<PAGE>
- ------MAS------------------------------------------------------- PROSPECTUS----
---------
MAS FUNDS
January 31, 1997
As Revised June 5, 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, twenty-three of which are described in this Prospectus. Each
portfolio in this Prospectus operates as a separate diversified investment
company except the Global Fixed Income and International Fixed Income Portfolios
which are non-diversified investment companies. The investment objective of each
portfolio is described with a summary of investment policies as referenced
below. The Fund's Small Cap Value Portfolio is not currently being offered to
new investors. This Prospectus offers the Institutional Class Shares of the
Fund. The Fund also offers Adviser Class Shares and Investment Class Shares.
Shares of the Cash Reserves Portfolio are neither insured nor guaranteed by the
U.S. Government. The Portfolio seeks to maintain, but there can be no assurance
that it will be able to maintain, a constant net asset value of $1.00 per share.
The High Yield Portfolio will invest primarily, and certain other portfolios of
the Fund may invest to varying degrees, in high yield, high risk securities
which are speculative with regard to payment of interest and return of principal
(commonly referred to as junk bonds); therefore, investments in these portfolios
may not be suitable for all investors. See High Yield Investing in the Glossary
of Strategies for additional information regarding certain risks associated with
investment in such securities.
- --------------------------------------------------------------------------------
PORTFOLIO PAGE REFERENCE
------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
How to Use This Prospectus: 3 Fixed Income: Balanced: 35
Cash Reserves 22
Portfolio Summaries: Domestic Fixed Income 23 Multi-Asset-Class: 36
Equity: Fixed Income 24
Equity 19 Fixed Income II 25 Balanced Plus: 37
Growth 19 Global Fixed Income 26
International Equity 20 High Yield 27 Prospectus Glossary:
Mid Cap Growth 20 Intermediate Duration 28 Strategies 38
Mid Cap Value 21 International Fixed Income 29 Investments 43
Small Cap Value 21 Limited Duration 30
Value 22 Mortgage-Backed Securities 31 General Shareholder
Municipal 32 Information: 53
PA Municipal 33
Special Purpose Fixed Income 34 Table of Contents: Back Cover
</TABLE>
This Prospectus, which should be retained for future reference, sets forth
concisely information that you should know before you invest. A Statement of
Additional Information containing additional information about the Fund has been
filed with the Securities and Exchange Commission. Such Statement is dated
January 31, 1997 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 - INSTITUTIONAL CLASS SHARES
The following tables illustrate the various expenses and fees that a
shareholder for that portfolio will incur either directly or indirectly. The
expenses and fees set forth below are based on each portfolio's operations
during the fiscal year ended September 30, 1996, except portfolios whose Total
Operating Expenses have been capped. An estimate has been provided for
portfolios with less than 10 months of operations.
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses:
(as a percentage of average net assets after fee waivers)
12b-1 Fees None
Investment Total
Advisory Other Operating
Portfolio Fees Expenses Expenses
- ------------------------------ ------------ ---------- ----------
Equity 0.500% 0.102% 0.602%
Growth 0.500 0.100 0.600
International Equity 0.500 0.190 0.690
Mid Cap Growth 0.500 0.104 0.604
Mid Cap Value 0.564* 0.318 0.882
Small Cap Value 0.750 0.112 0.862
Value 0.500 0.108 0.608
Cash Reserves 0.155* 0.172 0.327
Domestic Fixed Income 0.362* 0.155 0.517
Fixed Income 0.375 0.108 0.483
Fixed Income II 0.375 0.122 0.497
Global Fixed Income 0.375 0.221 0.596
High Yield 0.375 0.116 0.491
Intermediate Duration 0.244* 0.314 0.558
International Fixed Income 0.375 0.159 0.534
Limited Duration 0.300* 0.126 0.426
Mortgage-Backed Securities 0.335* 0.165 0.500
Municipal 0.288* 0.221 0.509
PA Municipal 0.228* 0.278 0.506
Special Purpose Fixed Income 0.375 0.116 0.491
Balanced 0.450 0.124 0.574
Multi-Asset-Class 0.570*+ 0.210 0.780
Balanced Plus 0.550 0.150 0.700
Where applicable as described in Financial Highlights, the Total Operating
Expense ratios reflected in the table above are higher than the ratio of
expenses actually deducted from portfolio assets because of the effect of
expense offset arrangements. The result of such arrangements is to offset
expense that otherwise would be deducted from portolio assets.
* 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 actually deducted from portfolio assets for the Mid
Cap Value, Cash Reserves, Domestic Fixed Income, Intermediate Duration,
Limited Duration, Mortgage-Backed Securities, Municipal, PA Municipal and
Multi-Asset-Class Portfolios from exceeding 0.88%, 0.32%, 0.50%, 0.52%,
0.42%, 0.50%, 0.50%, 0.50% and 0.780%, respectively. Absent fee waivers and
reimbursements by the Adviser, Total Operating Expenses would be 1.068%,
.422%, .530%, .689%, .540%, .596%, .653% and .860%, for the Mid Cap Value,
Cash Reserves, Domestic Fixed Income, Intermediate Duration, Mortgage-Backed
Securities, Municipal, PA Municipal and Multi-Asset-Class Portfolios,
respectively.
+ On November 21, 1996 shareholders of the Multi-Asset-Class Portfolio approved
an increase in the Advisory Fee from 0.45% to 0.65% of average daily net
assets. The Investment Advisory Fees and Total Operating Expenses have been
adjusted to reflect this change.
