to or by the
Portfolio in an amount equal to
the rate of appreciation/
depreciation over the life of
the swap agreement times the
notional amount.
</TABLE>
- --------------------------------------------------------------------------------
115
<PAGE> 118
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Notional Appreciation
Amount (Depreciation)
(000) Description (000)
- ----------------------------------------------------------------
<S> <C> <C>
MULTI-ASSET-CLASS
IL 600,000 Agreement with Union Bank of ($8)
Switzerland terminating on
November 27, 1995, to pay
quarterly 3 month LIBOR minus
238 basis points times the
notional amount of $331 and to
receive semiannually 9.00%
times the local notional amount
times 1 minus withholding tax
rate imposed by Republic of
Italy on coupon payments. In
addition, appreciation/
depreciation in the market
value of the Republic of Italy
9.00% BTPS bonds, due 10/01/03
is either paid to or by the
Portfolio in an amount equal to
the rate of appreciation/
depreciation over the life of
the swap agreement times the
notional amount.
$133 Agreement with Bankers Trust (1)
(1) Company terminating September
30, 1996, to pay 3 month LIBOR
plus 75 basis points times the
market value (expressed as a
percentage of par) of GPA plc's
bank debt (Corporate Credit and
Deferred Amortization
Facilities) multiplied by the
notional amount $133 in
exchange for its pro-rata share
of the interest paid by GPA plc
under the terms of its bank
debt adjusted for certain fees
and payments. In addition,
appreciation/depreciation in
the market value of the loan is
either paid to or by the
Portfolio in an amount equal to
the rate of
appreciation/depreciation
during the quarter times the
notional amount.
2,500 Agreement with Swiss Bank (33)
(2) Corporation terminating on July
31, 1996 to pay quarterly 3
month LIBOR plus 45 basis
points times the notional
amount. In addition,
appreciation/depreciation in
the value of the MSCI EAFE
Index (with net dividends
reinvested) is either paid to
or by the Portfolio in an
amount equal to the rate of
appreciation/depreciation
during the quarter times the
notional amount.
--------
($42)
--------
</TABLE>
(1) Notional amount is increased/(decreased) by each periodic payment received
or made.
(2) Notional amount is periodically increased/decreased by changes in the value
of the MSCI EAFE Index.
IL -- Italian Lira
6. INTEREST RATE FLOOR AGREEMENTS: At September 30, 1995 the following
Portfolios had open Written Amortizing Interest Rate Floor Agreements:
<PAGE>
<TABLE>
<CAPTION>
Notional
Amount Value
(000) Description (000)
- --------------------------------------------------------------
<S> <C> <C>
FIXED INCOME PORTFOLIO
$44,620 Agreement with Barclays Bank plc $6,740
terminating November 15, 2009, to
pay 9.60% minus 1 month LIBOR on
notional amount amortized monthly
as long as 1 month LIBOR is below
9.60%. (Amortized Premium $5,432)
21,033 Agreement with Bankers Trust 3,094
Company terminating on September
15, 2009 to pay 9.45% minus 1 month
LIBOR on notional amount amortized
monthly as long as 1 month LIBOR is
below 9.45%. (Amortized Premium
$2,417)
39,027 Agreement with Bankers Trust 3,708
Company terminating on November 1,
1999 to pay 9.25% minus 1 month
COFI on notional amount amortized
monthly as long as 1 month COFI is
below 9.25%. (Amortized Premium
$3,159)
66,438 Agreement with Bankers Trust 4,737
Company terminating on November 25,
1999 to pay 8.25% minus 1 month
COFI on notional amount amortized
monthly as long as 1 month COFI is
below 8.25%. (Amortized Premium
$3,932)
113,124 Agreement with Bankers Trust 10,837
Company terminating on January 25,
2009 to pay 8.10% minus 1 month
LIBOR on notional amount amortized
monthly as long as 1 month LIBOR is
below 8.10%. (Amortized Premium
$7,746)
92,743 Agreement with Bankers Trust 8,681
Company terminating on June 25,
2005 to pay 8.10% minus 1 month
LIBOR on notional amount amortized
monthly as long as 1 month LIBOR is
below 8.10%. (Amortized Premium
$6,881)
72,706 Agreement with Morgan Guaranty 6,522
Trust Company of New York
terminating on May 15, 2008 to pay
8.00% minus 1 month LIBOR on
notional amount amortizing monthly
as long as 1 month LIBOR is below
8.00%. (Amortized Premium $4,792)
---------
$44,319
---------
</TABLE>
- --------------------------------------------------------------------------------
116
<PAGE> 119
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Notional
Amount Value
(000) Description (000)
- --------------------------------------------------------------
<S> <C> <C>
DOMESTIC FIXED INCOME PORTFOLIO
$2,028 Agreement with Morgan Guaranty $112
Trust Company of New York -----
terminating on June 15, 2005 to pay
8.00% minus 1 month LIBOR on
notional amount amortizing monthly
as long as 1 month LIBOR is below
8.00%. (Amortized Premium $126)
FIXED INCOME PORTFOLIO II
$10,312 Agreement with Morgan Guaranty $571
Trust Company of New York -------
terminating on June 15, 2005 to pay
8.00% minus 1 month LIBOR on
notional amount amortizing monthly
as long as 1 month LIBOR is below
8.00%. (Amortized Premium $643)
MORTGAGE-BACKED SECURITIES
$4,614 Agreement with Barclays Bank plc $697
terminating November 15, 2009, to
pay 9.60% minus 1 month LIBOR on
notional amount amortized monthly
as long as 1 month LIBOR is below
9.60%. (Amortized Premium $562)
1,451 Agreement with Bankers Trust 214
Company terminating on September
15, 2009 to pay 9.45% minus 1 month
LIBOR on notional amount amortized
monthly as long as 1 month LIBOR is
below 9.45%. (Amortized Premium
$167)
2,361 Agreement with Bankers Trust 224
Company terminating on November 1,
1999 to pay 9.25% minus 1 month
COFI on notional amount amortizing
monthly as long as 1 month COFI is
below 9.25%. (Amortized Premium
$191)
4,020 Agreement with Bankers Trust 287
Company terminating on November 25,
1999 to pay 8.25% minus 1 month
COFI on notional amount amortizing
monthly as long as 1 month COFI is
below 8.25%. (Amortized Premium
$238)
5,040 Agreement with Bankers Trust 472
Company terminating on June 25,
2005 to pay 8.10% minus 1 month
LIBOR on notional amount amortizing
monthly as long as 1 month LIBOR is
below 8.10%. (Amortized Premium
$372)
<CAPTION>
Notional
Amount Value
(000) Description (000)
- --------------------------------------------------------------
<S> <C> <C>
$5,677 Agreement with Morgan Guaranty $509
Trust Company of New York
terminating on May 15, 2008 to pay
8.00% minus 1 month LIBOR on
notional amount amortizing monthly
as long as 1 month LIBOR is below
8.00%. (Amortized Premium $374)
--------
$2,403
--------
SPECIAL PURPOSE FIXED INCOME
$14,478 Agreement with Barclays Bank plc $2,187
terminating November 15, 2009, to
pay 9.60% minus 1 month LIBOR on
notional amount amortizing monthly
as long as 1 month LIBOR is below
9.60%. (Amortized Premium $1,762)
6,887 Agreement with Bankers Trust 1,013
Company terminating on September
15, 2009 to pay 9.45% minus 1 month
LIBOR on notional amount amortizing
monthly as long as 1 month LIBOR is
below 9.45%. (Amortized Premium
$792)
12,567 Agreement with Bankers Trust 1,194
Company terminating on November 1,
1999 to pay 9.25% minus 1 month
COFI on notional amount amortizing
monthly as long as 1 month COFI is
below 9.25%. (Amortized Premium
$1,018)
21,260 Agreement with Bankers Trust 1,516
Company terminating on November 25,
1999 to pay 8.25% minus 1 month
COFI on notional amount amortizing
monthly as long as 1 month COFI is
below 8.25%. (Amortized Premium
$1,258)
40,231 Agreement with Bankers Trust 3,854
Company terminating on January 25,
2009 to pay 8.10% minus 1 month
LIBOR on notional amount amortizing
monthly as long as 1 month LIBOR is
below 8.10%. (Amortized Premium
$2,755)
32,571 Agreement with Bankers Trust 3,049
Company terminating on June 25,
2005 to pay 8.10% minus 1 month
LIBOR on notional amount amortizing
monthly as long as 1 month LIBOR is
below 8.10%. (Amortized Premium
$2,406)
23,971 Agreement with Morgan Guaranty 2,150
Trust Company of New York
terminating on May 15, 2008 to pay
8.00% minus 1 month LIBOR on
notional amount amortizing monthly
as long as 1 month LIBOR is below
8.00%. (Amortized Premium $1,580)
---------
$14,963
---------
</TABLE>
- --------------------------------------------------------------------------------
117
<PAGE> 120
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Notional
Amount Value
(000) Description (000)
- --------------------------------------------------------------
<S> <C> <C>
BALANCED
$5,419 Agreement with Barclays Bank plc $819
terminating November 15, 2009 to
pay 9.60% minus 1 month LIBOR on
notional amount amortizing monthly
as long as 1 month LIBOR is below
9.60%. (Amortized Premium $659)
2,615 Agreement with Bankers Trust 385
Company terminating on September
15, 2009 to pay 9.45% minus 1 month
LIBOR on notional amount amortizing
monthly as long as 1 month LIBOR is
below 9.45%. (Amortized Premium
$300)
4,605 Agreement with Bankers Trust 437
Company terminating on November 1,
1999 to pay 9.25% minus 1 month
COFI on notional amount amortizing
monthly as long as 1 month COFI is
below 9.25%. (Amortized Premium
$373)
7,973 Agreement with Bankers Trust 568
Company terminating on November 25,
1999 to pay 8.25% minus 1 month
COFI on notional amount amortizing
monthly as long as 1 month COFI is
below 8.25%. (Amortized Premium
$472)
13,317 Agreement with Bankers Trust 1,276
Company terminating on January 25,
2009 to pay 8.10% minus 1 month
LIBOR on notional amount amortizing
monthly as long as 1 month LIBOR is
below 8.10%. (Amortized Premium
$912)
10,199 Agreement with Bankers Trust 955
Company terminating on June 25,
2005 to pay 8.10% minus 1 month
LIBOR on notional amount amortizing
monthly as long as 1 month LIBOR is
below 8.10%. (Amortized Premium
$754)
7,429 Agreement with Morgan Guaranty 666
Trust Company of New York
terminating on May 15, 2008 to pay
8.00% minus 1 month LIBOR on
notional amount amortizing monthly
as long as 1 month LIBOR is below
8.00%. (Amortized Premium $490)
--------
$5,106
--------
</TABLE>
E. CAPITAL LOSS CARRY FORWARD. At September 30, 1995, the following Portfolios
had available for Federal income tax purposes unused
capital losses, all of which will expire on the indicated dates:
<TABLE>
<CAPTION>
Expiration
Date
September 30,
(000)
--------------
2002 2003
---- -----
<S> <C> <C>
High Yield $ -- $ 141
Mortgage-Backed Securities -- 3,344
Limited Duration -- 4,395
Municipal 120 153
PA Municipal 2 260
</TABLE>
F. POST OCTOBER LOSSES. Under current tax law, certain capital and net foreign
exchange losses realized after October 31 may be deferred and treated as
occurring on the first day of the following fiscal year. For the fiscal year
ended September 30, 1995, the following Portfolios may elect to defer losses
occurring between November 1, 1994 and September 30, 1995 in the following
amounts:
<TABLE>
<CAPTION>
Portfolio (000)
- ------------------------------------- -------
<S> <C>
International Equity $41,474
Emerging Markets 72
Fixed Income 2,629
Domestic Fixed Income 81
High Yield 2,847
Limited Duration 172
Special Purpose Fixed Income 230
Municipal 159
PA Municipal 463
Global Fixed Income 446
International Fixed Income 16
Intermediate Duration 13
</TABLE>
G. IN-KIND TRANSACTIONS. For the year ended September 30, 1995, the following
Portfolios realized gains (losses) from in-kind redemptions as follows:
<TABLE>
<CAPTION>
Portfolio (000)
- ------------------------------------- -------
<S> <C>
Equity $3,196
Select Equity (195)
International Equity (1,966)
Domestic Fixed Income (828)
Mortgage-Backed Securities (186)
Municipal (261)
PA Municipal (683)
</TABLE>
- --------------------------------------------------------------------------------
118
<PAGE> 121
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
H. SECURITIES LENDING. The following Portfolios loaned securities to certain
brokers and received security lending fees. Security lending fees are included
as expense offsets in the Statement of Operations. Fees not included as expense
offsets are included in interest income. During the year ended September 30,
1995, the following Portfolios had security lending fees totaling:
<TABLE>
<CAPTION>
Fees
Portfolio (000)
- --------------------------------------- -----
<S> <C>
Value $ 34
Equity 81
Select Equity 1
International Equity 239
Mid Cap Growth 181
Fixed Income 46
Domestic Fixed Income 1
Fixed Income II 10
Special Purpose Fixed Income 20
Balanced 13
</TABLE>
Portfolios that lend securities receive securities issued or guaranteed by the
U.S. Government or its agencies, cash or letters of credit as collateral in an
amount at least equal to 100% of the current market value of loaned securities.
