<PAGE>
MAS LOGO-----------------------------------------------ADVISER CLASS PROSPECTUS
- --------
MAS FUNDS
January 30, 1996
(As Amended January 27, 1997)
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, one of which is described in this Prospectus. The portfolio in
this Prospectus operates as a separate diversified investment company. The
investment objective of the portfolio is described with a summary of
investment policies as referenced below. This Prospectus offers the Adviser
Class Shares of the Fund. The Fund also offers Institutional Class Shares.
- ------------------------------------------------------------------------------
PORTFOLIO PAGE REFERENCE
How to Use This
Prospectus: 3
Portfolio Summary: 11
Prospectus Glossary:
Strategies 12
Investments 14
General Shareholder
Information: 24
Table of Contents:
Back Cover
This Prospectus, which should be retained for future reference, sets forth
concisely information that you should know before you invest. A Statement of
Additional Information containing additional information about the Fund has
been filed with the Securities and Exchange Commission. Such Statement is
dated January 30, 1996 as revised from time to time, and has been incorporated
by reference into this Prospectus. A copy of the Statement may be obtained,
without charge, by writing to the Fund or by calling the Client Services Group
at the telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MILLER
ANDERSON
& SHERRERD, LLP--ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428 o 800-354-8185
<PAGE>
EXPENSE SUMMARY - ADVISER CLASS SHARES-------------------------------------
The following tables illustrate the various expenses and fees that a
shareholder in the portfolio will incur either directly or indirectly. The
annual expenses and fees set forth below are estimated based upon the
portfolio attaining certain average asset levels. The Adviser may from time
to time waive fees or reimburse expenses thereby reducing total operating
expenses.
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses:
(as a percentage of average net assets after fee
waivers)
12b-1 Fees .25%
<TABLE>
<CAPTION>
Investment Total
Advisory Other Operating
Portfolio Fees Expenses Expenses
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Municipal .285%* .265% 0.800%*
</TABLE>
----------------------------------------------------------------------------
* After fee waivers and reimbursements.
* Until further notice, the Adviser has agreed to waive its advisory fees and
reimburse certain expenses to the extent necessary to keep Total Operating
Expenses for the Municipal Portfolio from exceeding 0.80%. Absent fee
waivers and reimbursements by the Adviser, Total Operating Expenses would
be 0.89% for the Municipal Portfolio.
EXAMPLE
The purpose of this table is to assist in understanding the various expenses
that a shareholder in the portfolio will bear directly or indirectly. The
following example illustrates the expenses that an investor would pay on a
$1,000 investment over various time periods assuming (1) a 5% annual rate of
return, and (2) redemption at the end of each time period. The example should
not be considered a representation of past or future expenses and actual
expenses may be greater or less than those shown.
<TABLE>
<CAPTION>
Portfolio 1 year 3 year 5 year 10 year
----------- -------- -------- -------- ---------
<S> <C> <C> <C> <C>
Municipal $8 $26 $44 $99
</TABLE>
MAS Funds - 2
<PAGE>
HOW TO USE THIS PROSPECTUS
A PROSPECTUS SUMMARY begins on page 4;
FINANCIAL HIGHLIGHTS and a description of YIELD AND TOTAL RETURN begin on
page 6;
GENERAL INFORMATION including INVESTMENT LIMITATIONS pertinent to the
portfolio begins on page 8;
A SUMMARY PAGE for the portfolio's Objective, Policies and Strategies is
on page 11;
The PROSPECTUS GLOSSARY which defines specific Allowable Investments,
Policies and Strategies printed in bold type throughout this Prospectus
begins on page 12;
GENERAL SHAREHOLDER INFORMATION including SHAREHOLDER SERVICES begins on
page 24.
MAS Funds - 3
<PAGE>
PROSPECTUS SUMMARY
MUNICIPAL PORTFOLIO: 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 five and ten years.
RISK FACTORS: Prospective investors in the Portfolio should consider the
following factors. See the Prospectus Glossary for more information on terms
printed in bold type:
o The portfolio may invest in Repurchase Agreements, which entail a risk of
loss should the seller default in its obligation to repurchase the
security which is the subject of the transaction;
o The portfolio may participate in a Securities Lending program which
entails a risk of loss should a borrower fail financially;
o Fixed-Income Securities that may be acquired by the portfolio will be
affected by general changes in interest rates resulting in increases or
decreases in the value of the obligations held by the 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 Securities purchased on a When-Issued basis may decline or appreciate in
market value prior to their actual delivery to the portfolio;
o The portfolio may invest a portion of its assets in Derivatives including
Futures & Options. Futures contracts, options and options on futures
contracts entail certain costs and risks, including imperfect correlation
between the value of the securities held by the portfolio and the value of
the particular derivative instrument, and the risk that a portfolio could
not close out a futures or options position when it would be most
advantageous to do so;
o The portfolio may invest in certain instruments such as Forwards, certain
types of Futures & Options, certain types of Mortgage Securities and
When-Issued Securities which require the portfolio to segregate some or
all of its cash or liquid securities to cover its obligations pursuant to
such instruments. As asset segregation reaches certain levels, a portfolio
may lose flexibility in managing its investments properly, responding to
shareholder redemption requests, or meeting other obligations and may be
forced to sell other securities that it wanted to retain or to realize
unintended gains or losses.
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 portfolio would reconsider its investment
objective 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;
MAS Funds - 4
<PAGE>
o Investments in foreign securities involve certain special considerations
which are not typically associated with investing in U.S. companies. See
Foreign Investing. The portfolio may also engage in foreign currency
exchange transactions. See Forwards, Futures & Options, and Swaps.
HOW TO INVEST: Adviser Class Shares of the portfolio are offered to investors
through Shareholder Organizations who have a contractual agreement with the
Fund or 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 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 the portfolio may be redeemed at any time at the net
asset value of the portfolio next determined after receipt of the redemption
request. The redemption price may be more or less than the purchase price.
See Redemption of Shares and Shareholder Services.
THE FUND'S INVESTMENT ADVISER: Miller Anderson & Sherrerd, LLP (the "Adviser"
or "MAS") is a Pennsylvania limited liability partnership founded in 1969,
wholly owned by indirect subsidiaries of the Morgan 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 $40.8 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, serves as Transfer Agent
to the Fund. See Administrative Services.
MAS Funds - 5
<PAGE>
FINANCIAL HIGHLIGHTS - FISCAL YEARS ENDED SEPTEMBER 30
Selected per share data and ratios for a share of the Institutional Class of
the 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 the Portfolio's operations and expenses. Past performance does not
indicate future results.
(Adjusted to reflect a 2.5 for 1 share split as of August 13, 1993.)
FINANCIAL HIGHLIGHTS -- FISCAL YEARS ENDED SEPTEMBER 30
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Gains Dividend Capital Gain
Net Asset or Losses Distributions Distributions
Value- Net on Securities Total from (net (realized net
Beginning Investment (realized and Investment investment capital
of Period Income unrealized) Activities income) gains)
---- --------- ---------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Municipal Portfolio (Commencement of Operations 10/01/92)#
1995 $10.04 $0.59 $ 0.71 $ 1.30 ($ 0.59) --
1994 11.15 0.51 (1.01) (0.50) (0.54) --
1993 10.00 0.37 1.04 1.41 (0.26) --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Other Total Value- End of Expenses Net Income Portfolio
Distri- Distri- End of Total Period to Average to Average Turnover
butions butions Period Return** (thousands) Net Assets## Net Assets Rate
---- -------- ------- --------- -------- ----------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal Portfolio (Commencement of Operations 10/01/92)#
1995 -- ($ 0.59) $10.75 13.37% $36,040 0.50%++ 5.64% 58%
1994 ($ 0.07)+ (0.61) 10.04 (4.64) 38,549 0.50++ 4.98 34
1993 -- (0.26) 11.15 14.20 26,914 0.50*++ 4.65* 66
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
+ Represents distributions in excess of net investment income.
++ 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 Municipal Portfolio from exceeding 0.50%, for the
periods indicated. Voluntarily waived fees and reimbursed expenses totalled
0.20%*, 0.06% and 0.09% in 1993, 1994 and 1995 for the Municipal Portfolio.
# Formerly Municipal Fixed Income Portfolio (through December 23, 1994).
## For the period 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.
MAS Funds - 6
<PAGE>
- ---------------------------------------------------------YIELD AND TOTAL RETURN
From time to time the portfolio advertises its yield and total return. Both
yield and total return figures are based on historical earnings and are not
intended to indicate future performance. The average annual total return
reflects changes in the price of 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, the portfolio may also quote an
aggregate total return for various periods representing the cumulative change
in value of an investment in the portfolio for a specific period. Aggregate
total returns may be shown by means of schedules, charts or graphs and may
include subtotals of the various components of total return (e.g., income
dividends or returns for specific types of securities such as industry or
country types).