- --------------------------------------------------------------------------------
MAS Funds - 2 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
EXAMPLE
The purpose of this table is to assist in understanding the various expenses
that a shareholder in a portfolio will bear directly or indirectly. The
following example illustrates the expenses that an investor would pay on a
$1,000 investment over various time periods assuming (1) a 5% annual rate of
return, and (2) redemption at the end of each time period. The example should
not be considered a representation of past or future expenses and actual
expenses may be greater or less than those shown. For portfolios with less than
10 months of operations, only the 1 and 3 year examples are shown.
Portfolio 1 year 3 year 5 year 10 year
- ------------------------------ -------- -------- -------- --------
Equity $6 $19 $34 $75
Growth 6 19 -- --
International Equity 7 22 38 86
Mid Cap Growth 6 19 34 76
Mid Cap Value 9 28 49 109
Small Cap Value 9 28 48 106
Value 6 19 34 76
Cash Reserves 3 11 18 41
Domestic Fixed Income 5 17 29 65
Fixed Income 5 16 27 61
Fixed Income II 5 16 28 62
Global Fixed Income 6 19 33 75
High Yield 5 16 27 62
Intermediate Duration 6 18 31 70
International Fixed Income 5 17 30 67
Limited Duration 4 14 24 54
Mortgage-Backed Securities 5 16 28 63
Municipal 5 16 28 64
PA Municipal 5 16 28 64
Special Purpose Fixed Income 5 16 27 62
Balanced 6 18 32 72
Multi-Asset-Class 8 25 43 97
Balanced Plus 7 22 -- --
- --------------------------------------------------------------------------------
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
8;
GENERAL INFORMATION including INVESTMENT LIMITATIONS pertinent to all
portfolios begins on page 16;
SUMMARY PAGES for each portfolio's Objective, Policies and Strategies begin on
page 19;
The PROSPECTUS GLOSSARY which defines specific Allowable Investments, Policies
and Strategies printed in bold type throughout this Prospectus begins on page
38;
GENERAL SHAREHOLDER INFORMATION begins on page 53.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 3
<PAGE>
PROSPECTUS SUMMARY
EQUITY PORTFOLIOS
Equity - seeks to achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by investing primarily in
a diversified portfolio of Common Stocks of companies which are deemed by the
Adviser to have earnings growth potential greater than the economy in general
and greater than the expected rate of inflation.
Growth - seeks to achieve long-term capital growth by investing primarily in a
diversified portfolio of Common Stocks of larger size companies that are deemed
by the Adviser to offer long-term growth potential.
International Equity - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of Foreign Equities.
Mid Cap Growth - seeks to achieve long-term capital growth by investing
primarily in a diversified portfolio of Common Stocks of smaller and medium
size companies that are deemed by the Adviser to offer long-term growth
potential.
Mid Cap Value - seeks to achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk, by investing in Common
Stocks with equity capitalizations in the range of the companies represented in
the S&P MidCap 400 Index which are deemed by the Adviser to be relatively
undervalued based on certain proprietary measures of value. The portfolio will
typically exhibit a lower price/earnings value ratio than the S&P MidCap 400
Index.
Small Cap Value - (not currently offered to new investors) seeks to achieve
above-average total return over a market cycle of three to five years,
consistent with reasonable risk, by investing primarily in a diversified
portfolio of Common Stocks with equity capitalizations in the range of
companies represented in the Russell 2000 Index which are deemed by the Adviser
to be relatively undervalued based on certain proprietary measures of value.
The portfolio will typically exhibit lower price/earnings and price/book value
ratios than the Russell 2000.
Value - seeks to achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by investing primarily in
a diversified portfolio of Common Stocks which are deemed by the Adviser to be
relatively undervalued based on various measures such as price/earnings ratios
and price/book ratios.
FIXED-INCOME PORTFOLIOS
Cash Reserves - seeks to realize maximum current income, consistent with
preservation of capital and liquidity, by investing in a diversified portfolio
of money-market instruments, Cash Equivalents and other short-term securities
having expected maturities of thirteen months or less. The portfolio seeks to
maintain, but does not guarantee, a constant net asset value of $1.00 per
share.
Domestic Fixed Income - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing in a diversified portfolio of U.S. Governments and other investment
grade fixed-income securities of domestic issuers.
Fixed Income - seeks to achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk, by investing primarily
in a diversified portfolio of U.S. Governments, Corporates, Mortgage
Securities, Foreign Bonds and other Fixed-Income Securities and Derivatives.
The portfolio's average weighted maturity will ordinarily exceed five years.
- --------------------------------------------------------------------------------
MAS Funds - 4 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Fixed Income II - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in a diversified portfolio of U.S. Governments and other investment
grade fixed-income securities.
Global Fixed Income - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in high-grade Fixed-Income Securities, Foreign Bonds and Derivatives
representing securities of United States and foreign issuers. The portfolio's
average weighted maturity will ordinarily exceed five years.
High Yield - seeks to achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by investing primarily in
a diversified portfolio of High Yield Securities, Corporates and other
Fixed-Income Securities (including bonds rated below investment grade) and
Derivatives. The portfolio's average weighted maturity will ordinarily exceed
five years.
Intermediate Duration - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of U.S. Governments and
investment-grade Corporates, Mortgage Securities, Foreign Bonds and other
Fixed-Income Securities and Derivatives. The portfolio will maintain an average
duration of between two and five years.