At September 30, 1995, all outstanding collateral received was in cash, which
was subsequently invested in cash equivalents. The value of loaned securities
and related collateral outstanding at September 30, 1995 was as follows:
<TABLE>
<CAPTION>
Value
of Value
Loaned of
Securities Collateral
Portfolio (000) (000)
- ---------------------------- ------- -------
<S> <C> <C>
Value $21,966 $22,320
Equity 19,633 20,343
Select Equity 83 84
International Equity 40,104 42,710
Mid Cap Growth 16,250 17,185
Fixed Income 8,829 9,033
Fixed Income II 1,387 1,417
Balanced 828 858
</TABLE>
Custodian fees appearing in the Statement of Operations have been adjusted to
include expense offsets for custodian balance credits and security lending fees
totaling $511,000 and $469,000, respectively, for the year ended September 30,
1995.
I. OTHER. Mid Cap Value, Emerging Markets and Intermediate Duration Portfolios
commenced operations on December 30, 1994, February 28, 1995 and October 3,
1994, respectively.
During the year ended September 30, 1995, the following Portfolios changed
their names from Small Capitalization Value, Emerging Growth, Select Fixed
Income, High Yield Securities, Limited Duration Fixed Income, Municipal Fixed
Income, Pennsylvania Municipal Fixed Income and Global Balanced to Small Cap
Value, Mid Cap Growth, Domestic Fixed Income, High Yield, Limited Duration,
Municipal, PA Municipal and Multi-Asset-Class, respectively.
At September 30, 1995, the net assets of certain Portfolios were substantially
comprised of foreign denominated securities and currency. Changes in currency
exchange rates will affect the value of and investment income from such
securities and currency.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the possibly lower level of
governmental supervision and regulation of foreign securities markets and the
possibility of political or economic instability.
At September 30, 1995, the High Yield Portfolio's net assets were substantially
comprised of high yield fixed income securities. The financial condition of an
issuer of these securities and general economic and industry specific
conditions may affect the issuer's ability to make payments of income and
principal on these securities.
- --------------------------------------------------------------------------------
119
<PAGE> 122
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A portion of the securities of the Municipal and PA Municipal Portfolios are
insured by certain companies specializing in the insurance of municipal debt
obligations. At September 30, 1995, approximately 64% and 70% of the net assets
of the Municipal and PA Municipal Portfolios, respectively, are covered by such
insurance. Listed below are the insurer's that insure more than 10% of the
Portfolios' net assets:
<TABLE>
<CAPTION>
MUNICIPAL PA MUNICIPAL
--------- ------------
<S> <C> <C>
FGIC 19.8% 27.9%
MBIA 19.1 16.0
AMBAC 18.9 23.5
</TABLE>
At September 30, 1995, individual partners of Miller Anderson & Sherrerd, LLP
were record owners of approximately 25.2% and 34.1% of the Mid Cap Value and PA
Municipal Portfolios, respectively. In addition, the Fund had Portfolios with
otherwise unaffiliated record owners of 10% or greater. These Portfolios and
the aggregate percentage of such owners was as follows:
<TABLE>
<CAPTION>
Percentage
Portfolios of Ownership
- ---------------------------------- ------------
<S> <C>
Value 10.0%
Small Cap Value 12.1
Select Equity 96.8
International Equity 37.3
Mid Cap Growth 17.7
Mid Cap Value 24.9
Emerging Markets 89.9
Domestic Fixed Income 75.7
Cash Reserves 40.2
Fixed Income Portfolio II 28.5
Mortgage-Backed 94.8
Limited Duration 26.3
Municipal 31.0
PA Municipal 38.5
Global Fixed Income 51.4
International Fixed Income 70.5
Intermediate Duration 100.0
Balanced 30.3
</TABLE>
- --------------------------------------------------------------------------------
120
<PAGE> 123
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
MAS Funds
In our opinion, the accompanying statements of net assets (excluding
Standard & Poor's ratings) and the related statements of operations and of
changes in net assets and the selected per share data and ratios present fairly,
in all material respects, the financial position of each of the twenty three
(23) Portfolios of the MAS Funds listed in the accompanying table of contents,
(hereafter referred to as the "Fund") at September 30, 1995 and the results of
each of their operations, the changes in each of their net assets and their
selected per share data and ratios for the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
selected per share data and ratios (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 1995 by
correspondence with the custodians and brokers and the application of
alternative procedures where broker confirmations were not received, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
November 21, 1995
- --------------------------------------------------------------------------------
121
<PAGE> 124
- --------------------------------------------------------------------------------
SHAREHOLDER MEETING: (UNAUDITED)
At special shareholder meetings held on December 19, 1994 and August 21, 1995,
shareholders of the Domestic Fixed Income and Select Equity Portfolios,
respectively, voted on the following proposals:
<TABLE>
<CAPTION>
VOTED VOTED ABSTAIN
FOR AGAINST VOTES
--------- ------- -------
<S> <C> <C> <C>
1. To amend the investment objective and certain investment
limitations of the Domestic Fixed Income Portfolio. 1,141,543 0 0
========= ======= ========
2. To amend the investment objective and certain investment
limitations of the Select Equity Portfolio. 2,237,214 0 0
========= ======= ========
</TABLE>
FEDERAL INCOME TAX INFORMATION: (UNAUDITED)
Each Portfolio hereby designates the following amount as a long-term capital
gain dividend for the purpose of the dividend paid deduction on its federal
income tax return.
<TABLE>
<CAPTION>
AMOUNT
PORTFOLIO (000)
- -------------------------- -------
<S> <C>
Value $52,796
Equity 53,915
Small Cap Value 14,787
Select Equity 6,392
International Equity 68,827
Mid Cap Growth 34,250
High Yield 870
Special Purpose Fixed
Income 2
Balanced 1,362
</TABLE>
For the period ended September 30, 1995, the percentage of dividends that
qualify for the 70% dividend received deduction for corporate shareholders for
each Portfolio were:
<TABLE>
<CAPTION>
AMOUNT
PORTFOLIO (000)
- --------------------------- ------
<S> <C>
Value 43.4%
Equity 52.8
Small Cap Value 16.7
Select Equity 57.9
Mid Cap Growth 48.9
Mid Cap Value 7.7
High Yield 9.2
Municipal 13.0
PA Municipal 17.1
Balanced 23.1
Multi-Asset-Class 27.3
</TABLE>
Foreign taxes accrued during the fiscal year ended September 30, 1995 amounting
to $2,675,000, $17,000 and $212,000 for the International Equity Portfolio,
Emerging Markets Portfolio and International Fixed Income Portfolio,
respectively, are expected to be passed through to shareholders as foreign tax
credits on Form 1099-DIV for the year ending December 31, 1995.
For the fiscal year ended September 30, 1995, the percentage of exempt interest
dividends paid by the Municipal Portfolio and the PA Municipal Portfolio was
92.2% and 91.3%, respectively.
- --------------------------------------------------------------------------------
122
<PAGE> 1
FINANCIAL STATEMENTS
1995
[LOGO]
ADVISORY FOREIGN FIXED INCOME PORTFOLIO
ADVISORY MORTGAGE PORTFOLIO
ANNUAL REPORT
1995
<PAGE> 2
We are pleased to present the Annual Report for the Advisory Foreign Fixed
Income and Advisory Mortgage Portfolios of MAS Funds as of September 30, 1995.
TABLE OF CONTENTS
Portfolio Overview and Statement of Net Assets
<TABLE>
<S> <C>
Advisory Mortgage Portfolio............... 1
Advisory Foreign Fixed Income Portfolio... 9
Statement of Operations...................... 12
Statement of Changes in Net Assets........... 13
Selected Per Share Data and Ratios........... 14
Notes to Financial Statements................ 15
Report of Independent Accountants............ 21
</TABLE>
THIS ANNUAL REPORT CONTAINS CERTAIN INVESTMENT RETURN INFORMATION. IT SHOULD BE
NOTED THAT THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH EITHER MORE
OR LESS THAN THEIR ORIGINAL COST.
<PAGE> 3
PORTFOLIO OVERVIEW (UNAUDITED)
- --------------------------------------------------------------------------------
ADVISORY MORTGAGE PORTFOLIO
The Advisory Mortgage Portfolio is used as a vehicle for making mortgage
investments in fixed-income portfolios for private advisory clients of Miller
Anderson & Sherrerd. The Advisory Mortgage Portfolio invests in a full range of
mortgage securities, collateralized mortgage obligations (CMOs), asset-backed
securities, U.S. Government and other fixed-income securities. Miller Anderson &
Sherrerd selects mortgages that appear most attractively priced, while managing
the Portfolio's prepayment sensitivity. MAS increases prepayment exposure when
mortgage yields, adjusted for probable prepayments, indicate value in
mortgage-backed securities.
For most of the year, the Portfolio underweighted fixed-rate mortgages and
emphasized GNMA adjustable-rate mortgages (ARMs). As fixed-rate mortgages have
become more attractive recently, we have reduced ARMs and replaced them with
fixed-rate mortgages. The Portfolio includes a limited amount of
opportunistically selected securities that concentrate prepayment risk, though
the overall prepayment sensitivity of the Portfolio is less than that of the
mortgage index (Lehman Mortgage Index).
Because the Portfolio is managed as a component of a diversified portfolio,
investment results from the Portfolio should not be analyzed on a stand-alone
basis.
The Portfolio is only available to private advisory clients of Miller Anderson &
Sherrerd.
THE SECURITIES AND EXCHANGE COMMISSION HAS ADOPTED AMENDED RULES REQUIRING THE
DISCLOSURE OF MUTUAL FUND PERFORMANCE DATA AFTER A PORTFOLIO HAS AT LEAST SIX
MONTHS OF AUDITED FINANCIAL STATEMENTS. THE ADVISORY MORTGAGE PORTFOLIO BEGAN
OPERATIONS WITHIN THE LAST SIX MONTHS OF FISCAL 1995, AND PERFORMANCE DATA WILL
BE INTRODUCED IN THE FUND'S ANNUAL REPORT FOR FISCAL 1996.