The yield of the portfolio is computed by dividing the net investment income
per share (using the average number of shares entitled to receive dividends)
earned during the 30-day period stated in the advertisement by the closing
price per share on the last day of the period. For the purpose of determining
net investment income, the calculation includes as expenses of the portfolio
all recurring fees and any non recurring charges for the period stated. The
yield formula provides for semiannual compounding, which assumes that net
investment income is earned and reinvested at a constant rate and annualized
at the end of a six-month period. Methods used to calculate advertised yields
are standardized for all stock and bond mutual funds. However, these methods
differ from the accounting methods used by the portfolio to maintain its
books and records, therefore the advertised 30-day yield may not reflect the
income paid to your own account or the yield reported in the portfolio's
reports to shareholders. A portfolio may also advertise or quote a yield
which is gross of expenses.
The portfolio 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 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.
The performance of the portfolio may be compared to data prepared by
independent services which monitor the performance of investment companies,
data reported in financial and industry publications, returns of other
investment advisers and mutual funds, and various indices as further
described in the Statement of Additional Information.
The performance of Institutional Class Shares 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.
MAS Funds - 7
<PAGE>
GENERAL INFORMATION-----------------------------------------------------------
The following information relates to the portfolio and should be read in
conjunction with the other information about the portfolio in this
prospectus.
Objective: The portfolio seeks to achieve its investment objective relative
to the universe of securities in which it is authorized to invest and,
accordingly, the total return or current income achieved by the portfolio may
not be as great as that achieved by another portfolio that can invest in a
broader range of securities. The portfolio will seek to produce total return
by actively trading portfolio securities. The objective of the portfolio is
fundamental and may only be changed with approval of holders of a majority of
the shares of the portfolio.
The achievement of the portfolio's objective cannot be assured.
Suitability: The portfolio is designed for long-term investors who can accept
the risks entailed in investing in the bond market, and are not meant to
provide a vehicle for playing short-term swings in the market. Investments in
the portfolio are suitable for taxable investors who would benefit from the
portfolio's tax-exempt income.
Securities Lending: The 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, the portfolio
will not loan its portfolio securities to the extent that greater than
one-third of its total assets, at fair market value, would be committed to
loans at that time.
Illiquid Securities/Restricted Securities: The portfolio may invest up to 15%
of its net assets in securities that are illiquid by virtue of the absence of
a readily available market, or because of legal or contractual restrictions
on resale. This policy does not limit the acquisition of (i) restricted
securities eligible for resale to qualified institutional buyers pursuant to
Rule 144A under the Securities Act of 1933 or (ii) commercial paper issued
pursuant to Section 4(2) under the Securities Act of 1933, that are
determined to be liquid in accordance with guidelines established by the
Fund's Board of Trustees.
Turnover: The Adviser manages the portfolio generally without regard to
restrictions on portfolio turnover, except those imposed by provisions of the
federal tax laws regarding short-term trading. In general, the portfolio will
not trade for short-term profits, but when circumstances warrant, investments
may be sold without regard to the length of time held.
Cash Equivalents/Temporary Defensive Investing: Although the portfolio
intends to remain substantially fully invested, a small percentage of the
portfolio's assets are generally held in the form of Cash Equivalents in
order to meet redemption requests and otherwise manage the daily affairs of
the portfolio. The portfolio may, when the Adviser deems that market
conditions are such that a temporary defensive approach is desirable, invest
in cash equivalents or the Fixed-Income Securities listed for the portfolio
without limit. In addition, the Adviser may, for temporary defensive
purposes, increase or decrease the average weighted maturity or duration of
the portfolio without regard to the 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 the portfolio's specific investment policies
or as detailed in Investment Limitations, it will not concentrate investments
in any one industry.
MAS Funds - 8
<PAGE>
- -----------------------------------------------------------GENERAL INFORMATION
Investment Limitations: The portfolio is subject to certain limitations
designed to reduce its exposure to specific situations. Some of these
limitations are:
(a) with respect to 75% of its assets, the portfolio will not purchase
securities of any issuer if, as a result, more than 5% of the portfolio's
total assets taken at market value would be invested in the securities of any
single issuer except that this restriction does not apply to securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
(b) with respect to 75% of its assets, the Portfolio will not purchase a
security if, as a result, the portfolio would hold more than 10% of the
outstanding voting securities of any issuer.
(c) The portfolio will not acquire any securities of companies within one
industry, if, as a result of such acquisition, more than 25% of the value of
the portfolio's total assets would be invested in securities of companies
within such industry; provided, however, that (1) there shall be no
limitation on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; (2) utility companies will be
divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (3)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry; and (4) asset-backed
securities will be classified according to the underlying assets securing
such securities.
(d) The portfolio will not make loans except (i) by purchasing debt
securities in accordance with its investment objectives and policies, or
entering into Repurchase Agreements, (ii) by lending its portfolio securities
and (iii) by lending portfolio assets to other portfolios of the Fund, so
long as such loans are not inconsistent with the Investment Company Act of
1940, as amended or the Rules and Regulations, or interpretations or orders
of the Securities and Exchange Commission thereunder;
(e) The portfolio will not borrow money, except (i) as a temporary measure
for extraordinary or emergency purposes or (ii) in connection with reverse
repurchase agreements provided that (i) and (ii) in combination do not exceed
33 1/3% of the portfolio's total assets (including the amount borrowed) less
liabilities (exclusive of borrowings);
(f) The portfolio may pledge, mortgage or hypothecate assets in an amount up
to 50% of its total assets, provided that the portfolio may also segregate
assets without limit in order to comply with the requirements of Section
18(f) of the Investment Company Act of 1940, as amended, and applicable
interpretations thereof published from time to time by the Securities and
Exchange Commission and its staff.
(g) The portfolio will not invest its assets in securities of any investment
company, except as permitted by the Investment Company Act of 1940, as
amended, or the rules, regulations, interpretations or orders of the SEC and
its staff thereunder.
MAS Funds - 9
<PAGE>
GENERAL INFORMATION-----------------------------------------------------------
Limitations (a), (b), (c), (d) and (e), and certain other limitations
described in the Statement of Additional Information are fundamental and may
be changed only with the approval of the holders of a majority of the shares
of the portfolio. The other investment limitations described here and in the
Statement of Additional Information are not fundamental policies meaning that
the Board of Trustees may change them without shareholder approval. If a
percentage limitation on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value or total cost of the
portfolio's assets will not be considered a violation of the restriction, and
the sale of securities will not be required.
MAS Funds - 10
<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 fixed income securities.
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 5 and 10 years
<TABLE>
<CAPTION>
Allowable Investments:
<S> <C> <C> <C>
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 Zero Coupons Foreign Bonds Forwards
Foreign Currency Brady Bonds Emerging Markets Issuers Eastern European Issuers
</TABLE>
Comparative Index:
A weighted blend of quarterly returns compiled by the Adviser using:
50% Lehman 5-Year Municipal Bond Index
50% Lehman 10-Year Municipal Bond Index
Strategies:
Municipals Management
Maturity and Duration Management
Value Investing
High Yield Investing
Mortgage Investing
MAS Funds - 11
<PAGE>
PROSPECTUS GLOSSARY-----------------------------------------------------------
CHARACTERISTICS AND RISKS OF STRATEGIES AND INVESTMENTS
STRATEGIES
High Yield Investing: Involves investing in high yield securities based on
the Adviser's analysis of economic and industry trends and individual
security characteristics. The Adviser conducts credit analysis for each
security considered for investment to evaluate its attractiveness relative to
its risk. A high level of diversification is also maintained to limit credit
exposure to individual issuers.
To the extent the portfolio invests in high yield securities it will be
exposed to a substantial degree of credit risk. Lower-rated bonds are
considered speculative by traditional investment standards. High yield
securities may be issued as a consequence of corporate restructuring or
similar events. Also, high yield securities are often issued by smaller, less
credit worthy companies, or by highly leveraged (indebted) firms, which are
generally less able than more established or less leveraged firms to make
scheduled payments of interest and principal. The risks posed by securities
issued under such circumstances are substantial.
The market for high yield securities is still relatively new. Because of
this, a long-term track record for bond default rates does not exist. In
addition, the secondary market for high yield securities is generally less
liquid than that for investment grade corporate securities. In periods of
reduced market liquidity, high yield bond prices may become more volatile,
and both the high yield market and the portfolio may experience sudden and
substantial price declines. This lower liquidity might have an effect on the
portfolio's ability to value or dispose of such securities. Also, there may
be significant disparities in the prices quoted for high yield securities by
various dealers. Under such conditions, the portfolio may find it difficult
to value its securities accurately. The portfolio may also be forced to sell
securities at a significant loss in order to meet shareholder redemptions.
These factors add to the risks associated with investing in high yield
securities.
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.