International Fixed Income - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in high-grade Foreign Bonds and Derivatives. The
portfolio's average weighted maturity will ordinarily exceed five years.
Limited Duration - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in a diversified portfolio of U.S. Governments, Mortgage Securities,
investment-grade Corporates and other Fixed-Income Securities. The portfolio
will maintain an average duration of between one and three years.
Mortgage-Backed Securities - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of Mortgage Securities and other
Fixed-Income Securities and Derivatives. The portfolio's average weighted
maturity will ordinarily exceed seven years.
Municipal - seeks to realize above-average total return over a market cycle of
three to five years, consistent with conservation of capital and the
realization of current income which is exempt from federal income tax, by
investing primarily in a diversified portfolio of Municipals and other
Fixed-Income Securities and Derivatives, including a limited percentage of
bonds rated below investment grade. The portfolio's average weighted maturity
will ordinarily be between five and ten years.
PA Municipal - seeks to realize above-average total return over a market cycle
of three to five years, consistent with the conservation of capital and the
realization of current income which is exempt from federal income tax and
Pennsylvania personal income tax by investing in a diversified portfolio of PA
Municipals and other Fixed-Income Securities and Derivatives including a
limited percentage of bonds rated below investment grade. The portfolio's
average weighted maturity will ordinarily be between five and ten years.
Special Purpose Fixed Income - seeks to achieve above-average total return over
a market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of U.S. Governments, Corporates,
Mortgage Securities, Foreign Bonds and other Fixed-Income Securities and
Derivatives. The portfolio is structured to complement an investment in one or
more of the Fund's Equity Portfolios for investors seeking a balanced
investment. The portfolio's average weighted maturity will ordinarily exceed
five years.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 5
<PAGE>
BALANCED INVESTING
Balanced Portfolio - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing in
a diversified portfolio of Equity Securities, Fixed-Income Securities and
Derivatives. When the Adviser judges the relative outlook for the equity and
fixed-income markets to be neutral, the portfolio will be invested 60% in
equity securities and 40% in fixed-income securities. The asset mix is actively
managed by the Adviser, with equity securities ordinarily representing between
45% and 75% of the total investment. The average weighted maturity of the
fixed-income portion of the portfolio will ordinarily be greater than five
years.
Multi-Asset-Class Portfolio - seeks to achieve above-average total return over
a market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of Equity Securities, Fixed-
Income Securities and High Yield Securities of United States and foreign
issuers and Derivatives. The asset mix is actively managed by the Adviser.
Balanced Plus Portfolio - seeks to achieve above average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing in a diversified portfolio of Common Stocks of domestic and foreign
issuers and Fixed-Income Securities.
RISK FACTORS: Prospective investors in the Fund should consider the following
factors as they apply to each Portfolio's allowable investments and policies.
See the Prospectus Glossary for more information on terms printed in bold type:
o Each portfolio may invest in Repurchase Agreements, which entail a risk of
loss should the seller default in its obligation to repurchase the security
which is the subject of the transaction;
o Each portfolio may participate in a Securities Lending program which entails a
risk of loss should a borrower fail financially;
o Fixed-Income Securities that may be acquired by the Portfolios will be
affected by general changes in interest rates resulting in increases or
decreases in the value of the obligations held by a portfolio. The value of
fixed-income securities can be expected to vary inversely to changes in
prevailing interest rates, i.e., as interest rates decline, market value tends
to increase and vice versa;
o Investments in Common Stocks are subject to market risks which may cause their
prices to fluctuate over time. Changes in the value of portfolio securities
will not necessarily affect cash income derived from these securities, but
will affect a Portfolio's net asset value.
o Securities purchased on a When-Issued basis may decline or appreciate in
market value prior to their actual delivery to the portfolio;
o Each portfolio (except the Cash Reserves Portfolio) may invest a portion of
its assets in Derivatives including Futures & Options. Futures contracts,
options and options on futures contracts entail certain costs and risks,
including imperfect correlation between the value of the securities held by
the portfolio and the value of the particular derivative instrument, and the
risk that a portfolio could not close out a futures or options position when
it would be most advantageous to do so;
o Each portfolio (except the Cash Reserves Portfolio) may invest in certain
instruments such as Forwards, certain types of Futures & Options, certain
types of Mortgage Securities and When-Issued Securities which require the
portfolio to segregate some or all of its cash or liquid securities to cover
its obligations pursuant to such instruments. As asset segregation reaches
certain levels, a portfolio may lose flexibility in managing its investments
properly, responding to shareholder redemption requests, or meeting other
obligations and may be forced to sell other securities that it wanted to
retain or to realize unintended gains or losses;
- --------------------------------------------------------------------------------
MAS Funds - 6 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
o Investments in floating rate securities (Floaters) and inverse floating rate
securities (Inverse Floaters) and mortgage-backed securities (Mortgage
Securities), including principal-only and interest-only Stripped
Mortgage-Backed Securities (SMBS), may be highly sensitive to interest rate
changes, and highly sensitive to the rate of principal payments (including
prepayments on underlying mortgage assets);
o From time to time Congress has considered proposals to restrict or eliminate
the tax-exempt status of Municipals. If such proposals were enacted in the
future, the Municipal Portfolio and the PA Municipal Portfolio would
reconsider their investment objectives and policies;
o Investments in securities rated below investment grade, generally referred to
as High Yield, high risk or junk bonds, carry a high degree of credit risk and
are considered speculative by the major rating agencies;
o Investments in foreign securities involve certain special considerations which
are not typically associated with investing in U.S. companies. See Foreign
Investing. The portfolios investing in foreign securities may also engage in
foreign currency exchange transactions. See Forwards, Futures & Options, and
Swaps; and,
o The Global Fixed Income and International Fixed Income Portfolios are
Non-Diversified for purposes of the Investment Company Act of 1940, as
amended, meaning that they may invest a greater percentage of assets in the
securities of one issuer than the other portfolios.