1
<PAGE> 4
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
ADVISORY MORTGAGE
PORTFOLIO
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (101.1%)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
**RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 1995 & POOR'S) (000) (000)*
- ---------------------------------------------------------
<S> <C> <C> <C>
ADJUSTABLE RATE MORTGAGE (23.7%)
## Government National
Mortgage Association II:
Various Pools:
5.00%,
11/20/23-12/20/24 Agy $ 18,497 $ 18,288
5.50%,
8/20/23-12/20/24 Agy 11,820 11,743
6.00%,
8/20/22-6/20/25 Agy 106,428 107,358
6.50%,
1/20/22-3/20/25 Agy 181,979 185,455
7.00%,
4/20/22-5/20/23 Agy 13,318 13,550
7.375%,
6/20/22-6/20/23 Agy 5,844 5,986
- ---------------------------------------------------------
GROUP TOTAL 342,380
- ---------------------------------------------------------
AGENCY FIXED RATE MORTGAGES (28.4%)
Federal Home Loan Mortgage
Corporation:
Gold Pools:
10.00%, 1/1/21 Agy 834 907
10.50%,
6/1/11-3/1/21 Agy 1,052 1,155
11.00%, 5/1/12 Agy 54 60
11.50%,
8/1/15-10/1/19 Agy 400 451
October TBA
7.50%, 8/15/23 Agy 26,775 26,967
November TBA
7.50%, 11/15/25 Agy 97,675 98,224
Conventional
Pools:
6.00%, 1/1/01 Agy 67 66
6.50%, 3/1/02 Agy 55 55
6.75%, 12/1/05 Agy 301 297
8.25%,
11/1/07-7/1/08 Agy 320 328
10.25%,
1/1/09-9/1/16 Agy 252 274
10.50%,
1/1/11-12/1/20 Agy 4,504 4,925
11.00%,
2/1/10-5/1/20 Agy 8,725 9,665
11.25%,
6/1/10-10/1/15 Agy 172 190
11.50%,
2/1/00-8/1/16 Agy 3,318 3,713
12.00%,
10/1/09-8/1/15 Agy 959 1,081
12.50%,
10/1/09-9/1/13 Agy 186 212
13.50%, 2/1/10 Agy 51 59
<CAPTION>
**RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)*
- ---------------------------------------------------------
<S> <C> <C> <C>
Federal National Mortgage
Association:
Gold Pool
12.50%, 5/1/15 Agy $ 139 $ 158
Conventional
Pools:
10.00%,
9/1/16-5/1/22 Agy 23,287 25,329
10.50%,
5/1/11-4/1/22 Agy 11,793 12,929
10.75%,
6/1/13-8/1/13 Agy 296 325
11.00%,
2/1/16-11/1/20 Agy 5,474 6,101
11.25%, 1/1/16 Agy 577 643
11.50%,
11/1/15-4/1/16 Agy 385 433
12.00%,
2/1/15-2/1/18 Agy 351 396
12.50%,
2/1/11-9/1/15 Agy 4,652 5,305
October TBA,
7.50%,
8/15/23-10/15/24 Agy 21,000 21,131
November TBA,
7.00%, 11/15/24 Agy 72,250 71,166
7.50%, 11/15/25 Agy 68,575 68,896
Government National
Mortgage Association:
Various Pools:
10.00%, 11/15/18 Agy 67 73
10.50%,
10/15/00-5/15/21 Agy 10,518 11,626
11.00%,
12/15/09-11/20/19 Agy 5,126 5,708
11.50%,
1/15/13-2/15/16 Agy 1,461 1,629
12.00%,
11/15/12-4/15/15 Agy 925 1,048
12.50%,
11/15/10-7/15/15 Agy 846 969
13.00%,
10/15/13-9/15/14 Agy 458 530
13.50%, 5/15/13 Agy 177 205
November TBA,
7.50%, 8/15/24 Agy 27,400 27,622
- ---------------------------------------------------------
GROUP TOTAL 410,851
- ---------------------------------------------------------
ASSET BACKED MORTGAGES (0.6%)
Security Pacific
Home Equity Trust
Series:
+ 91-A A2
8.90%, 3/10/06 Aaa 5,037 5,097
91-A B
10.50%, 3/10/06 A+ 3,305 3,449
- ---------------------------------------------------------
GROUP TOTAL 8,546
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
2
<PAGE> 5
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
**RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)*
- ---------------------------------------------------------
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS-
AGENCY COLLATERAL SERIES (2.0%)
+ Collateralized Mortgage
Obligation Trust Series:
86-13 Q Inv Fl
14.327%, 1/20/03 Aaa $ 410 $ 439
86-14 A2 Inv Fl
12.00%, 4/1/09 Aaa 113 113
Federal Home Loan
Mortgage Corporation
Series:
88-17 I PAC-1 (11)
9.90%, 10/15/19 Agy 1,850 1,971
88-22 C PAC 11
9.50%, 4/15/20 Agy 595 642
88-23 F PAC-1 (11)
9.60%, 4/15/20 Agy 1,025 1,102
89-39 F PAC-2 (11)
10.00%, 5/15/20 Agy 1,350 1,455
89-47 F PAC-1 (12)
10.00%, 6/15/20 Agy 1,435 1,550
89-110 F PAC
8.55%, 1/15/21 Agy 800 832
90-1007 F Inv Fl
20.708%, 1/15/20 Agy 10 11
90-129 H PAC
8.85%, 3/15/21 Agy 135 143
92-1398 I Inv Fl
PAC-1 (11)
10.612%, 10/15/07 Agy 670 692
Federal National
Mortgage Association
Series:
89-22 G PAC (11)
10.00%, 5/25/19 Agy 1,235 1,353
89-92 G PAC (11)
8.60%, 12/25/04 Agy 750 788
90-80 S Inv Fl
17.232%, 7/25/20 Agy 597 696
90-85 D
9.50%, 9/25/19 Agy 26 26
90-106 J PAC
8.50%, 9/25/20 Agy 1,250 1,294
90-118 S Inv Fl
27.392%, 9/25/20 Agy 160 217
91-G 20 S Inv Fl
19.238%, 6/25/21 Agy 5,225 6,431
92-33 S Inv Fl
12.90%, 3/25/22 Agy 4,505 4,846
93-5 M
7.00%, 1/25/08 Agy 190 189
Goldman Sachs Trust
IV Series:
89-D 2 Inv Fl
17.716%, 5/1/19 AAA 1,087 1,323
89-E 2 Inv Fl
12.573%, 10/27/19 AAA 577 694
<CAPTION>
**RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)*
- ---------------------------------------------------------
<S> <C> <C> <C>
Kidder Peabody Mortgage
Assets Trust Series:
87 B Principal Only
4/22/18 N/R $ 236 $ 183
87 B IO
9.50%, 4/22/18 N/R 236 61
Morgan Stanley Mortgage
Trust Series:
88-28 8 PAC
9.40%, 10/1/18 AAA 125 136
Texas Housing Agency
Series:
87-A E Inv Fl
11.513%, 8/1/16 Agy 969 1,013
- ---------------------------------------------------------
GROUP TOTAL 28,200
- ---------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-
NON-AGENCY COLLATERAL SERIES (27.0%)
American Housing Trust
Series:
IV 2
9.553%, 9/25/20 A 2,175 2,258
V 1G
9.125%, 4/25/21 AAA 5,940 6,160
American Southwest
Financial Securities Corp.
Series:
++ 93-2 A1
7.30%, 1/18/09 AA 8,054 8,131
+ 95-C1 A1B
7.40%, 11/17/04 Aaa 16,250 16,681
Asset Securitization
Corp. Series:
95-D1 A1
7.59%, 8/11/27 AAA 13,410 13,932
Chase Mortgage Finance
Corp. Series:
sec. 93-1 B2
7.911%, 3/28/24
(acquired
4/28/95-6/30/95,
cost $3,116) A- 3,264 3,236
+ 93-N A8
6.75%, 11/25/24 Aaa 2,100 1,908
+ 94-H A7
7.25%, 6/25/25 Aaa 2,075 1,967
Chemical Mortgage
Securities, Inc. Series:
sec. 93-1 M
7.45%, 2/25/23
(acquired
4/28/95-8/30/95,
cost $4,070) AA 4,360 4,273
sec. 93-3 M
7.125%, 7/25/23
(acquired
6/9/95, cost
$5,783) AA 6,047 5,954
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
3
<PAGE> 6
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
ADVISORY MORTGAGE
PORTFOLIO
<TABLE>
<CAPTION>
**RATING FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)*
- ---------------------------------------------------------
<S> <C> <C> <C>
Citicorp Mortgage
Securities, Inc. Series:
90-11 A5
9.50%, 7/25/20 AAA $ 301 $ 306
93-9 A1
7.00%, 3/25/20 AAA 701 700
94-7 A5
6.25%,4/25/24 AAA 3,200 2,756
CMC Securities Corp. IV
Series 94-G A4
7.00%, 9/25/24 AAA 8,035 7,457
Countrywide Funding Corp.
Series:
94-12 A10
7.00%, 5/25/24 AAA 855 790
95-4 M
7.50%, 9/25/25 AA 6,643 6,567
Countrywide Mortgage Backed
Securities, Inc.
Series 93-C A11
6.50%, 1/25/24 AAA 9,226 8,602
DLJ Mortgage Acceptance
Corp. Series:
sec. 93-MF7 A1
7.40%, 6/18/03
(acquired
4/28/95-6/30/95,
cost $8,447) AAA 8,368 8,560
93-M10 A2
7.20%, 7/15/03 AAA 4,742 4,813
(+) Equitable Life
Assurance Society of the
U.S.
6.633%, 7/23/03 AA 13,575 13,443
FBS Mortgage
Corporation
Series 92-BB M
8.625%, 7/25/23 AAA 2,093 2,134
First Boston Mortgage
Securities Corp. Series:
sec. 92-4 B1
8.125%, 10/25/22
(acquired
4/28/95, cost
$72) A 79 77
93-2 B1
7.50%, 3/25/33 A 2,569 2,441
(+) FSA Finance, Inc.
Series 95-1A
7.42%, 6/1/07 AA 4,426 4,534
GE Capital Mortgage
Services, Inc. Series:
92-10A F
7.50%, 8/25/22 AAA 7,727 7,554
(+) 94-6 M
6.50%, 4/25/24 AA 2,287 2,107
+ 94-19 M
7.50%, 8/25/24 A2 6,685 6,605
<CAPTION>
**RATING FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)*
- ---------------------------------------------------------
<S> <C> <C> <C>
94-24 A4
7.00%, 7/25/24 AAA $ 8,985 $ 8,344
94-27 A6
6.50% 7/25/24 AAA 8,500 7,502
(+) 95-6 B2
7.00%, 8/25/25 N/R 3,107 2,903
J.P. Morgan Commercial
Mortgage Finance Corp.
Series: 95-C1 A1
7.268%, 7/25/10 AAA 2,844 2,893
Mid-State Trust
Series 88-2 A4
9.625%, 4/1/03 AAA 17,645 19,376
Mortgage Capital
Funding, Inc. Series
95-MC1 A1B
7.60%, 5/25/27 AAA 11,148 11,561
++ Nomura Asset Securities
Corp. Series:
94-MD1 A1B
7.526%, 3/15/18 AAA 3,335 3,446
94-MD1 A2
7.676%, 3/15/18 AA 3,110 3,209
94-MD1 A3
8.026%, 3/15/18 A 3,675 3,877
Old Stone Credit
Corporation
Series 92-3 B1
6.35%, 9/25/07 AAA 413 403
PNC Mortgage Securities
Corp. Series 94-3 A8
7.50%, 7/25/24 AAA 4,175 4,078
Prudential Home
Mortgage Securities
Co., Inc. Series:
90-8 A5 PAC-1(11)
9.50%, 9/25/20 AAA 59 59
(+) 92-A 1B4
7.90%, 4/28/22 AAA 4,045 3,762
(+) 92-A 2B4
7.90%, 4/28/22 AA 1,484 1,249
+ 92-33
7.50%, 11/15/22 A2 780 754
(+) 93-B 1B1
7.836%, 4/28/23 AA 3,449 3,441
(+) 93-B 2B
7.833%, 4/28/23 A 4,829 4,703
+sec. 93-17 B1
6.50%, 3/1/23
(acquired
4/28/95, cost
$959) A2 1,032 978
++(+) 94-A 3B3
6.803%, 4/28/24 A 7,530 6,836
++(+) 94-A 3B5
6.802%, 4/28/24 A 7,655 7,017
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
4
<PAGE> 7
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
**RATING FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)*
- ---------------------------------------------------------
<S> <C> <C> <C>
sec. 95-2 M
8.50%, 6/25/25
(acquired
9/26/95, cost
$349) AA $ 339 $ 348
sec. 95-6 M
7.50%, 9/25/25
(acquired
8/25/95, cost
$5,267) AA 5,411 5,348
Residential Funding
Mortgage Securities
Co., Inc. Series:
92-S2 M
8.00%, 1/25/22 AA 3,412 3,456
sec. 92-S6 M
7.50%, 2/25/22
(acquired
4/28/95-8/30/95,
cost $3,008) AA 3,167 3,158
92-S15 A5
8.00%, 5/25/07 AAA 1,269 1,281
93-MZ1 A2
7.47%, 3/2/23 AA 1,000 980
sec. 93-MZ2 A2
7.47%, 5/30/23
(acquired
4/28/95-6/30/95,
cost $2,872) AA 3,069 3,036
++sec. 93-MZ3 A2
6.97%, 8/28/23
(acquired
6/2/95-8/30/95,
cost $6,214) AA 6,650 6,248
93-S2 M2 8.00%,
1/25/23 A 900 909
sec. 93-S43 A10
6.50%, 11/25/23
(acquired
6/12/95-9/28/95,
cost $6,267) AAA 6,768 6,296
sec. 94-S1 A19
6.75%, 1/25/24
(acquired
4/28/95-9/28/95,
cost $8,087) AAA 8,851 8,401
95-S11 A16
7.50%, 9/25/25 AAA 16,231 16,282
(-) 95-S16 A7
7.50%, 10/15/25 AAA 10,575 10,579
Resolution Trust Corp.
Series:
92-16 C2
7.75%, 8/25/25 A 1,575 1,563
<CAPTION>
**RATING FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)*
- ---------------------------------------------------------
<S> <C> <C> <C>
Rural Housing Trust
Series:
87-1 D
6.33%, 4/1/26 AAA $ 19,419 $ 18,909
87-1 M
3.33%, 4/1/26 A- 19,847 18,097
87-2 C
6.83%, 4/1/26 AAA 14,904 14,756
Ryland Mortgage
Securities Corp Series:
92-A 1A
8.32%, 3/29/30 A- 5,479 5,493
+ 93-4 A9
7.50%, 8/25/24 Aaa 11,720 11,338
93-A1 A
7.45%, 1/28/23 AAA 1,745 1,686
94-7B 4A2
7.50%, 8/25/25 AAA 1,900 1,832
Ryland Mortgage
Securities Corp.