Maturity and Duration Management: One of two primary components of the
Adviser's fixed-income investment strategy is maturity and duration
management. The maturity and duration structure of the portfolio 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
MAS Funds - 12
<PAGE>
- -----------------------------------------------------------PROSPECTUS GLOSSARY
maturity and duration strategy lies in analysis of the U.S. and global
economies, focusing on levels of real interest rates, monetary and fiscal
policy actions, and cyclical indicators. See Value Investing for a
description of the second primary component of the Adviser's fixed-income
strategy.
About Maturity and Duration: Most debt obligations provide interest
(coupon) payments in addition to a final (par) payment at maturity. Some
obligations also have call provisions. Depending on the relative magnitude of
these payments and the nature of the call provisions, the market values of
debt obligations may respond differently to changes in the level and
structure of interest rates.
Traditionally, a debt security's term-to-maturity has been used as a proxy
for the sensitivity of the security's price to changes in interest rates
(which is the interest rate risk or volatility of the security). However,
term-to-maturity measures only the time until a debt security provides its
final payment, taking no account of the pattern of the security's payments
prior to maturity.
Duration is a measure of the expected life of a fixed-income security that
was developed as a more precise alternative to the concept of
term-to-maturity. Duration incorporates a bond's yield, coupon interest
payments, final maturity and call features into one measure. Duration is one
of the fundamental tools used by the Adviser in the selection of fixed-income
securities. Duration is a measure of the expected life of a fixed-income
security on a present value basis. Duration takes the length of the time
intervals between the present time and the time that the interest and
principal payments are scheduled or, in the case of a callable bond, expected
to be received, and weights them by the present values of the cash to be
received at each future point in time. For any fixed-income security with
interest payments occurring prior to the payment of principal, duration is
always less than maturity. In general, all other factors being the same, the
lower the stated or coupon rate of interest of a fixed-income security, the
longer the duration of the security; conversely, the higher the stated or
coupon rate of interest of a fixed-income security, the shorter the duration
of the security.
There are some situations where even the standard duration calculation
does not properly reflect the interest rate exposure of a security. For
example, floating and variable rate securities often have final maturities of
ten or more years; however, their interest rate exposure corresponds to the
frequency of the coupon reset. Another example where the interest rate
exposure is not properly captured by duration is the case of mortgage
pass-through securities. The stated final maturity of such securities is
generally 30 years, but current prepayment rates are more critical in
determining the securities' interest rate exposure. In these and other
similar situations, the Adviser will use sophisticated analytical techniques
that incorporate the economic life of a security into the determination of
its interest rate exposure.
Mortgage Investing: At times it is anticipated that greater than 50% of
the 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 the portfolio's primary emphasis will be on
mortgage-backed securities issued by the various Government-related
organizations. However, the portfolio may invest, without limit, in
mortgage-backed securities issued by private issuers when the Adviser deems
that the quality of the investment, the quality of the issuer, and market
conditions warrant such investments. Securities issued by private issuers
will be rated investment grade by Moody's or Standard & Poor's or be deemed
by the Adviser to be of comparable investment quality.
MAS Funds - 13
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Municipals Management: MAS manages the portfolio 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, the 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, the 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").
Value Investing: One of two primary components of the Adviser's
fixed-income strategy is value investing, whereby MAS seeks to identify
undervalued sectors and securities through analysis of credit quality, option
characteristics and liquidity. Quantitative models are used in conjunction
with judgment and experience to evaluate and select securities with embedded
put or call options which are attractive on a risk- and option-adjusted
basis. Successful value investing will permit the portfolio to benefit from
the price appreciation of individual securities during periods when interest
rates are unchanged. See Maturity and Duration Management for a description
of the other key component of MAS's fixed-income investment strategy.
INVESTMENTS
The Portfolio may invest in the securities defined below in accordance
with its listing of Allowable Investments and any quality or policy
constraints.
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 vari-
MAS Funds - 14
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ous currencies (although most are dollar-denominated) and they are actively
traded in the over-the-counter secondary market. For further information on
these securities, see the Statement of Additional Information. Portfolios
will only invest in Brady Bonds consistent with quality specifications.
Cash Equivalents: are short-term fixed-income instruments comprising:
(1) Time deposits, certificates of deposit (including marketable variable
rate certificates of deposit) and bankers' acceptances issued by a commercial
bank or savings and loan association. Time deposits are non-negotiable
deposits maintained in a banking institution for a specified period of time
at a stated interest rate. Certificates of deposit are negotiable short-term
obligations issued by commercial banks or savings and loan associations
against funds deposited in the issuing institution. Variable rate
certificates of deposit are certificates of deposit on which the interest
rate is periodically adjusted prior to their stated maturity based upon a
specified market rate. A bankers' acceptance is a time draft drawn on a
commercial bank by a borrower usually in connection with an international
commercial transaction (to finance the import, export, transfer or storage of
goods)
The portfolio may invest in obligations of U.S. banks, foreign branches of
U.S. banks (Eurodollars), and U.S. branches of foreign banks (Yankee
dollars). Euro and Yankee dollar investments will involve some of the same
risks of investing in international securities that are discussed in the
Foreign Investing section of this Prospectus.
The portfolio will not invest in any security issued by a commercial bank
unless (i) the bank has total assets of at least $1 billion, or the
equivalent in other currencies, or, in the case of domestic banks which do
not have total assets of at least $1 billion, the aggregate investment made
in any one such bank is limited to $100,000 and the principal amount of such
investment is insured in full by the Federal Deposit Insurance Corporation,
(ii) in the case of U.S. banks, it is a member of the Federal Deposit
Insurance Corporation, and (iii) in the case of foreign branches of U.S.
banks, the security is deemed by the Adviser to be of an investment quality
comparable with other debt securities which may be purchased by the
portfolio.
(2) The portfolio may invest in commercial paper rated at time of purchase
by one or more Nationally Recognized Statistical Rating Organizations
("NRSRO") in one of their two highest categories, (e.g., A-l or A-2 by
Standard & Poor's or Prime 1 or Prime 2 by Moody's), or, if not rated, issued
by a corporation having an outstanding unsecured debt issue rated high-grade
by a NRSRO (e.g. A or better by Moody's, Standard & Poor's or Fitch).
(3) Short-term corporate obligations rated high-grade at the time of
purchase by a NRSRO (e.g. A or better by Moody's, Standard & Poor's or
Fitch);
(4) U.S. Government obligations including bills, notes, bonds and other
debt securities issued by the U.S. Treasury. These are direct obligations of
the U.S. Government and differ mainly in interest rates, maturities and dates
of issue;
(5) Securities issued or guaranteed by U.S. Government sponsored
instrumentalities and Federal agencies. These include securities issued by
the Federal Home Loan Banks, Federal Land Bank, Farmers Home Administration,
Farm Credit Banks, Federal Intermediate Credit Bank, Federal National
Mortgage Association, Federal Financing Bank, the Tennessee Valley Authority,
and others; and
(6) Repurchase agreements collateralized by securities listed above.
CMOs--Collateralized Mortgage Obligations: are Derivatives which are
collateralized by mortgage pass-through securities. Cash flows from the
mortgage pass-through securities are allocated to various tranches (a
"tranche" is essentially a separate security) in a predetermined, specified
order. Each tranche has a stated maturity -- the latest
MAS Funds - 15
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PROSPECTUS GLOSSARY-----------------------------------------------------------
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.
Like bonds in general, mortgage-backed securities will generally decline
in price when interests rates rise. Due to prepayment risk rising interest
rates also tend to discourage refinancings of home mortgages with the result
that the average life of mortgage securities held by a portfolio may be
lengthened. This extension of average life causes the market price of the
securities to decrease further than if their average lives were fixed. In
part to compensate for these risks, mortgages will generally offer higher
yields than comparable bonds. However, when interest rates fall, mortgages
may not enjoy as large a gain in market value due to prepayment risk because
additional mortgage prepayments must be reinvested at lower interest rates.
Convertibles: are convertible bonds or shares of convertible Preferred
Stock which may be exchanged for a fixed number of shares of Common Stock at
the purchaser's option.
Corporates--corporate bonds: are debt instruments issued by private
corporations. Bondholders, as creditors, have a prior legal claim over common
and preferred stockholders of the corporation as to both income and assets
for the principal and interest due to the bondholder. The portfolio will buy
Corporates subject to its quality constraints. If a security held by the
portfolio is down-graded, the portfolio may retain the security if the
Adviser deems retention of the security to be in the best interests of the
portfolio.