HOW TO INVEST: Institutional Class Shares of each portfolio are available to
clients of the Adviser with combined investments of $5,000,000 and Shareholder
Organizations who have a contractual arrangement with the Fund or the Fund's
Distributor, including institutions such as trusts, foundations or
broker-dealers purchasing for the accounts of others. Shares are offered
directly to investors without a sales commission at the net asset value of the
portfolio next determined after receipt of the order. Share purchases may be
made by sending investments directly to the Fund, subject to acceptance by the
Fund. The Fund also offers Investment and Adviser Class Shares which differ
from the Institutional Class Shares in expenses charged and purchase
requirements. Further information relating to the other classes may be obtained
by calling 800-354-8185.
HOW TO REDEEM: Shares of each portfolio may be redeemed at any time at the net
asset value of the portfolio next determined after receipt of the redemption
request. The redemption price may be more or less than the purchase price,
except ordinarily in the case of the Cash Reserves Portfolio which seeks to
maintain, but does not guarantee, a constant net asset value per share of
$1.00. See Redemption of Shares and Shareholder Services.
THE FUND'S INVESTMENT ADVISER: Miller Anderson & Sherrerd, LLP (the "Adviser"
or "MAS") is a Pennsylvania limited liability partnership founded in 1969,
wholly owned by indirect subsidiaries of Morgan Stanley, Dean Witter, Discover
& Co. and is located at One Tower Bridge, West Conshohocken, PA 19428. The
Adviser provides investment counseling services to employee benefit plans,
endowments, foundations and other institutional investors, and as of March 31,
1997 had in excess of $43 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.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 7
<PAGE>
Financial Highlights -- Fiscal Years Ended September 30
Selected per share data and ratios for a share
outstanding throughout each period
The following information should be read in conjunction with the Fund's
financial statements which are included in the
Annual Report to Shareholders incorporated
by reference in the Statement of Additional Information. The Fund's financial
statements for the year ended September 30, 1996 have been examined by
Price Waterhouse LLP whose opinion thereon (which was unqualified) is also
incorporated by reference in the
Statement of Additional Information.
As of the fiscal year ended September 30, 1996, the Growth and Balanced Plus
Portfolios had not commenced operations.
(Adjusted to reflect at 2.5 for 1 share split as of August 13, 1993 except for
the Mid Cap Value, Cash Reserves, Global Fixed Income,
Intermediate Duration, International Fixed Income and
Multi-Asset-Class Portfolios)
<TABLE>
<CAPTION>
Net Gains Dividend
Net Asset or Losses Distributions Capital Gain
Value- Net on Securities Total from (net Distributions
Beginning Investment (realized and Investment investment (realized net Other
of Period Income unrealized) Activities income) capital gains) Distributions
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Equity Portfolio (Commencement of Operations 11/14/84)##
1996 $24.43 $0.50 $ 3.26 $ 3.76 ($ 0.50) ($ 2.02) --
1995 21.05 0.52 4.55 5.07 (0.52) (1.17) --
1994 22.82 0.44 0.41 0.85 (0.41) (2.21) --
1993 22.04 0.41 1.95 2.36 (0.43) (1.15) --
1992 20.78 0.43 1.86 2.29 (0.42) (0.61) --
1991 15.86 0.44 5.64 6.08 (0.44) (0.72) --
1990 18.65 0.48 (2.57) (2.09) (0.54) (0.16) --
1989 14.48 0.51 4.15 4.66 (0.46) (0.03) --
1988 17.14 0.40 (1.93) (1.53) (0.32) (0.81) --
1987 14.09 0.43 3.67 4.10 (0.41) (0.64) --
International Equity Portfolio (Commencement of Operations 11/25/88)##
1996 $12.51 $0.31 $ 0.77 $ 1.08 ($ 0.29) ($ 0.06) --
1995 14.52 0.19 (0.75) (0.56) -- (1.35) ($ 0.10)+
1994 13.18 0.12 1.63 1.75 (0.16) (0.25) --
1993 11.03 0.21 2.14 2.35 (0.20) -- --
1992 11.56 0.36 (0.33) 0.03 (0.56) -- --
1991 9.83 0.22 1.83 2.05 (0.23) (0.09) --
1990 11.86 0.26 (1.90) (1.64) (0.31) (0.08) --
1989 10.00 0.26 1.75 2.01 (0.15) -- --
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio Average
Total End of Total Period to Average to Average Turnover Commission
Distributions Period Return** (thousands) Net Assets Net Assets Rate Rate###
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Portfolio (Commencement of Operations 11/14/84)##
1996 ($ 2.52) $25.67 16.48% $1,442,261 0.60% 1.95% 67% $0.0557
1995 (1.69) 24.43 26.15 1,597,632 0.61 2.39 67
1994 (2.62) 21.05 4.11 1,193,017 0.60 2.10 41
1993 (1.58) 22.82 11.05 1,098,003 0.59 1.86 51
1992 (1.03) 22.04 11.55 918,989 0.59 2.03 21
1991 (1.16) 20.78 40.18 675,487 0.60 2.36 33
1990 (0.70) 15.86 (11.67) 473,261 0.59 2.66 44
1989 (0.49) 18.65 32.95 602,261 0.59 3.29 29
1988 (1.13) 14.48 (8.41) 385,864 0.62 2.99 51
1987 (1.05) 17.14 30.89 322,803 0.66 2.88 66
International Equity Portfolio (Commencement of Operations 11/25/88)##
1996 ($ 0.35) $13.24 8.87% $ 635,706 0.69% 1.88% 78% $0.0093
1995 (1.45) 12.51 (3.36) 1,160,986 0.70 1.90 112
1994 (0.41) 14.52 13.33 1,132,867 0.64 0.89 69
1993 (0.20) 13.18 21.64 891,675 0.66 1.23 43
1992 (0.56) 11.03 0.37 512,127 0.70 1.41 42
1991 (0.32) 11.56 21.22 274,295 0.67 2.08 51
1990 (0.39) 9.83 (14.38) 126,035 0.65 2.40 45
1989 (0.15) 11.86 20.36 87,083 0.63* 3.05* 4
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
+ Represents distributions in excess of net realized gains.