Two Series: 1 B
8.50%, 12/26/21 A 2,800 2,819
Saxon Mortgage
Securities Corp. Series:
93-8A A6
7.375%, 9/25/23 AAA 390 369
93-4 1B
7.25%, 6/25/24 AAA 500 466
+sec. Securitized
Asset Sales,
Inc. Series: 95-B M
7.41%, 9/25/24
(acquired
6/30/95-7/28/95,
cost $4,806) Aa3 5,133 4,992
- ---------------------------------------------------------
GROUP TOTAL 388,979
- ---------------------------------------------------------
FLOATING RATE NOTES (0.3%)
Federal Home Loan
Mortgage Corporation
Series:
93-1634 SC Inv Fl
REMIC
6.319%, 12/15/23 Agy 4,000 2,077
Federal National
Mortgage
Association Series:
93-22 S Inv Fl
REMIC
9.02%, 9/25/22 Agy 713 559
93-46 SG Inv Fl
REMIC
5.13%, 7/25/22 Agy 1,585 1,014
- ---------------------------------------------------------
GROUP TOTAL 3,650
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
5
<PAGE> 8
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
ADVISORY MORTGAGE
PORTFOLIO
<TABLE>
<CAPTION>
**RATING FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)*
- ---------------------------------------------------------
<S> <C> <C> <C>
/ / HEDGED MORTGAGES (1.8%)
Federal Home Loan
Mortgage Corporation
Series:
1364-B Inv Fl IO
CMO
5.25%, 9/15/07 Agy $ 14,463 $ 1,781
1415-S Inv Fl IO
CMO
17.563%, 11/15/07 Agy 170 66
1476-S Inv Fl IO
REMIC PAC
4.106%, 2/15/08 Agy 1,706 150
1485-S Inv Fl IO
REMIC
3.663%, 3/15/08 Agy 3,613 270
1600-SA Inv Fl IO
REMIC
2.063%, 10/15/08 Agy 29,600 1,545
1632-SB Inv Fl
REMIC
3.725%, 11/15/23 Agy 9,720 5,119
1699-SD Inv Fl IO
REMIC
2.063%, 3/15/24 Agy 101,269 6,076
Federal National Mortgage
Association Series:
92-186 S Inv Fl IO
CMO
3.106%, 10/25/07 Agy 2,950 200
93-9 SB Inv Fl IO
REMIC PAC
6.358%, 1/25/23 Agy 6,177 1,667
G 94-2 S Inv Fl IO
REMIC
2.225%, 1/25/24 Agy 45,240 2,389
Morgan Stanley Mortgage
Trust Series 41-2 Inv
Fl CMO
10,154%, 2/20/22 AAA 34 7,443
- ---------------------------------------------------------
GROUP TOTAL 26,706
- ---------------------------------------------------------
NON-AGENCY FIXED RATE MORTGAGES (0.1%)
sec. Coast Federal Series
84-3
7.941%, 3/1/06
(acquired
4/28/95, cost
$368) N/R 359 352
sec. Great American Federal
Series 84-2
8.595%, 4/1/99
(acquired
4/28/95, cost
$49) N/R 51 52
<CAPTION>
**RATING FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)*
- ---------------------------------------------------------
<S> <C> <C> <C>
sec. Household Bank
Series 85-1
7.94%, 5/1/02
(acquired
5/31/95, cost
$437) N/R $ 434 $ 434
- ---------------------------------------------------------
GROUP TOTAL 838
- ---------------------------------------------------------
RATED NON-AGENCY FIXED RATE MORTGAGES (5.0%)
Bank of America Series:
79-1
9.50%, 7/1/08 AA 26 26
79-3
9.50%, 11/1/08 AA 233 239
79-7
9.50%, 12/1/08 A 189 194
79-9
9.50%, 1/1/09 A 204 210
A
8.375%, 5/1/07 AA 539 543
Beverly Finance
8.36%, 7/15/04 AA- 5,715 6,029
California Federal
Savings & Loan
Series 86-1A
8.80%, 1/1/14 AA 122 122
Creekwood Capital Corp.
Series 95-1 A
8.47%, 3/16/15 AA 470 494
(+) CVM Finance Corp.
7.19%, 4/1/04 AA 444 446
+(+) DeBartolo Capital
Corp. Series A 2
7.48%, 5/1/04 Aaa 12,930 13,423
First Federal Savings &
Loan Association
Series 92-C
8.75%, 6/1/06 AA 444 448
sec. Gemsco Mortgage
Pass Through
Certificate Series
83-TX A
8.701%, 11/25/10
(acquired 4/28/95-
9/28/95, cost $895) AA 883 892
(+) Lakeside Finance Corp.
6.47%, 12/15/00 AA 240 235
(+) Lakewood Mall
Finance Co.
Series 95-C1 A
7.00%, 8/13/10 AA 11,500 11,442
Marine Midland
Bank NA,
Series 91-1 A7
8.50%, 4/25/22 AA 34 34
Mid-State Trust
Series 95-4 A
8.33%, 4/1/30 AAA 10,733 11,396
Oakdale Mall
7.95%, 5/1/01 AAA 275 283
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
6
<PAGE> 9
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
**RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)*
- ---------------------------------------------------------
<S> <C> <C> <C>
Resolution Trust Corp.
Series 92-5C
8.628%, 1/25/26 AA $ 6,561 $ 6,715
Ryland Acceptance
Corp. IV Series 79-A
6.65%, 7/1/11 AA 4,088 3,923
Sawgrass Financial
93-A1
6.45%, 1/20/06 AAA 255 253
Sears Mortgage Securities
Series:
sec. 82-1
9.25%, 11/1/10
(acquired 4/28/95-
9/28/95, cost $430) AA 421 429
sec. 82-3 10.00%,
11/1/12
(acquired
4/28/95, cost
$735) AA 707 722
Security Pacific Home
Equity Trust
Series 87-A1
8.00%, 1/25/02 AA 401 402
sec. Shearson American
Express Series A
9.625%, 12/1/12
(acquired
4/28/95-9/28/95,
cost $404) AA 395 404
(+) Stratford Finance Corp.
6.776%, 2/1/04 AA 5,330 5,131
/+/+ Town & Country
Funding Corp.
5.85%, 8/15/98 Aa2 7,525 7,373
Washington Mutual
Savings Bank Series A 1
9.00%, 5/25/08 AA 108 110
Woodland Finance Corp.
8.20%, 5/15/04 AA 700 737
- ---------------------------------------------------------
GROUP TOTAL 72,655
- ---------------------------------------------------------
STRIPPED MORTGAGE BACKED SECURITIES --
AGENCY COLLATERAL SERIES (0.0%)
Federal National
Mortgage
Association Series:
43-2 IO CMO
9.50%, 9/1/18 Agy 71 19
First Boston
Mortgage Corp.
Series 87-B2 IO
8.985%, 4/25/17 AAA 170 39
- ---------------------------------------------------------
GROUP TOTAL 58
- ---------------------------------------------------------
<CAPTION>
**RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)*
- ---------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY SECURITIES (12.2%)
U.S. Treasury Bonds
7.875%, 2/15/21 Tsy $ 112,295 $ 128,771
8.75%, 8/15/20 Tsy 38,175 47,731
- ---------------------------------------------------------
GROUP TOTAL 176,502
- ---------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost
$1,439,130) 1,459,365
- ---------------------------------------------------------
CASH EQUIVALENTS (22.5%)
- ---------------------------------------------------------
COMMERCIAL PAPER (17.4%)
Barclays U.S. Funding
5.74%, 10/30/95 18,000 17,917
Beneficial Corp.
5.73%, 11/13/95 18,000 17,877
E.I. du Pont de Nemours &
Co.
5.69%, 10/24/95 18,000 17,935
Ford Motor Credit Corp.
5.74%, 10/26/95 18,000 17,928
General Electric Capital
Corp.
5.74%, 10/12/95 18,000 17,968
Household Finance Corp.
5.73%, 10/16/95 18,000 17,957
McDonald's Corp.
5.72%, 10/11/95 18,000 17,971
National Rural Utilities
5.71%, 11/9/95 18,000 17,889
Prudential Funding Corp.
5.74%, 11/7/95 18,000 17,894
Raytheon Co.
5.79%, 10/3/95 18,000 17,994
R.R. Donnelley & Sons Co.
5.80%, 10/6/95 18,000 17,986
U.S. West, Inc.
5.71%, 11/7/95 18,000 17,894
Weyerhaeuser Mortgage Co.
5.70%, 11/1/95 18,000 17,912
Xerox Corp.
5.70%, 11/6/95 18,000 17,897
- ---------------------------------------------------------
GROUP TOTAL 251,019
- ---------------------------------------------------------
REPURCHASE AGREEMENT (5.1%)
Chase Manhattan Bank, N.A.
6.20%, dated 9/29/95, due
10/2/95, to be
repurchased at $73,160,
collateralized by $73,438
of various U.S.
Government and Agency
Obligations, due 10/3/95-
7/7/97, valued at $73,851
(Cost $73,122) 73,122 73,122
- ---------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $324,141) 324,141
- ---------------------------------------------------------
TOTAL INVESTMENTS (123.6%) (Cost $1,763,271) 1,783,506
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
7
<PAGE> 10
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
ADVISORY MORTGAGE
PORTFOLIO
<TABLE>
<CAPTION>
VALUE
(CONT'D) (000)*
- ---------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (-23.6%)
Cash $ 1
Interest Receivable 9,410
Receivable for Investments Sold 915
Receivable from Investment Adviser 453
Payable for Fund Shares Redeemed (1,350)
Payable for Investments Purchased (327,404)
Payable for Administrative Fees (95)
Payable for Daily Variation on Futures
Contracts (731)
Written Interest Rate Floors at Value (20,962)
Other Liabilities (705)
----------
(340,468)
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 138,661,662 outstanding shares of
beneficial interest (unlimited authorization, no
par value) $1,443,038
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 10.41
- ---------------------------------------------------------
sec. Restricted Security-Total cost of
restricted securities at September 30,
1995 amounted to $62,635. Total market
value of restricted securities owned at
September 30, 1995 was $64,190 or 4.4% of
net assets.
* See Note A1 to Financial Statements.
** Ratings are unaudited.
/+/ A portion of these securities was pledged
to cover margin requirements for futures
contracts.
+ Moody's Investor Service, Inc. rating.
Security is not rated by Standard &
Poor's Corporation.
++ Fitch rating. Security is not rated by
Standard & Poor's Corporation or Moody's
Investor Service, Inc.
/ / Securities purchased with proceeds from
written floors. See Note A6 to Financial
Statements.
## Variable or floating rate securities-rate
disclosed is as of September 30, 1995.
(+) 144A security. Certain conditions for
public sale may exist.
(-) Security is subject to delayed delivery.
See Note A8 to Financial statements.
Inv Fl Inverse Floating Rate-Interest rate
fluctuates with an inverse relationship
to an associated interest rate. Indicated
rate is the effective rate at September
30, 1995.
IO Interest Only.
N/R Not rated by either Moody's Investor
Service, Inc. or Standard & Poor's
Corporation.
CMO Collateralized Mortgage Obligation.
PAC Planned Amortization Class.
REMIC Real Estate Mortgage Investment Conduit.
TBA Security is subject to delayed delivery.
See Note A8 to Financial Statements.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
8
<PAGE> 11
PORTFOLIO OVERVIEW (UNAUDITED)
- --------------------------------------------------------------------------------
ADVISORY FOREIGN FIXED INCOME PORTFOLIO
The Advisory Foreign Fixed Income Portfolio is used as a vehicle for making
opportunistic foreign-bond investments in fixed-income portfolios for private
advisory clients of Miller Anderson & Sherrerd. This strategy concentrates on
purchasing those foreign bonds which represent better long-term values than U.S.
alternatives.
All securities in the Portfolio have a credit quality of A or better.
Derivatives may be used to represent country investments or pursue portfolio
strategy.
During the past year, the U.S. bond market has been one of the best performing
fixed-income markets in the world and the foreign investments in the fund tended
to lag U.S. alternatives. As most of the foreign-exchange exposures in the
Portfolio were hedged, the Portfolio did not benefit significantly from the
depreciation of the dollar during the first half of 1995. Real interest rates
abroad, however, remain high and foreign yield curves remain relatively
steep -- suggesting that many of these markets now represent better values than
U.S. bonds.
Because the Portfolio is managed as a component of a diversified portfolio,
investment results from the Portfolio should not be analyzed on a stand-alone
basis. Results are presented in this Report to comply with Securities and
Exchange Commission requirements for shareholder reporting.
The Portfolio is only available to private advisory clients of Miller Anderson &
Sherrerd.
INVESTMENT RESULTS
GROWTH OF A $1 MILLION INVESTMENT
SINCE INCEPTION
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) mas salomon
<S> <C> <C>
10/7/94 1000 1000
12/31/94 1017 1007
3/31/95 1037 1658
6/30/95 1083 1123
</TABLE>
<TABLE>
<S> <C> <C>
9/30/95 1121 1144
</TABLE>
TOTAL RETURN
ENDED 9/30/95
<TABLE>
<CAPTION>
MAS ADVISORY SALOMON BROAD
FOREIGN INDEX
----------------------------
<S> <C> <C>
SINCE INCEPTION* 12.12% 14.44%
</TABLE>
MAS FUNDS RETURNS ARE NET OF ALL
FEES. RETURNS REPRESENT PAST
PERFORMANCE AND ARE NOT INDICATIVE
OF FUTURE RESULTS.
THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED,
MAY BE WORTH EITHER MORE OR LESS
THAN THEIR ORIGINAL COST.
UNTIL FURTHER NOTICE, THE ADVISOR
HAS VOLUNTARILY AGREED TO WAIVE
ITS ADVISORY FEES AND REIMBURSE
CERTAIN EXPENSES TO THE EXTENT
NECESSARY, IF ANY, TO KEEP TOTAL
ANNUAL OPERATING EXPENSES FOR THE
ADVISORY FOREIGN FIXED INCOME
PORTFOLIO FROM EXCEEDING 0.15% OF
AVERAGE DAILY NET ASSETS.
*RETURNS SINCE INCEPTION ON
10/7/94 TO 9/30/95 FOR THE
ADVISORY FOREIGN FIXED INCOME
PORTFOLIO ARE COMPARED TO THE
SALOMON BROAD INDEX, AN UNMANAGED
MARKET INDEX.