Derivatives: A financial instrument whose value and performance are based
on the value and performance of another security or financial instrument. The
Adviser will use derivatives only in circumstances where they offer the most
economic means of improving the risk/reward profile of the portfolio. The
Adviser will not use derivatives to increase portfolio risk above the level
that could be achieved in the portfolio using only traditional investment
securities. In addition, the Adviser will not use derivatives to acquire
exposure to changes in the value of assets or indexes of assets that are not
listed in the applicable Allowable Investments for the portfolio. Any
applicable limitations are described under each investment definition. The
portfolio may enter into over-the-counter Derivatives transactions with
counterparties approved by MAS in accordance with guidelines established by
the Board of Trustees. These guidelines provide for a minimum credit rating
for each counterparty and various credit enhancement techniques (for example,
collateralization of amounts due from counterparties) to limit exposure to
counterparties with ratings below AA. Derivatives include, but are not
limited to, CMOs, Forwards, Futures and Options, SMBS, Structured
Investments, Structured Notes and Swaps. See the portfolio's listing of
Allowable Investments to determine which of these the portfolio may hold.
Eastern European Issuers: The economies of Eastern European countries are
currently suffering both from the stagnation resulting from centralized
economic planning and control and the higher prices and unemployment
associated with the transition to market economics. Unstable economic and
political conditions may adversely affect
MAS Funds - 16
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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.
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: The portfolio may invest in foreign securities and will
thus transact security purchases and sales in foreign currencies. The
portfolio may hold foreign currency or purchase or sell currencies on a
forward basis (see Forwards).
Foreign 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 do not
eliminate fluctuations caused by changes in the local currency prices of the
securities, but rather, they establish an exchange rate at a future date.
Also, although such contracts can minimize the risk of loss due to a decline
in the value of the hedged currency, at the same time they limit any
potential gain that might be realized.
MAS Funds - 17
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PROSPECTUS GLOSSARY-----------------------------------------------------------
The portfolio may use currency exchange contracts in the normal course of
business to lock in an exchange rate in connection with purchases and sales
of securities denominated in foreign currencies (transaction hedge) or to
lock in the U.S. dollar value of portfolio positions (position hedge). In
addition the portfolio may cross-hedge currencies by entering into a
transaction to purchase or sell one or more currencies that are expected to
decline in value relative to other currencies to which the portfolio has or
expects to have portfolio exposure. The portfolio may also engage in proxy
hedging which is defined as entering into positions in one currency to hedge
investments denominated in another currency, where the two currencies are
economically linked. A portfolio's entry into forward contracts, as well as
any use of cross or proxy hedging techniques will generally require the
portfolio to hold liquid securities or cash equal to the portfolio's
obligations in a segregated account throughout the duration of the contract.
The portfolio may also combine forward contracts with investments in
securities denominated in other currencies in order to achieve desired credit
and currency exposures. Such combinations are generally referred to as
synthetic securities. For example, in lieu of purchasing a foreign bond, the
portfolio may purchase a U.S. dollar-denominated security and at the same
time enter into a forward contract to exchange U.S. dollars for the
contract's underlying currency at a future date. By matching the amount of
U.S. dollars to be exchanged with the anticipated value of the U.S.
dollar-denominated security, the portfolio may be able to lock in the foreign
currency value of the security and adopt a synthetic investment position
reflecting the credit quality of the U.S. dollar-denominated security.
There is a risk in adopting a transaction hedge or position hedge to the
extent that the value of a security denominated in the U.S. dollar or other
foreign currency is not exactly matched with the portfolio's obligation under
the forward contract. On the date of maturity, the portfolio may be exposed
to some risk of loss from fluctuations in that currency. Although the Adviser
will attempt to hold such mismatching to a minimum, there can be no assurance
that the Adviser will be able to do so. For proxy hedges, cross-hedges, or a
synthetic position, there is an additional risk in that these transactions
create residual foreign currency exposure. When the portfolio enters into a
forward contract for purposes of creating a position hedge, transaction
hedge, cross hedge, or a synthetic security, it will generally be required to
hold liquid securities or cash in a segregated account with a daily value at
least equal to its obligation under the forward contract.
Futures & Options--Futures Contracts, Options on Futures Contracts and
Options: are Derivatives. Futures contracts provide for the sale by one
party and purchase by another party of a specified amount of a specific
security, at a specified future time and price. An option is a legal contract
that gives the holder the right to buy or sell a specified amount of the
underlying security or futures contract at a fixed or determinable price upon
the exercise of the option. A call option conveys the right to buy and a put
option conveys the right to sell a specified quantity of the underlying
security.
The portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts in
combination with its outstanding obligations with respect to options
transactions would exceed 50% of its total assets. It will maintain assets
sufficient to meet its obligations under such contracts in a segregated
account with the custodian bank or will otherwise comply with the SEC's
position on asset coverage.
Possible Risks: The primary risks associated with the use of futures and
options are (i) imperfect correlation between the change in market value of
the securities held by the portfolio and the prices of futures and options
relating to the stocks, bonds or futures contracts purchased or sold by 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 the portfolio's ability to execute futures and
options strategies. Additional risks associated with
MAS Funds - 18
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- -----------------------------------------------------------PROSPECTUS GLOSSARY
options transactions are (i) the risk that an option will expire worthless;
(ii) the risk that the issuer of an over-the-counter option will be unable
to fulfill its obligation to the portfolio due to bankruptcy or related
circumstances; (iii) the risk that options may exhibit greater short-term
price volatility than the underlying security; and (iv) the risk that the
portfolio may be forced to forego participation in the appreciation of the
value of underlying securities, futures contracts or currency due to the
writing of a call option.
High Yield: High yield securities are generally considered to be corporate
bonds, preferred stocks, and convertible securities rated Ba through C by
Moody's or BB through D by Standard & Poor's, and unrated securities
considered to be of equivalent quality. Securities rated less than Baa by
Moody's or BBB by Standard & Poor's are classified as non-investment grade
securities and are commonly referred to as junk bonds or high yield, high
risk securities. Such securities carry a high degree of risk and are
considered speculative by the major credit rating agencies. The following are
excerpts from the Moody's and Standard & Poor's definitions for
speculative-grade debt obligations:
Moody's: Ba-rated bonds have "speculative elements" so their future "cannot
be considered assured," and protection of principal and interest is
"moderate" and "not well safeguarded during both good and bad times in the
future." B-rated bonds "lack characteristics of a desirable investment" and
the assurance of interest or principal payments "may be small." Caa-rated
bonds are "of poor standing" and "may be in default" or may have "elements of
danger with respect to principal or interest." Ca-rated bonds represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. C-rated bonds are the "lowest
rated" class of bonds, and issues so rated can be regarded as having
"extremely poor prospects" of ever attaining any real investment standing.
Standard & Poor's: BB-rated bonds have "less near-term vulnerability to
default" than B- or CCC-rated securities but face "major ongoing
uncertainties . . . which may lead to inadequate capacity" to pay interest or
principal. B-rated bonds have a "greater vulnerability to default than
BB-rated bonds and the ability to pay interest or principal will likely be
impaired by adverse business conditions." CCC-rated bonds have a currently
identifiable "vulnerability to default" and, without favorable business
conditions, will be "unable to repay interest and principal." C - The rating
C is reserved for income bonds on which "no interest is being paid." D - Debt
rated D is in "default", and "payment of interest and/or repayment of
principal is in arrears."
While these securities offer high yields, they also normally carry with
them a greater degree of risk than securities with higher ratings.
Lower-rated bonds are considered speculative by traditional investment
standards. High yield securities may be issued as a consequence of corporate
restructuring or similar events. Also, high yield securities are often issued
by smaller, less credit worthy companies, or by highly leveraged (indebted)
firms, which are generally less able than more established or less leveraged
firms to make scheduled payments of interest and principal. The price
movement of these securities is influenced less by changes in interest rates
and more by the financial and business position of the issuing corporation
when compared to investment grade bonds.
The risks posed by securities issued under such circumstances are
substantial. If a security held by the portfolio is down-graded, the
portfolio may retain the security.
Inverse Floaters--Inverse Floating Rate Obligations: are Fixed-Income
Securities, which have coupon rates that vary inversely at a multiple of a
designated floating rate, such as LIBOR (London Inter-Bank Offered Rate). Any
rise in the reference rate of an inverse floater (as a consequence of an
increase in interest rates) causes a drop in the coupon rate while any drop
in the reference rate of an inverse floater causes an increase in the coupon
rate.
MAS Funds - 19
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PROSPECTUS GLOSSARY-----------------------------------------------------------
Inverse floaters may exhibit substantially greater price volatility than
fixed rate obligations having similar credit quality, redemption provisions
and maturity, and inverse floater CMOs exhibit greater price volatility than
the majority of mortgage pass-through securities or CMOs. In addition, some
inverse floater CMOs exhibit extreme sensitivity to changes in prepayments.
As a result, the yield to maturity of an inverse floater CMO is sensitive not
only to changes in interest rates but also to changes in prepayment rates on
the related underlying mortgage assets.