## For the years ended September 30, 1995 and September 30, 1996, the Ratio of
Expenses to Average Net Assets for the Equity and International Equity
Portfolios excludes the effect of expense offsets. If expense offsets were
included, the Ratio of Expenses to Average Net Assets would be 0.60% and
0.66%, respectively for the fiscal year ended September 30, 1995 and 0.60%
and 0.65%, respectively for the fiscal year ended September 30, 1996.
### For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose the average commission rate paid for trades on which commissions
were charged.
- --------------------------------------------------------------------------------
MAS Funds - 8 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Financial Highlights -- Fiscal Years Ended September 30
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Gains Dividend
Net Asset or Losses Distributions Capital Gain
Value- Net on Securities Total from (net Distributions
Beginning Investment (realized and Investment investment (realized net Other
of Period Income unrealized) Activities income) capital gains) Distributions
----------- ------------ --------------- ------------ --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mid Cap Growth Portfolio (Commencement of Operations 3/30/90)#, ##
1996 $18.60 $ 0.01 $ 4.70 $ 4.71 ($ 0.03) ($ 2.75) --
1995 16.29 0.03 4.21 4.24 (0.03) (1.90) --
1994 18.56 0.02 (0.58) (0.56) (0.01) (1.70) --
1993 14.51 0.01 4.80 4.81 -- (0.76) --
1992 14.92 0.01 0.44 0.45 (0.03) (0.83) --
1991 9.00 0.04 5.91 5.95 (0.03) -- --
1990 10.00 0.02 (1.01) (0.99) (0.01) -- --
Mid Cap Value Portfolio (Commencement of Operations 12/30/94)##
1996 $13.45 $ 0.11 $ 2.52 $ 2.63 ($ 0.55) ($ 1.04) --
1995 10.00 0.55o 2.90 3.45 -- -- --
Small Cap Value Portfolio (Commencement of Operations 7/01/86)#, ##
1996 $18.28 $ 0.18 $ 3.62 $ 3.80 ($ 0.20) ($ 2.24) --
1995 17.67 0.19 2.49 2.68 (0.14) (1.93) --
1994 17.55 0.16 1.14 1.30 (0.24) (0.94) --
1993 12.84 0.18 4.64 4.82 (0.11) -- --
1992 11.45 0.10 1.48 1.58 (0.19) -- --
1991 7.20 0.23 4.21 4.44 (0.19) -- --
1990 10.42 0.28 (3.05) (2.77) (0.45) -- --
1989 8.54 0.34 1.74 2.08 (0.20) -- --
1988 10.24 0.18 (1.42) (1.24) (0.14) (0.32) --
1987 9.35 0.13 0.84 0.97 (0.08) -- --
Value Portfolio (Commencement of Operations 11/05/84)##
1996 $14.89 $ 0.30 $ 2.20 $ 2.50 ($ 0.32) ($ 1.46) --
1995 12.63 0.31 3.34 3.65 (0.31) (1.08) --
1994 12.76 0.30 0.59 0.89 (0.29) (0.73) --
1993 12.67 0.30 1.92 2.22 (0.31) (1.82) --
1992 12.92 0.35 1.05 1.40 (0.38) (1.27) --
1991 10.29 0.44 3.79 4.23 (0.44) (1.16) --
1990 14.56 0.52 (3.14) (2.62) (0.62) (1.03) --
1989 12.42 0.54 2.73 3.27 (0.47) (0.66) --
1988 15.81 0.48 (1.68) (1.20) (0.46) (1.73) --
1987 14.26 0.55 2.47 3.02 (0.53) (0.94) --
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio Average
Total End of Total Period to Average to Average Turnover Commission
Distributions Period Return** (thousands) Net Assets Net Assets Rate Rate###
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mid Cap Growth Portfolio (Commencement of Operations 3/30/90)#, ##
1996 ($ 2.78) $20.53 28.81% $ 403,281 0.60% 0.04% 141% $0.0491
1995 (1.93) 18.60 30.56 373,547 0.61 0.21 129
1994 (1.71) 16.29 (3.28) 302,995 0.60 0.12 55