9
<PAGE> 12
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
ADVISORY FOREIGN FIXED
INCOME PORTFOLIO
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (64.8%)
- --------------------------------------------------------
<TABLE>
<CAPTION>
**RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 1995 & POOR'S) (000) (000)*
- --------------------------------------------------------
<S> <C> <C> <C>
CANADIAN DOLLAR (8.9%)
Government of Canada
6.50%, 6/1/04 AA+ C $ 31,825 $ 21,709
/+/ 8.50%, 4/1/02 AA+ 33,400 26,064
- --------------------------------------------------------
GROUP TOTAL 47,773
- --------------------------------------------------------
DANISH KRONE (10.5%)
Kingdom of Denmark
9.00%, 11/15/00 AAA DK 291,100 56,329
- --------------------------------------------------------
EUROPEAN CURRENCY UNIT (3.6%)
United Kingdom
9.125%, 2/21/01 AAA ECU 13,895 19,367
- --------------------------------------------------------
FRENCH FRANC (22.1%)
Caisse Refinance
Hypothecaire
8.50%, 3/5/99 AAA FF 55,000 11,746
Credit Foncier
9.20%, 1/2/00 AA- 52,000 11,406
Government of France
O.A.T.
8.50%, 10/25/19 AAA 252,000 53,599
/+/ 8.50%,
4/25/23 AAA 196,640 41,745
- --------------------------------------------------------
GROUP TOTAL 118,496
- --------------------------------------------------------
GERMAN MARK (8.5%)
Treuhandanstalt
/+/ 7.125%,1/29/03 AAA DM 11,365 8,251
7.75%, 10/1/02 AAA 50,000 37,606
- --------------------------------------------------------
GROUP TOTAL 45,857
- --------------------------------------------------------
NETHERLANDS GUILDER (4.3%)
Netherlands Government
6.50%, 4/15/03 AAA NG 23,580 14,837
8.50%, 3/15/01 AAA 12,000 8,357
- --------------------------------------------------------
GROUP TOTAL 23,194
- --------------------------------------------------------
U.S. DOLLAR (6.9%)
## Bank of Hawaii, Honolulu
5.988%, 11/25/96 A $ 2,000 2,001
## Caterpillar Financial
Services
6.125%, 1/30/96 A- 5,000 5,001
## Chemical Bank
6.00%, 7/15/96 A 5,000 5,005
## Dean Witter
Discover & Co.
6.00%, 1/3/97 A 5,000 5,002
<CAPTION>
++RATING FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)+
- --------------------------------------------------------
<S> <C> <C> <C>
## Ford Motor Credit Corp.
6.055%, 10/21/97 A+ $5,000 $ 5,003
## John Deere Capital Corp.
6.095%, 7/22/96 A 5,000 5,007
## NationsBank Corp.
5.875%, 11/18/96 A 3,000 3,000
## Province of Quebec
6.058%, 9/14/97 AA+ 3,500 3,497
## World Savings & Loan
Association
6.063%, 2/24/97 A+ 3,500 3,502
- --------------------------------------------------------
GROUP TOTAL 37,018
- --------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost $332,689) 348,034
- --------------------------------------------------------
CASH EQUIVALENTS (29.1%)
- --------------------------------------------------------
COMMERCIAL PAPER (16.6%)
Aon Corp.
5.73%, 10/16/95 6,200 6,185
Beneficial Corp.
5.72%, 11/2/95 5,500 5,472
Barclays U.S. Funding
5.74%, 10/30/95 5,500 5,475
Chevron Oil Finance Co.
5.81%, 10/27/95 5,500 5,477
Commercial Credit Co.
5.70%, 11/10/95 5,500 5,465
E.I. du Pont de
Nemours & Co.
5.71%, 10/25/95 6,275 6,251
General Mills, Inc.
5.69%, 10/20/95 5,500 5,483
Heller Financial, Inc.
5.71%, 11/3/95 5,500 5,471
Household Finance Corp.
5.71%, 11/10/95 5,500 5,465
Motorola Credit Corp.
5.85%, 10/16/95 5,500 5,487
Norwest Financial, Inc.
5.70%, 11/2/95 5,500 5,472
Prudential Funding Co.
5.72%, 11/10/95 5,500 5,465
Philip Morris, Inc.
5.71%, 10/18/95 5,500 5,485
Raytheon Co.
5.73%, 10/5/95 5,500 5,497
Warner-Lambert Co.
5.75%, 10/6/95 5,500 5,496
Xerox Corp.
5.73%, 10/20/95 5,500 5,483
- --------------------------------------------------------
GROUP TOTAL 89,129
- --------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
10
<PAGE> 13
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)*
- --------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS (12.5%)
Chase Manhattan Bank N.A.
6.20%, dated 9/29/95, due
10/2/95, to be repurchased
at $22,398, collateralized
by $22,481 of various U.S.
Government and Agency
Obligations, due 10/3/95-
7/7/97, valued at $22,608
(Cost $22,386) $22,386 $ 22,386
Goldman Sachs Co.
6.00%, dated 9/29/95, due
10/2/95, to be repurchased
at $22,397, collateralized
by $17,742 of U.S. Treasury
Bonds 9.25%, due
2/15/16, valued at $23,007
(Cost $22,386) 22,386 22,386
Lehman Brothers 6.10%,
dated 9/29/95, due 10/2/95,
to be repurchased at
$22,397, collateralized
by $22,062 of various U.S.
Treasury Notes 4.75%-
7.875%, due 8/31/98-
11/15/99, valued at $22,948
(Cost $22,386) 22,386 22,386
- --------------------------------------------------------
GROUP TOTAL 67,158
- --------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $156,287) 156,287
- --------------------------------------------------------
TOTAL INVESTMENTS (93.9%) (Cost $488,976) 504,321
- --------------------------------------------------------
OTHER ASSETS AND LIABILITIES (6.1%)
Cash 3
Interest Receivable 17,700
Receivable for Investments Sold 6,867
Receivable from Investment Adviser 21
Receivable for Daily Variation on
Futures Contracts 3,578
Unrealized Gain on Forward Foreign
Currency Contracts 4,904
Payable for Administrative Fees (38)
Other Liabilities (223)
--------
32,812
- --------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------
Applicable to 49,723,073 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $537,133
- --------------------------------------------------------
NET ASSET VALUE PER SHARE $ 10.80
- --------------------------------------------------------
* See Note A1 to Financial Statements.
** Ratings are unaudited.
/+/ A portion of these securities was pledged to cover
margin requirements for futures contracts.
## Variable or floating rate securities-rate disclosed
is as of September 30, 1995.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
11
<PAGE> 14
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADVISORY
FOREIGN ADVISORY
FIXED INCOME MORTGAGE
PORTFOLIO PORTFOLIO
----------------------------------------------------
OCTOBER 7, APRIL 12,
1994** TO 1995** TO
SEPTEMBER 30, SEPTEMBER 30,
(In Thousands) 1995 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest+ $ 33,020 $ 31,028
- --------------------------------------------------------------------------------------------------------------------------
Total Income 33,020 31,028
- --------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Services--Note B $ 1,631 $ 1,711
Less: Waived Fees (1,631) -- (1,711) --
Administrative Fee--Note C 357 374
Custodian Fee 165 86
Filing and Registration Fees 157 440
Reimbursement from Investment Adviser (20) (522)
Other Expenses 53 66
- --------------------------------------------------------------------------------------------------------------------------
Total Expenses 712 444
- --------------------------------------------------------------------------------------------------------------------------
Expense Offset--Note F (59) (79)
- --------------------------------------------------------------------------------------------------------------------------
Net Expenses 653 365
- --------------------------------------------------------------------------------------------------------------------------
Net Investment Income 32,367 30,663
- --------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities 3,381 2,079
Foreign Currency Transactions (10,878) --
Futures and Written Floors 637 (1,408)
- --------------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) (6,860) 671
- --------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)--Note D
Investment Securities 15,345 20,235
Foreign Currency Transactions 4,856 --
Futures, Written Floors and Swaps 1,469 (1,013)
- --------------------------------------------------------------------------------------------------------------------------
Unrealized Appreciation (Depreciation) 21,670 19,222
- --------------------------------------------------------------------------------------------------------------------------
Net Gain (Loss) 14,810 19,893
- --------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $47,177 $50,556
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
** Commencement of Operations.
+ Net of $18 withholding tax for Advisory Foreign Fixed Income Portfolio
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
12
<PAGE> 15
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADVISORY
FOREIGN ADVISORY
FIXED INCOME MORTGAGE
PORTFOLIO PORTFOLIO
--------------------------------------------
OCTOBER 7, APRIL 12,
1994** TO 1995** TO
SEPTEMBER 30, SEPTEMBER 30,
(In Thousands) 1995 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 32,367 $ 30,663
Realized Net Gain (Loss) (6,860) 671
Change in Unrealized Appreciation (Depreciation)--Note D 21,670 19,222
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from
Operations 47,177 50,556
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS--Note A:
Net Investment Income (14,709) (21,968)
- ------------------------------------------------------------------------------------------------------------------------------
Total Distributions (14,709) (21,968)
- ------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
Issued 666,544 1,479,265
In Lieu of Cash Distributions 9,187 15,811
Redeemed (171,066) (80,626)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions 504,665 1,414,450
- ------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 537,133 1,443,038
NET ASSETS:
Beginning of Period -- --
------------------------------------------------
END OF PERIOD (2) $ 537,133 $ 1,443,038
- ------------------------------------------------------------------------------------------------------------------------------
(1) Shares Issued and Redeemed
Shares Issued 65,358 144,912
In Lieu of Cash Distributions 910 1,535
Shares Redeemed (16,545) (7,785)
------------------------------------------------
49,723 138,662
- ------------------------------------------------------------------------------------------------------------------------------
(2) Net Assets Consist of:
Paid in Capital $ 504,665 $ 1,414,450
Undistributed (Overdistributed) Net Investment Income 7,214 8,695
Undistributed (Overdistributed) Realized Net Gain (Loss) 3,584 671
Unrealized Appreciation (Depreciation) on:
Investment Securities 15,345 20,235
Foreign Currency Transactions 4,856 --
Futures and Written Floors 1,469 (1,013)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $ 537,133 $ 1,443,038
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
** Commencement of Operations.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
13
<PAGE> 16
SELECTED PER SHARE DATA AND RATIOS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout The Period
<TABLE>
<CAPTION>
ADVISORY
FOREIGN ADVISORY
FIXED INCOME MORTGAGE
PORTFOLIO PORTFOLIO
--------------------------------------------
OCTOBER 7, APRIL 12,
1994** TO 1995** TO
SEPTEMBER 30, SEPTEMBER 30,
1995 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.74 0.25
Net Realized and Unrealized Gain (Loss) on Investments 0.44 0.35
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.18 0.60
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.38) (0.19)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.38) (0.19)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.80 $ 10.41
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 12.12% 6.03%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $537,133 $1,443,038
Ratio of Expenses to Average Net Assets ## 0.16%*++ 0.10%*++
Ratio of Net Investment Income to Average Net Assets 7.44%* 6.72%*
Portfolio Turnover Rate 96% 110%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Commencement of Operations.
++ Advisory Foreign Fixed Income Portfolio expense ratio is net of voluntarily
waived and reimbursed expenses of 0.38%* for the period ended September 30,
1995. Advisory Mortgage Portfolio expense ratio is net of voluntarily waived
and reimbursed expenses of 0.49%* for the period ended September 30, 1995.
## The Ratio of Expenses to Average Net Assets excludes the effect of expense
offsets. If expense offsets were included, the Ratio of Expenses to Average
Net Assets would be 0.15%* and 0.08%*, respectively, for the Advisory Foreign
Fixed Income Portfolio and the Advisory Mortgage Portfolio.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
14
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MAS Funds (the "Fund") is registered under the Investment Company Act of 1940
as an open-end investment company. Advisory Foreign Fixed Income Portfolio and
Advisory Mortgage Portfolio, each referred to as a "Portfolio", commenced
operations on October 7, 1994 and April 12, 1995, respectively. At September
30, 1995, the Fund was comprised of twenty-five active portfolios. The
financial statements of the remaining portfolios are presented separately.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of its
financial statements.
1. SECURITY VALUATION: 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 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. Bonds and other
fixed income securities listed on a foreign exchange are valued at the
latest quoted sales prices. Mortgage-backed securities issued by certain
government-related organizations are valued using brokers' quotations which
are based on a matrix system which considers such factors as other security
prices, yields and maturities. 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. Other assets
and securities, for which no quotations are readily available, will be
valued in good faith at fair value using methods approved by the Board of
Trustees.
Each Portfolio may invest up to 15% of its net assets in securities which
are not readily marketable, including those which are restricted as to
disposition under securities law ("restricted securities").
2. FEDERAL INCOME TAXES: It is each Portfolio's intention to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for Federal income taxes is required in the
financial statements.
Undistributed net investment income and undistributed gain (loss) for the
Advisory Foreign Fixed Income Portfolio have been adjusted for permanent
book-tax differences.
3. REPURCHASE AGREEMENTS: Securities pledged as collateral for repurchase
agreements are held by the Portfolios' custodian bank until maturity of the
repurchase agreements. Provisions of the agreements ensure that the market
value of the collateral is at least equal to the repurchase value in the
event of default; however, in the event of default or bankruptcy by the
other party to the agreement, realization and/or retention of the collateral
may be subject to legal proceedings.