Investment Companies: The portfolio is permitted to invest in shares of
other open-end or closed-end investment companies. The Investment Company Act
of 1940, as amended, generally prohibits the portfolio from acquiring more
than 3% of the outstanding voting shares of an investment company and limits
such investments to no more than 5% of the portfolio's total assets in any
one investment company and no more than 10% in any combination of investment
companies. The 1940 Act also prohibits the portfolio from acquiring in the
aggregate more than 10% of the outstanding voting shares of any registered
close-end investment company.
To the extent the portfolio invests a portion of its assets in Investment
Companies, those assets will be subject to the expenses of the purchased
investment company as well as to the expenses of the portfolio itself. The
portfolio may not purchase shares of any affiliated investment company except
as permitted by SEC Rule or Order.
Investment Grade Securities: are those rated by one or more nationally
recognized statistical rating organization (NRSRO) in one of the four highest
rating categories at the time of purchase (e.g. AAA, AA, A or BBB by Standard
& Poor's Corporation (Standard & Poor's) or Fitch Investors Service, Inc.,
(Fitch) or Aaa, Aa, A or Baa by Moody's Investors Service, Inc. (Moody's).
Securities rated BBB or Baa represent the lowest of four levels of investment
grade securities and are regarded as borderline between definitely sound
obligations and those in which the speculative element begins to predominate.
Mortgage-backed securities, including mortgage pass-throughs and
collateralized mortgage obligations (CMOs), deemed investment grade by the
Adviser, will either carry a guarantee from an agency of the U.S. Government
or a private issuer of the timely payment of principal and interest (such
guarantees do not extend to the market value of such securities or the net
asset value per share of the portfolio) or, in the case of unrated
securities, be sufficiently seasoned that they are considered by the Adviser
to be investment grade quality. The Adviser may retain securities if their
ratings falls below investment grade if it deems retention of the security to
be in the best interests of the portfolio. The portfolio may hold unrated
securities if the Adviser considers the risks involved in owning that
security to be equivalent to the risks involved in holding an Investment
Grade Security.
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. The Portfolio 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.
MAS Funds - 20
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There are two methods of trading mortgage-backed securities. A specified
pool transaction is a trade in which the pool number of the security to be
delivered on the settlement date is known at the time the trade is made. This
is in contrast with the typical mortgage security transaction, called a TBA
(to be announced) transaction, in which the type of mortgage securities to be
delivered is specified at the time of trade but the actual pool numbers of
the secur- ities 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.
Possible Risks: Due to the possibility that prepayments on home mortgages
will alter cash flow on mortgage securities, it is not possible to determine
in advance the actual final maturity date or average life. Like bonds in
general, mortgage-backed securities will generally decline in price when
interest rates rise. Due to prepayment risk, rising interest rates also tend
to discourage refinancings of home mortgages, with the result that the
average life of mortgage securities held by the portfolio may be lengthened.
This extension of average life causes the market price of the securities to
decrease further than if their average lives were fixed. However, when
interest rates fall, mortgages may not enjoy as large a gain in market value
due to prepayment risk because additional mortgage prepayments must be
reinvested at lower interest rates. Faster prepayment will shorten the
average life and slower prepayments will lengthen it. However, it is possible
to determine what the range of that movement could be and to calculate the
effect that it will have on the price of the security. In selecting these
securities, the Adviser will look for those securities that offer a higher
yield to compensate for any variation in average maturity.
Municipals--Municipal Securities: are debt obligations issued by local,
state and regional governments that provide interest income which is exempt
from federal income taxes. Municipal securities include both municipal bonds
(those securities with maturities of five years or more) and municipal notes
(those with maturities of less than five years). Municipal bonds are issued
for a wide variety of reasons: to construct public facilities, such as
airports, highways, bridges, schools, hospitals, mass transportation,
streets, water and sewer works; to obtain funds for operating expenses; to
refund outstanding municipal obligations; and to loan funds to various public
institutions and facilities. Certain industrial development bonds are also
considered municipal bonds if their interest is exempt from federal income
tax. Industrial development bonds are issued by or on behalf of public
authorities to obtain funds for various privately-operated manufacturing
facilities, housing, sports arenas, convention centers, airports, mass
transportation systems and water, gas or sewage works. Industrial development
bonds are ordinarily dependent on the credit quality of a private user, not
the public issuer.
General obligation municipal bonds are secured by the issuer's pledge of
full faith, credit and taxing power. Revenue or special tax bonds are payable
from the revenues derived from a particular facility or, in some cases, from
a special excise or other tax, but not from general tax revenue.
Municipal notes are issued to meet the short-term funding requirements of
local, regional and state governments. Municipal notes include bond
anticipation notes, revenue anticipation notes and tax and revenue
anticipation notes.
MAS Funds - 21
<PAGE>
PROSPECTUS GLOSSARY-----------------------------------------------------------
These are short-term debt obligations issued by state and local governments
to aid cash flows while waiting for taxes or revenue to be collected, at
which time the debt is retired. Other types of municipal notes in which the
portfolio may invest are construction loan notes, short-term discount notes,
tax-exempt commercial paper, demand notes, and similar instruments. Demand
notes permit an investor (such as the portfolio) to demand from the issuer
payment of principal plus accrued interest upon a specified number of days'
notice. The portfolio may also purchase AMT bonds. AMT bonds are tax-exempt
private activity bonds issued after August 7, 1986, the proceeds of which are
directed, at least in part, to private, for-profit organizations. While the
income from AMT bonds is exempt from regular federal income tax, it is a tax
preference item in the calculation of the alternative minimum tax. The
alternative minimum tax is a special separate tax that applies to a limited
number of taxpayers who have certain adjustments to income or tax preference
items.
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 the portfolio purchases a
security and simultaneously commits to resell that security to the seller (a
bank or securities dealer) at an agreed upon price on an agreed upon date
(usually within seven days of purchase). The resale price reflects the
purchase price plus an agreed upon market rate of interest which is unrelated
to the coupon rate or date of maturity of the purchased security. Such
agreements permit the portfolio to keep all its assets at work while
retaining overnight flexibility in pursuit of investments of a longer term
nature. The Adviser will continually monitor the value of the underlying
collateral to ensure that its value, including accrued interest, always
equals or exceeds the repurchase price.
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 receive all of the interest (the interest-only or 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
MAS Funds - 22
<PAGE>
- -----------------------------------------------------------PROSPECTUS GLOSSARY
mortgage assets, and a rapid rate of principal payments may have a material
adverse effect on the portfolio yield to maturity. If the underlying mortgage
assets experience greater than anticipated prepayments of principal, the
portfolio may fail to fully recoup its initial investment in these
securities, even if the security is in one of the highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these
securities were only recently developed. As a result, established trading
markets have not yet developed and, accordingly, certain of these securities
may be deemed illiquid and subject to the portfolio's limitations on
investment in illiquid securities.
Structured Notes: are Derivatives on which the amount of principal
repayment and or interest payments is based upon the movement of one or more
factors. These factors include, but are not limited to, currency exchange
rates, interest rates (such as the prime lending rate and LIBOR) and stock
indices such as the S&P 500 Index. In some cases, the impact of the movements
of these factors may increase or decrease through the use of multipliers or
deflators. The use of Structured Notes allows the portfolio to tailor its
investments to the specific risks and returns the Adviser wishes to accept
while avoiding or reducing certain other risks.
Swaps--Swap Contracts: are Derivatives in the form of a contract or other
similar instrument which is an agreement to exchange the return generated by
one instrument for the return generated by another instrument. The payment
streams are calculated by reference to a specified index and agreed upon
notional amount. The term specified index includes, but is not limited to,
currencies, fixed interest rates, prices and total return on interest rate
indices, fixed-income indices, stock indices and commodity indices (as well
as amounts derived from arithmetic operations on these indices). For example,
the portfolio may agree to swap the return generated by a fixed-income index
for the return generated by a second fixed-income index. The currency swaps
in which the portfolio may enter will generally involve an agreement to pay
interest streams in one currency based on a specified index in exchange for
receiving interest streams denominated in another currency. Such swaps may
involve initial and final exchanges that correspond to the agreed upon
notional amount.
The portfolio will usually enter into swaps on a net basis, i.e., the two
return streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the portfolio receiving or paying, as
the case may be, only the net amount of the two returns. The portfolio's
obligations under a swap agreement will be accrued daily (offset against any
amounts owing to the portfolio) and any accrued but unpaid net amounts owed
to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash or liquid securities. The portfolio will not enter
into any swap agreement unless the counterparty meets the rating requirements
set forth in guidelines established by the Fund's Board of Trustees.
Possible Risks: Interest rate and total rate of return swaps do not
involve the delivery of securities, other underlying assets, or principal.