1993 (0.76) 18.56 33.92 309,459 0.59 0.07 69
1992 (0.86) 14.51 2.87 192,817 0.60 0.05 39
1991 (0.03) 14.92 66.26 171,163 0.60 0.29 46
1990 (0.01) 9.00 (9.98) 76,398 0.64* 0.34* 23
Mid Cap Value Portfolio (Commencement of Operations 12/30/94)##
1996 ($ 1.59) $14.49 22.30% $ 50,449 0.88%++ 1.61% 377% $0.0462
1995 -- 13.45 34.50 4,507 0.93*++ 10.13*o 639o
Small Cap Value Portfolio (Commencement of Operations 7/01/86)#, ##
1996 ($ 2.44) $19.64 24.00% $ 585,457 0.86% 0.99% 145% $0.0498
1995 (2.07) 18.28 18.39 430,368 0.87 1.20 119
1994 (1.18) 17.67 8.04 308,156 0.88 0.91 162
1993 (0.11) 17.55 37.72 175,029 0.88 1.33 93
1992 (0.19) 12.84 14.12 105,886 0.86 1.06 50
1991 (0.19) 11.45 63.07 52,182 0.88 1.70 53
1990 (0.45) 7.20 (27.63) 100,848 0.85 1.77 59
1989 (0.20) 10.42 24.85 189,223 0.85 3.48 36
1988 (0.46) 8.54 (11.50) 202,500 0.86 2.32 41
1987 (0.08) 10.24 10.53 201,621 0.92 1.67 38
Value Portfolio (Commencement of Operations 11/05/84)##
1996 ($ 1.78) $15.61 18.41% $1,844,740 0.61% 2.07% 53% $0.0572
1995 (1.39) 14.89 32.58 1,271,586 0.60 2.43 56
1994 (1.02) 12.63 7.45 981,337 0.61 2.40 54
1993 (2.13) 12.76 19.67 762,175 0.59 2.48 43
1992 (1.65) 12.67 12.83 448,329 0.60 2.87 55
1991 (1.60) 12.92 45.54 458,117 0.60 3.67 64
1990 (1.65) 10.29 (19.88) 369,044 0.59 3.87 51
1989 (1.13) 14.56 28.49 726,776 0.59 4.05 35
1988 (2.19) 12.42 (5.40) 619,287 0.59 3.96 47
1987 (1.47) 15.81 22.99 700,538 0.62 3.68 28
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
++ For the periods indicated, the Adviser voluntarily agreed to waive its
advisory fees and reimburse certain expenses to the extent necessary in
order to keep the total annual operating expenses for the Mid Cap Value
Portfolio from exceeding 0.88%. Voluntarily waived and reimbursed expenses
totalled 2.13%* and 0.18% for the periods ended September 30, 1995 and
September 30, 1996, respectively.
# Formerly Emerging Growth Portfolio (through May 17, 1995) and Small
Capitalization Value Portfolio (through December 23, 1994)
## For the periods ended September 30, 1995 and 1996, the Ratio of Expenses to
Average Net Assets for the Mid Cap Growth and Mid Cap Value Portfolios
excludes the effect of expense offsets. If expense offsets were included,
the Ratio of Expenses to Average Net Assets would be 0.60% and 0.60%,
respectively, for the Mid Cap Growth Portfolio and 0.88%* and 0.88%,
respectively, for the Mid Cap Value Portfolio. For the periods ended
September 30, 1995 and 1996, the Ratio of Expenses to Average Net Assets for
the Small Cap Value Portfolio excludes the effect of expense offsets. If
expense offsets were included, the Ratio of Expenses to Average Net Assets
would not significantly differ. For the periods ended September 30, 1995 and
1996, the Ratio of Expenses to Average Net Assets for the Value Portfolio
excludes the effect of expense offsets. If expense offsets were included,
the Ratio of Expenses to Average Net Assets would be 0.60% and 0.60%
respectively.
o Net Investment Income, the Ratio of Net Investment Income to Average Net
Assets and the Portfolio Turnover Rate reflect activity relating to a
nonrecurring initiative to invest in higher-paying dividend income producing
securities.