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, each Portfolio may transfer its uninvested cash balances into a
joint trading account with other Portfolios of the Fund which invests in one
or more repurchase agreements. This joint repurchase agreement is covered by
the same collateral requirements as discussed above.
4. FUTURES: Futures contracts (secured by securities deposited with brokers as
"initial margin") are valued based upon their quoted daily settlement
prices; changes in initial settlement value (represented by cash paid to or
received from brokers as "variation margin") are accounted for as unrealized
appreciation (depreciation). When futures contracts are closed, the
difference between the opening value at the date of purchase and the value
at closing is recorded as realized gains or losses in the Statement of
Operations.
- --------------------------------------------------------------------------------
15
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Futures contracts may be used by the Portfolios in order to hedge against
unfavorable changes in value of securities or to attempt to realize profits
from the value of the underlying securities. Futures contracts involve
market risk in excess of the amount recognized in the statement of net
assets. Risks arise from the possible movements in security values
underlying these instruments. The change in the value of futures contracts
primarily corresponds with the value of their underlying instruments, which
may not correlate with the change in value of the hedged investments. In
addition, there is risk that a Portfolio may not be able to enter into a
closing transaction because of an illiquid secondary market.
5. SWAP AGREEMENTS: The Portfolios can enter into swap agreements to exchange
the return generated by one instrument for the return generated by another
instrument.
Interest Rate Swaps: Interest rate swaps involve the exchange of commitments
to pay and receive interest based on a notional principal amount. Net
periodic interest payments to be received or paid are accrued daily and are
recorded in the Statement of Operations as an adjustment to interest income.
Interest rate swaps are marked-to-market daily based upon quotations from
market makers and the change, if any, is recorded as unrealized appreciation
(depreciation) in the Statement of Operations.
Total Return Swaps: Total return swaps involve commitments to pay interest
in exchange for a market-linked return based on a notional amount. To the
extent the total return of the security or index underlying the transaction
exceeds or falls short of the offsetting interest obligation, the Portfolio
will receive a payment from or make a payment, respectively, to the
counterparty. Total return swaps are marked-to-market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized appreciation (depreciation) in the Statement of Operations.
Periodic payments received or made at the end of each measurement period and
prior to the termination of the swap, are recorded as realized gain or loss
in the Statement of Operations.
Realized gains or losses on maturity or termination of interest rate and
total return swaps are presented in the Statement of Operations. Because
there is no organized market for these agreements, the value reported in the
Statement of Net Assets may differ from that which would be realized in the
event the Portfolio terminated its position in the agreement. Risks may
arise upon entering into these agreements from the potential inability of
the counterparties to meet the terms of the agreements and are generally
limited to the amount of net interest payments to be received and/or any
favorable movements in the value of the underlying security at the date of
default.
6. WRITTEN INTEREST RATE FLOOR AGREEMENTS: A Portfolio will utilize written
interest rate floors to protect itself against fluctuations in interest
rates. When a Portfolio writes an interest rate floor, it agrees to make
periodic interest payments based on a notional principal amount to the
extent that a specified interest index falls below a specific interest rate
in exchange for the premium received. When a Portfolio writes an interest
rate floor the premium received by the Portfolio is recorded as a liability
and is amortized to interest income over the life of the agreement. Interest
rate floors are marked-to-market daily based on quotations from market
makers and the change, if any, is recorded as unrealized appreciation or
depreciation in the Statement of Operations. Periodic payments of interest,
if any, are reported as reductions to interest income in the Statement of
Operations. Realized gains or losses from these agreements are disclosed in
the Statement of Operations.
Because there is no organized market for these agreements, the value
reported in the
- --------------------------------------------------------------------------------
16
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statement of Net Assets may differ from that which would be realized in the
event the Portfolio terminated its position in the agreement. Entering into
these agreements involves, to varying degrees, elements of interest rate and
market risk in excess of the amount recognized in the Statement of Net
Assets. Such risk involves the possibility that there is no liquid market
for these agreements, and that there may be adverse changes in interest
rates and unfavorable changes in the price of the security or index
underlying these transactions.
7. FOREIGN EXCHANGE AND FORWARD FOREIGN CURRENCY CONTRACTS: The books and
records of the Fund are maintained in U.S. dollars. Foreign currency amounts
are translated into U.S. dollars at the bid prices of such currencies
against U.S. dollars quoted by a bank. Net realized gains (losses) on
foreign currency transactions represent net foreign exchange gains (losses)
from forward currency exchange contracts, disposition of foreign currencies,
currency gains or losses realized between the trade and settlement dates on
securities transactions, and the difference between the amount of investment
income and foreign withholding taxes recorded on a Portfolio's books and the
U.S. dollar equivalent amounts actually received or paid.
A forward foreign currency contract is an agreement between two parties to
buy or sell currency at a set price on a future date. The Advisory Foreign
Fixed Income Portfolio may enter into forward foreign currency exchange
contracts to protect securities and related receivables and payables against
future changes in foreign exchange rates. Fluctuations in the value of such
contracts are recorded as unrealized appreciation (depreciation). Realized
gains or losses, which are disclosed in the Statement of Operations, include
net gains or losses on contracts which have been terminated by settlements.
Risks may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and are
generally limited to the amount of unrealized gain on the contract (if any)
at the date of default. Risks may also arise from unanticipated movements in
the value of the foreign currency relative to the U.S. dollar.
8. DELAYED DELIVERY COMMITMENTS: Each Portfolio may purchase or sell securities
on a when-issued or forward commitment basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of the
underlying securities and the date when the securities will be delivered and
paid for are fixed at the time the transaction is negotiated. Collateral
consisting of liquid, high-grade debt securities or cash is maintained in an
amount at least equal to these commitments.
9. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Advisory Foreign Fixed
Income Portfolio and the Advisory Mortgage Portfolio will normally
distribute substantially all of their net investment income to shareholders
in the form of quarterly and monthly dividends, respectively. Net realized
capital gains are distributed at least annually. The amount and character of
income and gains to be distributed are determined in accordance with income
tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions.
10. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and losses
on the sale of investment securities are those of specific securities sold.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recognized on the accrual basis.
Discounts and premiums on securities purchased are amortized over their
respective lives. Most expenses of the Fund can be directly attributed to a
portfolio. Expenses which can not be directly attributed are apportioned
among the portfolios on the basis of their relative net assets. "Other
Expenses", as presented in the Statement of Operations, are mainly
comprised of registration and audit fees.
- --------------------------------------------------------------------------------
17
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
B. INVESTMENT ADVISORY FEE: Under the terms of an Investment Advisory
Agreement, the Portfolios pay Miller Anderson & Sherrerd, LLP ("MAS" or "the
Adviser") for investment advisory services performed at a fee calculated by
applying a quarterly rate based on an annual percentage rate of 0.375% of the
Portfolio's average daily net assets for the quarter.
Until further notice, MAS has voluntarily agreed to waive its advisory fees.
On June 29, 1995, Miller Anderson & Sherrerd, LLP announced that it had agreed
to be acquired by Morgan Stanley Asset Management Holdings, Inc. (an indirect
wholly owned subsidiary of Morgan Stanley Group, Inc.) either alone or together
with one or more affiliates. In accordance with the provisions of the
Investment Company Act of 1940, as amended, on October 6, 1995, the
shareholders of MAS Funds, by affirmative vote of the majority of the
outstanding shares of each Portfolio of the Fund, approved a new Investment
Advisory Agreement between the Fund and the restructured MAS effective upon the
completion of the transaction. The acquisition is scheduled to be completed on
or about November 30, 1995.
C. ADMINISTRATION FEE: MAS serves as Administrator to the Fund pursuant to an
Administration Agreement. Under the agreement, MAS receives an annual fee
accrued daily and payable monthly, of 0.08% of each of the Portfolios of the
Fund's average daily net assets. This fee and various miscellaneous
administrative expenses not included in this fee, such as payments to security
pricing vendors, are included as Administrative Fees in the Statement of
Operations of each Portfolio. Effective September 1, 1995, Chase Global Funds
Services Company, (until September 1, 1995, known as Mutual Funds Service
Company), serves as Transfer Agent to the Fund and provides fund accounting and
other services pursuant to a sub-administration agreement with MAS.
D. PORTFOLIO INVESTMENT ACTIVITY:
1. PURCHASES AND SALES OF SECURITIES. For the period ended September 30, 1995,
purchases and sales of investment securities other than short-term
investments were:
<TABLE>
<CAPTION>
(000)
-------------------------
Portfolio Purchases Sales
- -------------------------------------------------------------
<S> <C> <C>
Advisory Foreign
Fixed Income $ 647,412 $ 318,614
Advisory Mortgage 2,587,656 1,147,517
</TABLE>
2. FEDERAL INCOME TAX COST AND UNREALIZED APPRECIATION (DEPRECIATION). At
September 30, 1995, cost and unrealized appreciation (depreciation) of
securities for Federal income tax purposes were:
<TABLE>
<CAPTION>
(000)
-----------------------------------------------
Portfolio Cost Appreciation Depreciation Net
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Advisory Foreign
Fixed Income $ 488,976 $ 16,353 $ (1,008) $15,345
Advisory Mortgage 1,763,321 20,977 (792) 20,185
</TABLE>
3. FORWARD FOREIGN CURRENCY CONTRACTS. Under the terms of the forward foreign
currency contracts open at September 30, 1995, the Advisory Foreign Fixed
Income Portfolio is obligated to deliver or receive currency in exchange for
U.S. dollars as indicated in the following table:
<TABLE>
<CAPTION>
(000)
--------------------------------------------------------------
Currency In Net Unrealized
to Exchange Settlement Appreciation
Deliver For Date Value (Depreciation)
------- ---------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
Purchases
US$ 16,761 DM 24,330 10/24/95 US$17,047 US$ 286
17,323 DM 25,250 11/6/95 17,707 384
22,635 SK 166,305 11/22/95 23,893 1,258
3,464 FF 16,990 12/27/95 3,447 (17)
-----------
US$ 1,911
-----------
Sales
FF 16,990 US$ 3,466 10/4/95 US$ 3,451 US$ 15
DM 4,879 3,434 10/4/95 3,415 19
NG 37,732 24,283 10/10/95 23,603 680
FF 155,140 32,009 10/11/95 31,509 500
DK 3,925 717 10/18/95 708 9
DM 93,550 68,012 10/24/95 65,561 2,451
DM 56,340 40,885 11/6/95 39,508 1,377
DM 43,130 30,642 11/9/95 30,249 393
FF 251,740 50,997 11/17/95 51,102 (105)
FF 36,100 7,305 11/17/95 7,328 (23)
SK 166,305 22,462 11/22/95 23,893 (1,431)
DK 49,170 8,598 11/22/95 8,880 (282)
C$ 60,560 44,700 12/5/95 45,023 (323)
FF 37,525 7,437 12/7/95 7,615 (178)
ECU 1,420 1,817 12/12/95 1,840 (23)
FF 170,675 34,543 12/27/95 34,629 (86)
-----------
US$ 2,993
-----------
NET US$ 4,904
-----------
C$ -- Canadian Dollar
DK -- Danish Krone
ECU -- European Currency Unit
FF -- French Franc
DM -- German Mark
NG -- Netherlands Guilder
SK -- Swedish Krona
</TABLE>
- --------------------------------------------------------------------------------
18
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. FUTURES CONTRACTS. At September 30, 1995, the Portfolios had the following
futures contracts open:
<TABLE>
<CAPTION>
Initial Unrealized
Aggregate Appreciation/
Number of Face Value Expiration (Depreciation)
Contracts (000) Date (000)
--------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
Purchases:
ADVISORY FOREIGN
FIXED INCOME
Canada 10 yr.
Government
Bond 875 C$ 90,867 Dec-95 US$2,340
French 10 yr.
Government Bond 736 FF 428,175 Dec-95 (908)
German 10 yr.
Government Bond 275 DM 65,446 Dec-95 37
ADVISORY MORTGAGE
U.S. Treasury
Long Bond 375 US$ 42,059 Dec-95 818
Sales:
ADVISORY MORTGAGE
90 day
Eurodollar 308 US$ 72,223 Dec-95- (175)
Sept-98
U.S. Treasury
5 yr. Note 858 US$ 92,131 Dec-95 (3)
U.S. Treasury 10
yr. Note 1,205 US$ 132,588 Dec-95 (273)
C$ -- Canadian Dollar
FF -- French Franc
DM -- German Mark
</TABLE>
5. INTEREST RATE FLOOR AGREEMENTS. At September 30, 1995 the Advisory Mortgage
Portfolio had the following open Written Amortizing Interest Rate Floor
Agreements:
<TABLE>
<CAPTION>
Notional
Amount Value
(000) Description (000)
- ------------------------------------------------------------
<S> <C> <C>
$ 1,940 Agreement with Barclays Bank plc $ 293
terminating November 15, 2009, to pay
9.60% minus 1 month LIBOR on notional
amount amortizing monthly as long as 1
month LIBOR is below 9.60%. (Amortized
Premium $248)
772 Agreement with Bankers Trust Company 114
terminating on September 15, 2009 to pay
9.45% minus 1 month LIBOR on notional
amount amortizing monthly as long as 1
month LIBOR is below 9.45%. (Amortized
Premium $108)
1,542 Agreement with Bankers Trust Company 146
terminating on November 1, 1999 to pay
9.25% minus 1 month COFI on notional
amount amortizing monthly as long as 1
month COFI is below 9.25%. (Amortized
Premium $134)
24,850 Agreement with Morgan Guaranty Trust 2,992
Company of New York terminating on July
15, 2005 to pay 9.00% minus 1 month
LIBOR on notional amount amortizing
monthly as long as 1 month LIBOR is
below 9.00%. (Amortized Premium $2,675)
</TABLE>
<TABLE>
<CAPTION>
Notional
Amount Value
(000) Description (000)
- ------------------------------------------------------------
<S> <C> <C>
$14,400 Agreement with Morgan Guaranty Trust $ 1,506
Company of New York terminating on
February 25, 2000 to pay 8.61% minus 1
month LIBOR on notional amount as long
as 1 month LIBOR is below 8.61%.