Accordingly, the risk of loss with respect to interest rate and total rate of
return swaps is limited to the net amount of interest payments that the
portfolio is contractually obligated to make. If the other party to an
interest rate or total rate of return swap defaults, the portfolio's risk of
loss consists of the net amount of interest payments that the portfolio is
contractually entitled to receive. In contrast, currency swaps may 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 may be subject to the risk that the other party to
the swap will default on its contractual delivery obligations. If there is a
default by the counterparty, the portfolio may have contractual remedies
pursuant to the agreements related to the transaction. The swap market has
grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as
MAS Funds - 23
<PAGE>
GENERAL SHAREHOLDER INFORMATION-----------------------------------------------
agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Swaps that include caps, floors, and
collars are more recent innovations for which standardized documentation has
not yet been fully developed and, accordingly, they are less liquid than
swaps.
The use of swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Adviser is incorrect in its
forecasts of market values, interest rates, and currency exchange rates, the
investment performance of the portfolio would be less favorable than it would
have been if this investment technique were not used.
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.
When-Issued Securities: are securities purchased at a certain price even
though the securities may not be delivered for up to 90 days. No payment or
delivery is made by the portfolio in a when-issued transaction until the
portfolio receives payment or delivery from the other party to the
transaction. Although the portfolio receives no income from the above
described securities prior to delivery, the market value of such securities
is still subject to change. As a consequence, it is possible that the market
price of the securities at the time of delivery may be higher or lower than
the purchase price. The portfolio will maintain with the custodian a separate
account with a segregated portfolio of liquid 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.
PURCHASE OF SHARES
Adviser Class Shares are available to Shareholders with combined investments
of $500,000 and Shareholder Organizations who have a contractual arrangement
with the Fund's distributor, including institutions such as trusts,
foundations or broker-dealers purchasing for the accounts of others.
Adviser Class Shares of the portfolio may be purchased at the net asset value
per share next determined after receipt of the purchase order. The portfolio
determines net asset value as described under Other Information -- Valuation
of Shares each day that the portfolio is open for business. See Other
Information-Closed Holidays and Valuation of Shares.
Initial Purchase by Mail: Subject to acceptance by the Fund, an account may
be opened by completing and signing an Account Registration Form (provided at
the end of the prospectus) and mailing it to MAS Funds, c/o Miller Anderson &
Sherrerd, One Tower Bridge, West Conshohocken, Pennsylvania 19428-0868,
together with a check ($500,000 minimum) payable to MAS Funds.
MAS Funds - 24
<PAGE>
- -----------------------------------------------GENERAL SHAREHOLDER INFORMATION
Subject to acceptance by the Fund, payment for the purchase of shares
received by mail will be credited at the net asset value per share of the
portfolio next determined after receipt. Such payment need not be converted
into Federal Funds (monies credited to the Fund's Custodian Bank by a Federal
Reserve Bank) before acceptance by the Fund. Please note that purchases made
by check are not permitted to be redeemed until payment of the purchase has
been collected, which may take up to eight business days after purchase.
Shareholders can avoid this delay by purchasing shares by wire.
Initial Purchase by Wire: Subject to acceptance by the Fund, Adviser Class
Shares of the portfolio may also be purchased by wiring Federal Funds to the
Fund's Custodian Bank, The Chase Manhattan Bank (see instructions below). A
completed Account Registration Form should be forwarded to MAS Funds' Client
Services Group in advance of the wire. For all purchases, notification must
be given to MAS Funds' Client Services Group at 1-800-354-8185 prior to the
determination of net asset value. Adviser Class Shares will be purchased at
the net asset value per share next determined after receipt of the purchase
order. (Prior notification must also be received from investors with existing
accounts.) Instruct your bank to send a Federal Funds Wire in a specified
amount to the Fund's Custodian Bank using the following wiring instructions:
The Chase Manhattan Bank
1 Chase Manhattan Plaza
New York, NY 10081
ABA #021000021
DDA #910-2-734143
Attn: MAS Funds Subscription Account
Ref: (Municipal Portfolio, Account Number,
Account Name)
Additional Investments: Additional investments of Adviser Class Shares at net
asset value may be made at any time (minimum investment $1,000) by mailing a
check (payable to MAS Funds) to MAS Funds' Client Services Group at the
address noted under Initial Investments by Mail or by wiring Federal Funds to
the Custodian Bank as outlined above. Shares will be purchased at the net
asset value per share next determined after receipt of the purchase order.
Notification must be given to MAS Fund's Client Services Group at
1-800-354-8185 prior to the determination of net asset value.
Other Purchase Information: The Fund reserves the right, in its sole
discretion, to suspend the offering of Adviser Class Shares of the portfolio
or to reject any purchase orders when, in the judgment of management, such
suspension or rejection is in the best interest of the Fund. The Fund also
reserves the right, in its sole discretion, to waive the minimum initial and
subsequent investment amounts.
Purchases of the 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 portfolio are also sold to corporations or other
institutions such as trusts, foundations or broker-dealers purchasing for the
accounts of others (Shareholder Organizations). Investors purchasing and
redeeming shares of the portfolio through a Shareholder Organization may be
charged a transaction-based fee or other fee for the services of such
organization. Each Shareholder Organization is responsible for transmitting
to its customers a schedule of any such fees and information regarding any
additional or different conditions regarding purchases and redemptions.
Customers of Shareholder Organizations should read this Prospectus in light
of the terms governing accounts with their organization.
MAS Funds - 25
<PAGE>
GENERAL SHAREHOLDER INFORMATION-----------------------------------------------
REDEMPTION OF SHARES
Adviser Class Shares of the portfolio may be redeemed by mail, or, if
authorized, by telephone. No charge is made for redemptions. The value of
Adviser Class Shares redeemed may be more or less than the purchase price,
depending on the net asset value at the time of redemption which is based on
the market value of the investment securities held by the portfolio. See
other Information-Closed Holidays and Valuation of Shares.
By Mail: The portfolio will redeem Adviser 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 Miller Anderson & Sherrerd, One Tower
Bridge, West Conshohocken, PA 19428-0868.
To be in good order, redemption requests must include the following
documentation:
(a) The share certificates, if issued;
(b) A letter of instruction, if required, or a stock assignment specifying
the number of shares or dollar amount to be redeemed, signed by all
registered owners of the shares in the exact names in which the shares are
registered;
(c) Any required signature guarantees (see Signature Guarantees); and
(d) Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
Signature Guarantees: To protect your account, the Fund and the Administrator
from fraud, signature guarantees are required to enable the Fund to verify
the identity of the person who has authorized a redemption from an account.
Signature guarantees are required for (1) redemptions where the proceeds are
to be sent to someone other than the registered shareholder(s) and the
registered address, and (2) share transfer requests. Please contact MAS
Funds' Client Services Group for further details.
By Telephone: Provided the Telephone Redemption Option has been authorized by
the shareholder on the Account Registration Form, a redemption of shares may
be requested by calling MAS Funds' Client Services Group and requesting that
the redemption proceeds be mailed to the primary registration address or
wired per the authorized instructions. Shares cannot be redeemed by telephone
if share certificates are held for those shares.
By Facsimile: Written requests in good order (see above) for redemptions,
exchanges, and transfers may be forwarded to the Fund via facsimile. All
requests sent to the Fund via facsimile must be followed by a telephone call
to MAS Funds' Client Services Group to ensure that the instructions have been
properly received by the Fund. The original request must be promptly mailed
to MAS Funds, c/o Miller Anderson & Sherrerd, One Tower Bridge, West
Conshohocken, PA 19428-0868.
Neither the Distributor nor the Fund will be responsible for any loss,
liability, cost, or expense for acting upon facsimile instructions or upon
telephone instructions that they reasonably believe to be genuine. In order
to confirm that telephone instructions in connection with redemptions are
genuine, the Fund and Distributor will provide written confirmation of
transactions initiated by telephone.
Payment of the redemption proceeds will ordinarily be made within three
business days after receipt of an order for a redemption. The Fund may
suspend the right of redemption or postpone the date of redemption at times
when the NYSE, the Custodian, or the Fund is closed (see Other
Information-Closed Holidays) or under any emergency circumstances as
determined by the Securities and Exchange Commission.
MAS Funds - 26
<PAGE>
- -----------------------------------------------GENERAL SHAREHOLDER INFORMATION
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 the
portfolio in lieu of cash in conformity with applicable rules of the
Securities and Exchange Commission. Investors may incur brokerage charges on
the sale of portfolio securities received in such payments of redemptions.
SHAREHOLDER SERVICES
Exchange Privilege: The portfolio's Adviser Class Shares may be exchanged for
shares of the Fund's other portfolios offering Adviser Class Shares based on
the respective net asset values of the shares involved. The exchange
privilege is only available, however, with respect to portfolios that are
registered for sale in a shareholder's state of residence. There are no
exchange fees. Exchange requests should be sent to MAS Funds, c/o Miller
Anderson & Sherrerd, One Tower Bridge, 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. The sale of shares may result in a capital gain or loss 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, One Tower Bridge,
West Conshohocken, PA 19428-0868. As in the case of redemptions, the written
request must be received in good order as defined above. Unless shares are
being transferred to an existing account, requests for transfer must be
accompanied by a completed Account Registration Form for the receiving party.