### For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose the average commission rate paid for trades on which commissions
were charged.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 9
<PAGE>
Financial Highlights -- Fiscal Years Ended September 30
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Gains Dividend
Net Asset or Losses Distributions Capital Gain
Value- Net on Securities Total from (net Distributions
Beginning Investment (realized and Investment investment (realized net Other
of Period Income unrealized) Activities income) capital gains) Distributions
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Reserves Portfolio (Commencement of Operations 8/29/90)##
1996 $1.000 $.052 -- .052 ($.052) -- --
1995 1.000 .055 -- .055 (.055) -- --
1994 1.000 .034 -- .034 (.034) -- --
1993 1.000 .028 -- .028 (.028) -- --
1992 1.000 .038 -- .038 (.038) -- --
1991 1.000 .064 -- .064 (.064) -- --
1990 1.000 .007 -- .007 (.007) -- --
Domestic Fixed Income Portfolio (Commencement of Operations 9/30/87)#, ##
1996 $11.03 $0.56 ($ 0.09) 0.47 ($0.57) -- ($0.04)+
1995 9.87 0.52 0.87 1.39 (0.23) -- --
1994 11.99 0.94 (1.23) (0.29) (0.95) ($ 0.73) (0.15)+
1993 11.80 0.84 0.66 1.50 (0.78) (0.53) --
1992 11.34 0.87 0.76 1.63 (1.00) (0.17) --
1991 10.26 0.92 1.10 2.02 (0.94) -- --
1990 10.90 0.87 (0.45) 0.42 (0.96) (0.10) --
1989 10.78 0.86 0.08 0.94 (0.78) (0.04) --
1988 9.99 0.73 0.52 1.25 (0.45) (0.01) --
1987 10.00 -- (0.01) (0.01) -- -- --
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
Total End of Total Period to Average to Average Turnover
Distributions Period Return** (thousands) Net Assets Net Assets Rate
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Reserves Portfolio (Commencement of Operations 8/29/90)##
1996 ($.052) $ 1.000 5.35% $78,497 0.33%++ 5.19% N/A
1995 (.055) 1.000 5.57 44,624 0.33++ 5.45 N/A
1994 (.034) 1.000 3.40 37,933 0.32++ 3.70 N/A
1993 (.028) 1.000 2.81 10,717 0.32++ 2.78 N/A
1992 (.038) 1.000 3.89 12,935 0.32++ 3.95 N/A
1991 (.064) 1.000 6.63 24,163 0.32++ 6.57 N/A
1990 (.007) 1.000 0.74 23,285 0.48* 8.31* N/A
Domestic Fixed Income Portfolio (Commencement of Operations 9/30/87)#, ##
1996 ($0.61) $ 10.89 4.41% $95,362 0.52%++ 5.73% 168%
1995 (0.23) 11.03 14.33 36,147 0.51++ 6.80 313
1994 (1.83) 9.87 (2.87) 36,521 0.50++ 7.65 78
1993 (1.31) 11.99 14.08 90,350 0.50 7.15 96
1992 (1.17) 11.80 15.41 98,130 0.47 7.67 136
1991 (0.94) 11.34 20.99 83,200 0.48 8.18 131
1990 (1.06) 10.26 3.90 77,622 0.48 8.35 181
1989 (0.82) 10.90 9.14 68,855 0.49 8.24 219
1988 (0.46) 10.78 12.63 53,236 0.50 8.62 224
1987 -- 9.99 (0.10) 14,981 N/A N/A N/A
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
+ Represents distributions in excess of realized net gains.
++ For the periods indicated, the Adviser voluntarily agreed to waive its
advisory fees and reimburse certain expenses to the extent necessary, if any,
to keep the total annual operating expenses for the Cash Reserves and
Domestic Fixed Income Portfolios from exceeding 0.32% and 0.50%,
respectively. Voluntarily waived fees and reimbursed expenses totalled 0.08%,
0.24%, 0.14%. 0.11% and 0.09% for the years ended September 30, 1992, 1993,
1994, 1995 and 1996, respectively, for the Cash Reserves Portfolio. For 1994,
1995 and 1996, such fees and expenses were 0.03%, 0.09% and 0.01%,
respectively, for the Domestic Fixed Income Portfolio.
# Formerly Select Fixed Income Portfolio (through December 23, 1994)
## For the years ended September 30, 1995 and 1996, the Ratio of Expenses to
Average Net Assets for the Cash Reserves and Domestic Fixed Income Portfolios
excludes the effect of expense offsets. If expense offsets were included, the
Ratio of Expenses to Average Net Assets would be 0.32% and 0.32%,
respectively, for the Cash Reserves Portfolio and 0.50% and 0.50%,
respectively, for the Domestic Fixed Income Portfolio.
- --------------------------------------------------------------------------------
MAS Funds - 10 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Financial Highlights -- Fiscal Years Ended September 30
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Gains Dividend
Net Asset or Losses Distributions Capital Gain
Value- Net on Securities Total from (net Distributions
Beginning Investment (realized and Investment investment (realized net Other
of Period Income unrealized) Activities income) capital gains) Distributions
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Income Portfolio (Commencement of Operations 11/14/84)##
1996 $11.82 $0.78 $ 0.08 $ 0.86 ($ 0.79) ($ 0.06) --
1995 10.93 0.80 0.69 1.49 (0.60) -- --
1994 12.86 0.77 (1.28) (0.51) (0.82) (0.47) ($ 0.13)+
1993 12.67 0.88 0.75 1.63 (0.83) (0.61) --
1992 12.20 0.90 0.74 1.64 (1.02) (0.15) --