(Amortized Premium $1,643)
2,623 Agreement with Bankers Trust Company 187
terminating on November 25, 1999 to pay
8.25% minus 1 month COFI on notional
amount amortizing monthly as long as 1
month COFI is below 8.25% (Amortized
Premium $164)
46,883 Agreement with Bankers Trust Company 4,388
terminating on June 25, 2005 to pay
8.10% minus 1 month LIBOR on notional
amount amortizing monthly as long as 1
month LIBOR is below 8.10%. (Amortized
Premium $3,426)
95,030 Agreement with Morgan Guaranty Trust 5,265
Company of New York terminating on June
15, 2005 to pay 8.00% minus 1 month
LIBOR on notional amount amortizing
monthly as long as 1 month LIBOR is
below 8.00%. (Amortized Premium $5,921)
25,723 Agreement with Morgan Guaranty Trust 2,307
Company of New York terminating on May
15, 2008 to pay 8.00% minus 1 month
LIBOR on notional amount amortizing
monthly as long as 1 month LIBOR is
below 8.00%. (Amortized Premium $1,698)
19,440 Agreement with Bankers Trust Company 3,764
terminating on February 15, 2015 to pay
7.80% minus 1 month LIBOR on notional
amount amortizing monthly as long as 1
month LIBOR is below 7.80%. (Amortized
Premium $3,565)
-------
$20,962
------
</TABLE>
E. POST OCTOBER LOSSES. Under current tax law, certain capital and net foreign
exchange losses realized after October 31 may be deferred and treated as
occurring on the first day of the following fiscal year. For the fiscal year
ended September 30, 1995, the Advisory Foreign Fixed Income Portfolio may elect
to defer losses occurring between November 1, 1994 and September 30, 1995 in
the amount of $1,323,000.
- --------------------------------------------------------------------------------
19
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
F. EXPENSE OFFSETS: Custodian Fees have been adjusted to include expense
offsets for custodian balance credits of $59,000 and $79,000 for the Advisory
Foreign Fixed Income and the Advisory Mortgage Portfolios, respectively.
G. OTHER. At September 30, 1995, the Advisory Foreign Fixed Income Portfolio's
net assets were substantially comprised of foreign currency denominated
securities and currency. Changes in currency exchange rates will affect the
value of and investment income from such securities and currency.
At September 30, 1995 the Advisory Foreign Fixed Income Portfolio had one
shareholder with an aggregate percentage of ownership of 10% or greater.
- --------------------------------------------------------------------------------
20
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
MAS Funds
In our opinion, the accompanying statements of net assets (excluding Standard &
Poor's ratings) and the related statements of operations and of changes in net
assets and the selected per share data and ratios present fairly, in all
material respects, the financial position of the Advisory Foreign Fixed Income
Portfolio and the Advisory Mortgage Portfolio, each a portfolio of the MAS
Funds (hereafter referred to as the "Fund"), at September 30, 1995, and the
results of their operations, the changes in their net assets and their selected
per share data and ratios for the periods indicated in conformity with
generally accepted accounting principles. These financial statements and
selected per share data and ratios (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at September 30, 1995 by correspondence with the custodians and
brokers and the application of alternative procedures where broker
confirmations were not received, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
November 21, 1995
- --------------------------------------------------------------------------------
21
<PAGE> 24
- --------------------------------------------------------------------------------
SHAREHOLDER MEETING: (UNAUDITED)
At a special shareholder meeting held on February 21, 1995, shareholders of the
MAS Advisory Mortgage Portfolio voted on the following proposal.
<TABLE>
<CAPTION>
VOTED VOTED ABSTAIN
FOR AGAINST VOTES
----- ------- -------
<S> <C> <C> <C>
1. To amend the investment objective of the Advisory Mortgage
Portfolio. 10 0 0
====== ======= ========
</TABLE>
- --------------------------------------------------------------------------------
22
<PAGE> 25
- --------------------------------------------------------------------------------
23
<PAGE> 26
PRINTED IN U.S.A.
THIS REPORT HAS BEEN PREPARED FOR
SHAREHOLDERS AND MAY BE DISTRIBUTED TO
OTHERS ONLY IF PRECEDED OR ACCOMPANIED BY A
CURRENT PROSPECTUS.
MILLER ANDERSON & SHERRERD, LLP
INVESTMENT ADVISER (610) 940-5000
MAS FUNDS (800) 354-8185
ONE TOWER BRIDGE - WEST CONSHOHOCKEN, PA 19428-2899
<PAGE>
DISTRIBUTION PLAN
MAS Funds
Investment Class Shares
WHEREAS, MAS Funds (the "Fund"), is engaged in business as an open-end
investment company registered under the Investment Company Act of 1940, as
amended ("1940 Act"); and
WHEREAS, the Trustees of the Fund have determined that there is a
reasonable likelihood that the following Distribution Plan will benefit the
Fund's Investment Class and the owners of units of beneficial interest
("Shares") in the Fund's Investment Class.
NOW, THEREFORE, the Trustees of the Fund hereby adopt this Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act.
Section 1. The Fund has adopted this Distribution Plan (the "Plan") to
enable the Fund to directly or indirectly bear expenses relating to the
distribution of Investment Class Shares of which the Fund is the issuer.
Section 2. The Fund will pay the Distributor a fee on the Investment
Class Shares of the Fund's Portfolios up to the amount set forth on Schedule A.
The Distributor may use this fee for (i) compensation for its services in
connection with distribution assistance or provision of shareholder and account
maintenance services; or (ii) payments to financial institutions and
intermediaries such as banks, savings and loan associations, insurance
companies, investment counselors, broker-dealers and the Distributor's
affiliates and subsidiaries as compensation for services or reimbursement of
expenses incurred in connection with distribution assistance or provision of
shareholder and account maintenance services.
Section 3. This Plan (and any related agreement entered into pursuant
to Section 7) shall not take effect until it has been approved by (a) a vote of
at least a majority of the outstanding voting securities of each Portfolio's
Investment Class; and (b) by votes of the majority of both (i) the Trustees of
the Fund and (ii) the Qualified Trustees, cast in person at a Board of Trustees
meeting called for the purpose of voting on this Plan.
Section 4. This Plan (and any related agreement entered into pursuant
to Section 7) shall continue in effect for a period of more than one year after
it takes effect only for so long as such continuance is specifically approved at
<PAGE>
least annually in the manner provided in Section 3(b) herein for the approval of
this Plan.
Section 5. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement (as
provided in Section 7) shall provide to the Trustees of the Fund, and the
Trustees shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
Section 6. This Plan may be terminated at any time by the vote of a
majority of the Qualified Trustees or by vote of a majority of the outstanding
voting securities of each Portfolio's Investment Class.
Section 7. Any agreements with any person relating to this Plan shall
be in writing, and provide (a) that such agreement may be terminated at any
time, without payment of any penalty, by the vote of a majority of the Qualified
Trustees or by the vote of shareholders holding a majority of the outstanding
voting securities of each Portfolio's Investment Class, on not more than 60 days
written notice to any other party to the agreement; and (b) that such agreement
shall terminate automatically in the event of its assignment. This Plan shall
not obligate the Fund or any other party to enter into an agreement with any
particular person.
Section 8. This Plan may not be amended to increase materially the
amount of distribution expenses permitted pursuant to Section 2 hereof without
the approval of Shareholders holding a majority of the outstanding voting
securities of each affected Portfolio's Investment Class. All material
amendments to this Plan and any related agreement entered into pursuant to
Section 7 hereof shall be approved in the manner provided in Section 3(b) herein
for the approval of this Plan.
Section 9. As used in this Plan, (a) the term "Qualified Trustees"
shall mean those Trustees of the Fund who are not interested persons of the
Fund, and have no direct or indirect financial interest in the operation of this
Plan or in any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the 1940 Act
and the rules and regulations thereunder, subject to such exemptions as may be
granted by the Securities and Exchange Commission.
Section 10. While this Plan is in effect, the selection and nomination
of those Trustees who are not interested persons of the Fund within the meaning
of Section 2(a)(19) of the 1940 Act shall be committed to the discretion of the
Trustees then in office who are not interested persons of the Fund.
2
<PAGE>
SCHEDULE A
----------
MAS Funds
Portfolio Distribution Fee
- --------- ----------------
Balanced................................................................... .25%
Cash Reserves.............................................................. .25%
Domestic Fixed Income ..................................................... .25%
Emerging Markets........................................................... .25%
Equity..................................................................... .25%
Fixed Income............................................................... .25%
Fixed Income II............................................................ .25%
Global Fixed Income........................................................ .25%
Growth..................................................................... .25%
High Yield................................................................. .25%
Intermediate Duration...................................................... .25%
International Equity....................................................... .25%
International Fixed Income................................................. .25%
Limited Duration........................................................... .25%
Mid Cap Growth............................................................. .25%
Mid Cap Value.............................................................. .25%
Mortgage-Backed Securities................................................. .25%
Multi-Asset-Class.......................................................... .25%
Municipal.................................................................. .25%
PA Municipal............................................................... .25%
Select Equity.............................................................. .25%
Small Cap Value............................................................ .25%
Special Purpose Fixed Income............................................... .25%
Value...................................................................... .25%
3
<PAGE>
EXHIBIT-99.B15a
MAS FUNDS
MAS CLASS
SHAREHOLDER SERVICE AGREEMENT
MAS Funds (the "Fund") is an open-end investment company registered
under the Investment Company Act of 1940, as amended, and currently consisting
of a number of separately managed portfolios (the "Portfolios"). The Fund
desires to retain MAS Fund Distribution, Inc. (the "Distributor"), a
Pennsylvania corporation, to compensate Service Providers who provide the
services described herein to their clients (the "Clients") who may from time to
time beneficially own MAS Class shares (the "Shares") of the Portfolios
identified at Schedule A of this Agreement. The Distributor is willing to
compensate the Service Providers for providing such shareholder services in
accordance with the terms and conditions of this Agreement.
Section 1. The Distributor may enter into written agreements in the form
approved by the Fund's Board of Trustees with Service Providers pursuant to
which the Service Providers will provide the following shareholder services to
their Clients who may from time to time beneficially own Shares:
(i) maintaining accounts relating to Clients that invest in
Shares;
(ii) providing information periodically to Clients showing
their positions in Shares;
(iii) arranging for bank wires;
(iv) responding to Client inquiries relating to the services
performed by the Service Provider;
(v) responding to inquiries from Clients concerning their
investments in Shares;
(vi) if required by law, forwarding shareholder communications from the
Fund (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to
Clients;
(vii) assisting in processing purchase, exchange and redemption
requests from Clients and in placing such orders with the Fund or its
service providers;
(viii) assisting Clients in changing dividend options, account
designations, and addresses; and
<PAGE>
(ix) providing such other similar services as the Fund may, through the
Distributor, reasonably request to the extent that the Service Provider
is permitted to do so under applicable laws or regulations.
Section 2. The Distributor will provide all office space and equipment,
telephone facilities and personnel (which may be part of the space, equipment
and facilities currently used in the Distributor's business, or any personnel
employed by the Distributor) as may be reasonably necessary or beneficial in
order to fulfill its responsibilities under this Agreement.
Section 3. Neither the Distributor nor any of its officers, employees, or agents
is authorized to make any representations concerning the Fund or the Shares
except those contained in the Fund's then-current prospectus or Statement of
Additional Information for the Shares, copies of which will be supplied to the
Distributor, or in such supplemental literature or advertising as may be
authorized in writing.
Section 4. For purposes of this Agreement, the Distributor will be deemed to be
an independent contractor, and will have no authority to act as agent for the
Fund in any matter or in any respect. By its written acceptance of this
Agreement, the Distributor agrees to and does release, indemnify, and hold the
Fund harmless from and against any and all direct or indirect liabilities or
losses resulting from requests, directions, actions, or inactions of or by the
Distributor or its officers, employees, or agents regarding the Distributor's
responsibilities under this Agreement, the provision of the aforementioned
services to Clients by the Service Providers, or the purchase, redemption,
transfer, or registration of Shares (or orders relating to the same) by or on
behalf of Clients. The Distributor and its officers and employees will, upon
request, be available during normal business hours to consult with
representatives of the Fund or its designees concerning the performance of the
Distributor's responsibilities under this Agreement.