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 one hour after the close of the bond markets (normally 4:00
p.m. Eastern Time) on each day the portfolio is open for business (See Other
Information-Closed Holidays). Bonds and other Fixed-Income Securities listed
on a foreign exchange are valued at the latest quoted sales price available
before the time when assets are valued. For purposes of net asset value per
share, all assets and liabilities initially expressed in foreign currencies
will be converted into U.S. dollars at the bid price of such currencies
against U.S. dollars.
Net asset value includes interest on bonds and other Fixed-Income Securities
which is accrued daily. Bonds and other Fixed-Income Securities which are
traded over the counter and on an exchange will be valued according to the
broadest and most representative market, and it is expected that for bonds
and other Fixed-Income Securities this ordinarily will be the
over-the-counter market.
However, bonds and other Fixed-Income Securities may be valued on the basis
of prices provided by a pricing service when such prices are believed to
reflect the fair market value of such securities. The prices provided by a
pricing service are determined without regard to bid or last sale prices but
take into account institutional size trad-
MAS Funds - 27
<PAGE>
GENERAL SHAREHOLDER INFORMATION-----------------------------------------------
ing 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:
o The portfolio normally distributes substantially all of its net investment
income in the form of monthly dividends.
If the portfolio does not have income available to distribute, as determined
in compliance with the appropriate tax laws, no distribution will be made.
If any net capital gains are realized from the sale of underlying securities,
the portfolio normally distributes 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.
The portfolio's undistributed net investment income is included in the
portfolio's net assets for the purpose of calculating net asset value per
share. Therefore, on the ex-dividend date, the net asset value per share
excludes the dividend (i.e., is reduced by the per share amount of the
dividend). Dividends paid shortly after the purchase of shares by an
investor, although in effect a return of capital, are taxable as ordinary
income.
Certain Mortgage Securities may provide for periodic or unscheduled payments
of principal and interest as the mortgages underlying the securities are paid
or prepaid. However, such principal payments (not otherwise characterized as
ordinary discount income or bond premium expense) will not normally be
considered as income to the portfolio and therefore will not be distributed
as dividends. Rather, these payments on mortgage-backed securities will be
reinvested on behalf of the shareholders by the portfolio in accordance with
its investment objectives and policies.
Federal Taxes: The portfolio intends to qualify for taxation as a regulated
investment company under the Code so that the portfolio will not be subject
to Federal income tax to the extent it distributes its income to its
shareholders.
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 the portfolio.
Such dividends and distributions may also be subject to state and local
taxes.
Exchanges and redemptions of shares in the portfolio are taxable events for
Federal income tax purposes. Individual shareholders may also be subject to
state and municipal taxes on such exchanges and redemptions.
MAS Funds - 28
<PAGE>
- -----------------------------------------------GENERAL SHAREHOLDER INFORMATION
The portfolio intends to declare and pay dividends and capital gain
distributions so as to avoid imposition of the Federal excise tax. To do so,
the portfolio expects to distribute an amount at least equal to (i) 98% of
its calendar year ordinary income, (ii) 98% of its capital gains net income
(the excess of short and long-term capital gain over short and long-term
capital loss) for the one-year period ending October 31st, and (iii) 100% of
any undistributed ordinary and capital gain net income from the prior year.
Dividends declared in December by the portfolio will be deemed to have been
paid by the portfolio and received by shareholders on the record date
provided that the dividends are paid before February 1 of the following year.
The Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gains distributions, and redemptions)
paid to shareholders who have not complied with IRS regulations. In order to
avoid this withholding requirement, you must certify on the Account
Registration Form that your Social Security or Taxpayer Identification Number
provided is correct and that you are not currently subject to back-up
withholding, or that you are exempt from back-up withholding.
Foreign Income Taxes: Investment income received by the portfolio from
sources within foreign countries may be subject to foreign income taxes
withheld at the source. The U.S. has entered into Tax Treaties with many
foreign countries which entitle 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 portfolio's
assets to be invested within various countries is not known. The portfolio
intends to operate so as to qualify for treaty reduced rates of tax where
applicable.
State and Local Taxes: The Fund is formed as a Pennsylvania Business Trust
and therefore is not liable, under current law, for any corporate income or
franchise tax of the Commonwealth of Pennsylvania. The Fund will provide
Pennsylvania taxable values on a per share basis.
Special Tax Considerations for the Portfolio: The portfolio intends to invest
a sufficient portion of its assets in municipal bonds and notes so that it
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
portfolio 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. To the extent, if any, that dividends paid to shareholders of
the portfolio 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 portfolio 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 portfolio invests 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 the portfolio 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, wholly owned by indirect subsidiaries of
MAS Funds - 29
<PAGE>
GENERAL SHAREHOLDER INFORMATION-----------------------------------------------
the Morgan Stanley Group, Inc., 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 $40.8 billion in assets under management.
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 objective and policies of the portfolio of the Fund,
manages the investment and reinvestment of the assets of each portfolio of
the Fund. In this regard, it is the responsibility of the Adviser to make
investment decisions for the Fund's portfolios and to place each portfolio's
purchase and sales orders. As compensation for the services rendered by the
Adviser under the Agreement, the portfolio pays the Adviser an advisory fee
calculated by applying a quarterly rate, based on an annual percentage rate
of .375% to the portfolio's average daily net assets for the quarter.
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 Municipal Portfolio from exceeding 0.50%.
For the fiscal year ended September 30, 1995, the Adviser received
compensation from the portfolio for its services at the rate of .281%.
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 .25% of the average
aggregate daily net assets of the Adviser 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.
MAS Funds - 30
<PAGE>
- ----------------------------------------------------------PORTFOLIO MANAGEMENT
MAS PORTFOLIO MANAGEMENT:
A description of the portfolio's managers and their business experience
during the past five years is as follows:
Kenneth B. Dunn, Managing Director, Morgan Stanley, 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.
Steven K. Kreider, Principal, Morgan Stanley, joined MAS in 1988. He assumed
responsibility for the Municipal and the PA Municipal Portfolios in 1992.
Scott F. Richard, Managing Director, Morgan Stanley, 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.
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, 73 Tremont Street, Boston MA 02108-3913, serves as Transfer Agent to
the Fund pursuant to an agreement also dated as of November 18, 1993, and
provides fund accounting and other services pursuant to a sub-administration
agreement with MAS as Administrator.
GENERAL DISTRIBUTION AGENT: Shares of the Fund are distributed exclusively
through MAS Fund Distribution, Inc., a wholly-owned subsidiary of the
Adviser.
PORTFOLIO TRANSACTIONS: The investment advisory agreement authorizes the
Adviser to select the brokers or dealers that will execute the purchases and
sales of investment securities for the portfolio and directs the Adviser to
use its best efforts to obtain the best execution with respect to all
transactions for the portfolio. In doing so, the portfolio may pay higher
commission rates than the lowest available when the Adviser believes it is
reasonable to do so in light of the value of the research, statistical, and
pricing services provided by the broker effecting the transaction.
It is not the Fund's practice to allocate brokerage or principal business on
the basis of sales of shares which may be made through intermediary brokers
or dealers. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Fund's Portfolios or who act as agents in
the purchase of shares of the portfolio for their clients.
Some securities considered for investment by the portfolio may also be
appropriate for other clients served by the Adviser. If purchase or sale of
securities consistent with the investment policies of the portfolio and one
or more of these other clients served by the Adviser is considered at or
about the same time, transactions in such securities will be allocated among
the portfolio and clients in a manner deemed fair and reasonable by the
Adviser. Although there is no specified formula for allocating such
transactions, the various allocation methods used by the Adviser, and the
results of such allocations, are subject to periodic review by the Fund's
Trustees. MAS may use its broker dealer affiliates, including Morgan Stanley
& Co., a wholly owned subsidiary of Morgan Stanley Group Inc., the parent of
MAS's general partner and limited partner, to carry out the Fund's
transactions, provided the Fund receives brokerage services and commission
rates comparable to those of other broker dealers.
MAS Funds - 31
<PAGE>
OTHER INFORMATION-------------------------------------------------------------
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 the portfolio are fully paid and non-assessable, and have no
preference as to conversion, exchange, dividends, retirement or other
features. The shares of the portfolio 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.
Custodians: The Chase Manhattan Bank, New York, NY serves as custodian for
the portfolio. The custodian holds 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, 73 Tremont Street, Boston, MA
02108-3913 serves as Transfer Agent and Dividend Disbursing Agent of the
Fund.
Reports: Shareholders receive semi-annual 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 portfolio is closed for
business are: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
MAS Funds - 32
<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; Managing Director,
Morgan Stanley; Portfolio Manager and member of the Executive Committee,
Miller Anderson & Sherrerd, LLP; Director, MAS Fund Distribution, Inc.;
Director, Morgan Stanley Universal Funds, Inc.