Section 5. In consideration of the services and facilities to be provided by the
Service Providers, each Portfolio will pay to the Distributor, and the
Distributor will pay to the Service Providers, a fee at the annual rate set
forth in Schedule A of this Agreement, which will be a percentage of the average
daily net asset value of the Shares of such Portfolio beneficially owned by the
Clients with whom the Service Provider has a servicing relationship (the
"Clients' Shares"), which fee will be computed daily and paid monthly. For
purposes of determining the fees payable under this Section 5, the average daily
net asset value of the Clients' Shares will be computed in the manner specified
in the Fund's Registration Statement (as the same is in effect from time to
time) in connection with the computation of the net asset value of Shares for
purposes of purchases and redemptions. The fee relating to any Portfolio set
<PAGE>
forth in Schedule A may be prospectively increased or decreased by the Fund, in
its sole discretion, at any time upon notice to the Distributor. When it
receives such notice, the Distributor will notify the Service Providers of any
increase or decrease. Further, the Fund may, in its discretion and without
notice, suspend or withdraw the sale of Shares of any Portfolio, including the
sale of Shares to any Service Provider for the account of any Client or Clients.
Section 6. The Fund may enter into other similar servicing agreements with any
other person or persons without the Distributor's consent.
Section 7. By its written acceptance of this Agreement, the Distributor
represents, warrants, and agrees that the services provided by the Distributor
under this Agreement will in no event be primarily intended to result in the
sale of Shares.
Section 8. This Agreement will become effective on the date a fully executed
copy of this Agreement is received by the Fund or its designee and shall
continue until terminated by either party. This Agreement is terminable with
respect to the Shares of any Portfolio, without penalty, at any time by the Fund
or by the Distributor upon written notice to the Fund.
Section 9. All notices and other communications to either the Fund or to the
Distributor will be duly given if mailed, telegraphed, telefaxed, or transmitted
by similar communications device to the appropriate address stated herein, or to
such other address as either party shall so provide the other.
Section 10. This Agreement will be construed in accordance with the laws of the
Commonwealth of Pennsylvania and may not be "assigned" by either party thereto
as that term is defined in the Investment Company Act of 1940.
Section 11. References to the "MAS Funds," the "Fund," and the "Trustees" of the
Fund refer respectively to the Trust created and the Trustees as trustees, but
not individually or personally, acting from time to time under the Amended and
Restated Declaration of Trust of the Fund dated November 18, 1993, a copy of
which is on file with the Department of State of the Commonwealth of
Pennsylvania and at the Fund's principal office. The obligations of the MAS
Funds entered into in the name or on behalf thereof by any of the Trustees,
officers, representatives, or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, shareholders,
officers, representatives, or agents of the Fund personally.
<PAGE>
By their signatures, the Fund and the Distributor agree to the terms of this
Agreement.
MAS Funds
By: Date:
---------------------------------------- ---------------------------
- ----------------------------
MAS Fund Distribution, Inc.
By: Date:
---------------------------------------- ----------------------------
<PAGE>
Schedule A
MAS Funds
Portfolio Rate
- --------- ----
Balanced.................................................................. .15%
Cash Reserves............................................................. .15%
Domestic Fixed Income .................................................... .15%
Emerging Markets.......................................................... .15%
Equity.................................................................... .15%
Fixed Income.............................................................. .15%
Fixed Income II........................................................... .15%
Global Fixed Income....................................................... .15%
Growth.................................................................... .15%
High Yield................................................................ .15%
Intermediate Duration..................................................... .15%
International Equity...................................................... .15%
International Fixed Income................................................ .15%
Limited Duration.......................................................... .15%
Mid Cap Growth............................................................ .15%
Mid Cap Value............................................................. .15%
Mortgage-Backed Securities................................................ .15%
Multi-Asset-Class......................................................... .15%
Municipal................................................................. .15%
PA Municipal.............................................................. .15%
Select Equity............................................................. .15%
Small Cap Value........................................................... .15%
Special Purpose Fixed Income.............................................. .15%
Value..................................................................... .15%
<PAGE>
THE MAS FUNDS
Rule 18f-3
Multiple Class Plan
____________, 1996
MAS Funds (the "Fund"), a registered investment company that
currently consists of a number of separately managed portfolios, has elected to
rely on Rule 18f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act"), in offering multiple classes of shares in each portfolio listed on
Schedule A hereto (each a "Portfolio").
A. Attributes of Share Classes
1. The rights of each class of shares of the Portfolios shall
be as set forth in the respective Certificate of Class Designation for each
class (each a "Certificate") as each such Certificate is approved by the Fund's
Board of Trustees and as attached hereto as Exhibits.
2. With respect to each class of shares created hereunder,
each share of a Portfolio will represent an equal pro rata interest in the
Portfolio and will have identical terms and conditions, except that: (i) each
new class will have a different class name (or other designation) that
identifies the class as separate from any other class; (ii) each class will be
offered and sold only to investors meeting the qualifications set forth in the
Certificate and disclosed in the Fund's Prospectus; (iii) each class will
separately bear any distribution fees that are payable in connection with a
distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Distribution Plan"), and separately bear any other service fees ("service
fees") that are payable under any service agreement entered into with respect to
that class which are not contemplated by or within the scope of the Distribution
Plan; (iv) each class may bear, consistent with rulings and other published
statements of position by the Internal Revenue Service, the expenses of the
Portfolio's operations which are directly attributable to such class ("Class
Expenses"); and (v) shareholders of each class will have exclusive voting rights
regarding any matter submitted to shareholders that relates solely to such class
(such as a Distribution Plan or service agreement relating to such class), and
will have separate voting rights on any matter submitted to shareholders in
which the interests of that class differ from the interests of any other class.
<PAGE>
B. Expense Allocations
With respect to each Portfolio, the expenses of each class
shall be allocated as follows: (i) any Rule 12b-1 fees relating to a particular
class of shares associated with a Distribution Plan or service fees relating to
a particular class of shares are (or will be) borne exclusively by that class;
(ii) any incremental transfer agency fees relating to a particular class are (or
will be) borne exclusively by that class; and (iii) Class Expenses relating to a
particular class are (or will be) borne exclusively by that class.
Non-class specific expenses shall be allocated in accordance
with Rule 18f-3(c).
C. Amendment of Plan; Periodic Review
This Plan must be amended to properly describe (through
additional exhibits hereto) each new class of shares upon its approval by the
Board.
The Board of Trustees of the Fund, including a majority of the
Trustees who are not "interested persons" of the Fund as defined in the 1940
Act, must review this Plan at least quarterly for its continued appropriateness,
and must approve any material amendment of the Plan as it relates to any class
of any Portfolio covered by the Plan. In approving any material amendment to the
Plan, the Trustees, including a majority of the Trustees who are not interested
persons of the Fund, must find that the amendment is in the best interests of
each class individually and the Fund as a whole.
<PAGE>
Schedule A
----------
MAS Funds
Portfolio
- ---------
Balanced
Cash Reserves
Domestic Fixed Income
Emerging Markets
Equity
Fixed Income
Fixed Income II
Global Fixed Income
Growth
High Yield
Intermediate Duration
International Equity
International Fixed Income
Limited Duration
Mid Cap Growth
Mid Cap Value
Mortgage-Backed Securities
Multi-Asset-Class
Municipal
PA Municipal
Select Equity
Small Cap Value
Special Purpose Fixed Income
Value
<PAGE>
Exhibit A
MAS FUNDS
CERTIFICATE OF CLASS DESIGNATION
Institutional Class Shares
1. Class-Specific Distribution Arrangements; Other Expenses.
Institutional Class Shares are sold without a sales charge and are not
subject to any Rule 12b-1 fee or service fees.
2. Eligibility of Purchasers
Institutional Class Shares generally require a minimum initial
investment of $5,000,000 and are available only to contractual clients of Miller
Anderson & Sherrerd, LLP. Shareholders who hold shares of a Portfolio on January
31, 1996 will automatically receive Institutional Class Shares of that
Portfolio.
3. Exchange Privileges
Institutional Class Shares of each Portfolio may be exchanged for
Institutional Class Shares of each other Portfolio of the Fund in accordance
with the procedures disclosed in the Fund's Prospectus and subject to any
applicable limitations resulting from the closing of Portfolios to new
investors.
4. Voting Rights
Each Institutional Class shareholder will have one vote for each full
Institutional Class Share held and a fractional vote for each fractional
Institutional Class Share held. Institutional Class shareholders will have
exclusive voting rights regarding any matter submitted to shareholders that
relates solely to the Institutional Class (such as a distribution plan or
service agreement relating to the Institutional Class), and will have separate
voting rights on any other matter submitted to shareholders in which the
interests of the Institutional Class Shareholders differ from the interests of
holders of any other class.
5. Conversion Rights
Institutional Class Shares may be converted into Investment Class
Shares if the value of the client's account with the Miller Anderson & Sherrerd,
LLP falls below $5,000,000 (other than a decrease in value due to market value
changes) and the client fails to increase the value of the account to $5,000,000
within thirty days after notice is sent to the client. Thereafter, the Fund may,
in its discretion, convert such client's Investment Class Shares into
Institutional Class Shares if the client invests additional assets in the
account such that the value of the account equals or exceeds $5,000,000.
<PAGE>
Exhibit B
MAS FUNDS
CERTIFICATE OF CLASS DESIGNATION
Investment Class Shares
1. Class-Specific Distribution Arrangements; Other Expenses.
MAS Class Shares are sold without a sales charge and are not subject to
any Rule 12b-1 fee. MAS Class Shares are subject to a shareholder service fee.
The Fund, on behalf of the applicable Portfolio, will make monthly payments to
the Distributor under the form of the Shareholder Service Agreement approved by
the Board of Trustees at an annual rate of up to .15% of each Portfolio's
average daily net assets attributable to MAS Class Shares. The Distributor may
use the shareholder service fee to compensate financial intermediaries, plan
fiduciaries, and investment professionals, including Miller Anderson & Sherrerd,
LLP ("Service Providers"), for providing one or more personal services to MAS
Class shareholders (including, where applicable, any underlying beneficial
owners) identified in the Shareholder Service Agreement.
2. Eligibility of Purchasers
MAS Class Shares generally require a minimum initial investment of
$1,000,000.
3. Exchange Privileges
MAS Class Shares of each Portfolio may be exchanged for MAS Class
Shares of each other Portfolio of the Fund in accordance with the terms of the
investing defined contribution plan and the procedures disclosed in the Fund's
Prospectus. Exchanges are subject to any applicable limitations resulting from
the closing of Portfolios to new investors.
4. Voting Rights
Each MAS Class shareholder will have one vote for each full MAS Class
Share held and a fractional vote for each fractional MAS Class Share held. MAS
Class shareholders will have exclusive voting rights regarding any matter
submitted to shareholders that relates solely to the MAS Class (such as a
distribution plan or service agreement relating to the MAS Class), and will have
separate voting rights on any other matter submitted to shareholders in which
the interests of the MAS Class shareholders differ from the interests of holders
of any other class.
<PAGE>
5. Conversion Rights
Investment Class Shares may be converted into Adviser Class Shares if
the value of the client's investment in MAS Funds falls below $1,000,000 (other
than a decrease in value due to market value changes) and the client fails to
increase the value of the account to $1,000,000 within thirty days after notice
is sent to the client. Thereafter, the Fund may, in its discretion, convert such
client's Adviser Class Shares into Investment Class Shares if the client invests
additional assets in the MAS Funds such that the value of the account equals or
exceeds $1,000,000.
<PAGE>
Exhibit C
MAS FUNDS
CERTIFICATE OF CLASS DESIGNATION
Adviser Class Shares
1. Class-Specific Distribution Arrangements; Other Expenses.
Adviser Class Shares are sold without a sales charge, but are subject
to a Rule 12b-1 fee. The Fund, on behalf of the applicable Portfolio, will make
monthly payments to the Distributor under the Distribution Plan approved by the
Board of Trustees at an annual rate of up to .25% of each Portfolio's average
daily net assets attributable to Investment Class Shares. The Distributor will
use the Rule 12b-1 fee it receives for (i) compensation for its services in
connection with distribution assistance or provision of shareholder or account
maintenance services, or (ii) payments to financial intermediaries, plan
fiduciaries, and investment professionals, including Miller Anderson & Sherrerd,
LLP ("Service Providers") for providing distribution support services, and/or
account maintenance services to shareholders (including, where applicable, any
underlying beneficial owners) of Investment Class Shares.
2. Eligibility of Purchasers
Adviser Class Shares generally require a minimum initial investment of
$500,000.
3. Exchange Privileges
Investment Class Shares of each Portfolio may be exchanged for
Investment Class Shares of each other Portfolio of the Fund in accordance with
the procedures disclosed in the Fund's Prospectus and subject to any applicable
limitations resulting from the closing of Portfolios to new investors.
<PAGE>
4. Voting Rights
Each Investment Class shareholder will have one vote for each full
Investment Class Share held and a fractional vote for each fractional Investment
Class Share held. Investment Class shareholders will have exclusive voting
rights regarding any matter submitted to shareholders that relates solely to the
Investment Class (such as a distribution plan or service agreement relating to
the Investment Class), and will have separate voting rights on any other matter
submitted to shareholders in which the interests of the Investment Class
shareholders differ from the interests of holders of any other class.
5. Conversion Rights
Investment Class Shares do not have a conversion feature.
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