Thomas P. Gerrity, Trustee; Dean and Reliance Professor of Management and
Private Enterprise, Wharton School of Business, University of Pennsylvania;
Director, Digital Equipment Corp.; Director, Sun Company, Inc.; Director,
Federal National Mortgage Association; Director, Reliance Group Holdings;
Director, Melville Corp.
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; Director, Electro Rent Corporation; Trustee, Southern California
Edison Nuclear Decommissioning Trust; Director, The Ford Family Foundation.
Vincent R. McLean, Trustee; Director, Alexander and Alexander Services, Inc.;
Director, Legal and General America, Inc.; Director, William Penn Life
Insurance Company of New York; formerly Executive Vice President, Chief
Financial Officer, Director and Member of the Executive Committee of Sperry
Corporation (now part of Unisys Corporation).
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 MAS Funds; Principal, Morgan Stanley; Head of
Mutual Funds, Miller Anderson & Sherrerd, LLP; Director, MAS Fund
Distribution, Inc.; Chairman of the Board of Directors, The Minerva Fund,
Inc.; formerly Vice President, The Chase Manhattan Bank.
Lorraine Truten, CFA, Vice President MAS Funds; Principal, Morgan Stanley;
Head of Mutual Fund Services , Miller Anderson & Sherrerd, LLP; President,
MAS Fund Distribution, Inc.
Douglas W. Kugler, CFA, Treasurer, MAS Funds; Vice President, Morgan Stanley;
Head 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.
MAS Funds - 33
<PAGE>
- -------------------------------------------------------------------------------
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- -------------------------------------------------------------------------------
MAS Funds - 34
<PAGE>
MAS LOGO -------------------------------------------- ACCOUNT REGISTRATION FORM
- --------
MAS FUNDS MAS Fund Distribution, Inc.
General Distribution Agent
- -----------------------------------------------------------------------------
/1/
REGISTRATION/PRIMARY MAILING ADDRESS
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Attention
---------------------------------------------------------------------
Street or P.O. Box
------------------------------------------------------------
City State Zip -
-------------------------------- ---------------- -------- --------
Telephone No. - -
-------- ---------- -----------------
Form of Business Entity: / / Corporation / / Partnership
/ / Trust / / Other
--------------------------------------------------
Type of Account: / / Defined Benefit Plan / / Defined Contribution Plan
/ / Profit Sharing/Thrift Plan
/ / Other Employee Benefit Plan
------------------------------------------------------
/ / Endowment / / Foundation / / Taxable / / Other (Specify)
------------------------------------------------------
/ / United States Citizen / / Resident Alien / / Non-Resident Alien, Indicate
Country of Residence
----------------------------
================================================================================
/2/
INTERESTED PARTY OPTION
In addition to the account statement sent to the above registered address,
the Fund is authorized to mail duplicate statements to the name and address
provided at right.
For additional interested party mailings, please attach a separate sheet.
Attention
----------------------------------------------------------------------
Company
(If Applicable)
----------------------------------------------------------------
Street or P.O. Box
-------------------------------------------------------------
City State Zip -
------------------------ ------------------- -------------- ---------
Telephone No. - -
----------- ---------- -----------
===============================================================================
<PAGE>
/3/ INVESTMENT
For Purchase of:
/ / Municipal Portfolio
/4/
TAXPAYER IDENTIFICATION NUMBER
Part 1.
Social Security Number
-- --
------- --------- --------
or
Employer Identification Number
-
----- --------------
Part 2. BACKUP WITHHOLDING
/ / Check the box if the account is subject to
Backup Withholding under the provisions of
Section 3406(a)(1)(C) of the Internal Revenue Code.
- -------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION
You (as a payee) are required by law to provide us (as payer) with your 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 distribution 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.
===============================================================================
MILLER
ANDERSON
& SHERRERD, LLP
ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428 o 800-354-8185
- -------------------------------------------------------------------------------
SIDE ONE OF TWO
<PAGE>
MAS LOGO
- --------
MAS FUNDS
===============================================================================
/5/ TELEPHONE REDEMPTION OPTION
Please sign below if you wish to redeem or exchange shares by telephone.
Redemption proceeds requested by phone may only be mailed to the account's
primary registration address or wired according to bank instructions
provided in writing. A signature guarantee is required if the bank account
listed below is not registered identically to your Fund Account.
The Fund and its agents shall not be liable for reliance on phone
instructions reasonably believed to be genuine. The Fund will maintain
procedures designed to authenticate telephone instructions received.
Telephone requests for redemptions or exchanges will not be honored unless
signature appears below.
(X)
---------------------------------------------------------------------------
Signature Date
===============================================================================
/6/ WIRING INSTRUCTIONS -- The instructions provided below may only be changed
by written notification.
Please check appropriate box(es):
/ / Wire redemption proceeds
/ / Wire distribution proceeds (please complete box /7/ below)
-------------------------------------------------- ----------------------
Name of Commercial Bank (Net Savings Bank) Bank Account No.
--------------------------------------------------------------------------
Name(s) in which your Bank Account is Established
--------------------------------------------------------------------------
Bank's Street Address
-------------------------------------------- ----------------------------
City State Zip Routing/ABA Number
===============================================================================
/7/ DISTRIBUTION OPTION -- Income dividends and capital gains distributions
(if any) will be reinvested in additional shares if no box is checked below.
The instructions provided below may only be changed by written notification.
/ / Income dividends and capital gains to be paid in cash.
/ / Income dividends to be paid in cash and capital gains distribution in
additional shares.
/ / Income dividends and capital gains to be reinvested in additional shares.
If cash option is chosen, please indicate instructions below:
/ / Mail distribution check to the name and address in which account is
registered.
/ / Wire distribution to the same commercial bank indicated in Section 6
above.
===============================================================================
<PAGE>
/8/ WIRING INSTRUCTIONS
For purchasing Shares by wire, please send a Fedwire payment to:
The Chase Manhattan Bank
1 Chase Manhattan Plaza
New York, NY 10081
ABA# 021000021
DDA# 910-2-734143
Attn: MAS Funds Subscription Account
Ref. (Portfolio name, your Account number, your Account name)
===============================================================================
SIGNATURE(S) OF ALL HOLDERS AND TAXPAYER CERTIFICATION
The undersigned certify that I/we have full authority and legal capacity to
purchase shares of the Fund and affirm that I/we have received a current
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. The Internal Revenue Service does not require your
consent to any provision of the document other than the certifications required
to avoid backup withholding.
(X)
- ----------------------------------------------------------------------------
Signature Date
(X)
- ----------------------------------------------------------------------------
Signature Date
(X)
- ----------------------------------------------------------------------------
Signature Date
(X)
- ----------------------------------------------------------------------------
Signature Date
- --------------------------
FOR INTERNAL USE ONLY
(X)
- --------------------------
Signature Date
- --------------------------
O / / F / / OR / / S / /
- --------------------------
===============================================================================
MILLER
ANDERSON
& SHERRERD, LLP
ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428 o 800-354-8185
- -------------------------------------------------------------------------------
SIDE TWO OF TWO
<PAGE>
- ------------------------------------------------------------------------------
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- ------------------------------------------------------------------------------
MAS Funds - 37
<PAGE>
- ------------------------------------------------------------------------------
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- ------------------------------------------------------------------------------
MAS Funds - 38
<PAGE>
- ------------------------------------------------------------------------------
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- ------------------------------------------------------------------------------
MAS Funds - 39
<PAGE>
JANUARY 30, 1996
(AS AMENDED JANUARY 27, 1997)
Investment Adviser and Administrator: Transfer Agent:
Miller Anderson & Sherrerd, LLP Chase Global Funds
One Tower Bridge Services Company
West Conshohocken, 73 Tremont Street
Pennsylvania 19428-2899 Boston, Massachusetts
02108-0913
General Distribution Agent:
MAS Fund Distribution, Inc.
One Tower Bridge
P.O. Box 868
West Conshohocken,
Pennsylvania 19428-0868
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Fund Expenses ......................................................... 2
Prospectus Summary .................................................... 4
Financial Highlights .................................................. 6
Yield and Total Return ................................................ 7
Investment Suitability ................................................ 8
Investment Limitations ................................................ 9
Portfolio Summary ..................................................... 11
Prospectus Glossary:
Strategies ........................................................... 12
Investments ........................................................ 14
General Shareholder Information
Purchase of Shares .................................................. 24
Redemption of Shares ................................................ 26
Shareholder Services ................................................ 27
Valuation of Shares ................................................. 27
Dividends, Capital Gains Distributions .
and Taxes .......................................................... 28
Investment Adviser .................................................... 29
Portfolio Management .................................................. 31
Administrative Services ............................................... 31
General Distribution Agent ............................................ 31
Portfolio Transactions ................................................ 31
Trustees and Officers ................................................. 33
</TABLE>