1991 10.94 0.94 1.25 2.19 (0.93) -- --
1990 11.64 0.92 (0.49) 0.43 (1.03) (0.10) --
1989 11.40 0.90 0.11 1.01 (0.76) (0.01) --
1988 10.86 0.97 0.43 1.40 (0.86) -- --
1987 11.95 0.93 (0.61) 0.32 (0.91) (0.50) --
Fixed Income Portfolio II (Commencement of Operations 8/31/90)##
1996 $11.33 $0.70 ($ 0.03) $ 0.67 ($ 0.66) ($ 0.08) ($ 0.03)+
1995 10.42 0.71 0.71 1.42 (0.51) -- --
1994 11.97 0.63 (1.16) (0.53) (0.67) (0.21) (0.14)+
1993 11.67 0.69 0.77 1.46 (0.61) (0.55) --
1992 11.34 0.77 0.61 1.38 (0.81) (0.24) --
1991 10.09 0.81 1.10 1.91 (0.66) -- --
1990 10.00 0.04 0.05 0.09 -- -- --
Global Fixed Income Portfolio (Commencement of Operations 4/30/93)##
1996 $11.05 $0.63 $ 0.09 $ 0.72 ($ 0.71) ($ 0.05) --
1995 10.20 0.71 0.81 1.52 (0.67) -- --
1994 10.67 0.58 (0.61) (0.03) (0.41) (0.03) --
1993 10.00 0.13 0.61 0.74 (0.07) -- --
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
Total End of Total Period to Average to Average Turnover
Distributions Period Return** (thousands) Net Assets Net Assets Rate
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Income Portfolio (Commencement of Operations 11/14/84)##
1996 ($ 0.85) $11.83 7.63% $1,790,146 0.48% 6.77% 162%
1995 (0.60) 11.82 14.19 1,487,409 0.49 7.28 140
1994 (1.42) 10.93 (4.43) 1,194,957 0.49 6.79 100
1993 (1.44) 12.86 14.26 909,738 0.47 7.06 144
1992 (1.17) 12.67 14.35 859,712 0.47 7.50 137
1991 (0.93) 12.20 21.12 831,547 0.47 8.25 143
1990 (1.13) 10.94 3.79 666,736 0.46 8.43 209
1989 (0.77) 11.64 9.25 559,995 0.47 8.36 100
1988 (0.86) 11.40 13.43 405,385 0.49 8.91 168
1987 (1.41) 10.86 2.55 290,824 0.52 8.54 202
Fixed Income Portfolio II (Commencement of Operations 8/31/90)##
1996 ($ 0.77) $11.23 6.12% $ 191,740 0.50% 6.06% 165%
1995 (0.51) 11.33 14.13 176,945 0.51 6.75 153
1994 (1.02) 10.42 (4.76) 129,902 0.51 6.07 137
1993 (1.16) 11.97 13.53 94,836 0.51 6.17 101
1992 (1.05) 11.67 13.02 78,302 0.49 7.05 182
1991 (0.66) 11.34 19.59 42,881 0.49 7.76 190
1990 -- 10.09 0.88 20,729 0.52* 8.00* 7
Global Fixed Income Portfolio (Commencement of Operations 4/30/93)##
1996 ($ 0.76) $11.01 6.83% $ 67,282 0.60% 5.25% 133%
1995 (0.67) 11.05 15.54 55,147 0.58++ 6.34 118
1994 (0.44) 10.20 (0.29) 43,066 0.57++ 5.48 117
1993 (0.07) 10.67 7.43 53,164 0.58*++ 5.08* 30
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
+ epresents distributions in excess of realized net gain.
++ For the periods indicated, the Adviser voluntarily agreed to waive its
advisory fees and reimburse certain expenses to the extent necessary, if any,
to keep the total annual operating expenses for the Global Fixed Income
Portfolio from exceeding 0.58%. Voluntarily waived fees and reimbursed
expenses totalled 0.18%* for the Global Fixed Income Portfolio in 1993.
## For the years ended September 30, 1995 and September 30, 1996, the Ratio of
Expenses to Average Net Assets for the Fixed Income, Fixed Income II and
Global Fixed Income Portfolios excludes the effect of expense offsets. If
expense offsets were included, the Ratio of Expenses to Average Net Assets
would be 0.48% and 0.48%, respectively, for the Fixed Income Portfolio; 0.49%
and 0.49%, respectively, for the Fixed Income Portfolio II, and 0.56% and
0.58%, respectively, for the Global Fixed Income Portfolio.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 11
<PAGE>
Financial Highlights -- Fiscal Years Ended September 30
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Gains Dividend
Net Asset or Losses Distributions Capital Gain
Value- Net on Securities Total from (net Distributions
Beginning Investment (realized and Investment investment (realized net Other
of Period Income unrealized) Activities income) capital gains) Distributions
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
High Yield Portfolio (Commencement of Operations 2/28/89)#, ##
1996 $ 9.08 $0.88 $ 0.28 $ 1.16 ($ 0.92) -- --
1995 8.97 0.90 0.19 1.09 (0.85) ($ 0.08) ($0.05)+
1994 9.49 0.75 (0.42) 0.33 (0.69) (0.16) --
1993 8.58 0.73 0.90 1.63 (0.72) -- --
1992 7.80 0.74 0.89 1.63 (0.85) -- --
1991 7.07 1.42 0.82 2.24 (1.51) -- --
1990 9.98 1.36 (2.82) (1.46) (1.42) (0.03) --
1989 10.00 0.55 (0.44) 0.11 (0.13) -- --
Intermediate Duration Portfolio (Commencement of Operations 10/3/94)#, ##
1996 $10.68 $0.60 $ 0.03 $ 0.63 ($ 0.65) ($ 0.38) --
1995 10.00 0.69 0.42 1.11 (0.43) -- --
International Fixed Income Portfolio (Commencement of Operations 4/29/94)##
1996 $11.01 $0.52 $ 0.12 $ 0.64 ($ 0.80) ($ 0.08) --
1995 10.05 0.67 0.92 1.59 (0.63) -- --
1994 10.00 0.21 (0.11) 0.10 (0.05) -- --
Limited Duration Portfolio (Commencement of Operations 3/31/92)#, ##
1996 $10.41 $0.58 ($ 0.03) $ 0.55 ($ 0.58) -- --
1995 10.19 0.56 0.22 0.78 (0.55) -- ($0.01)+
1994 10.72 0.56 (0.52) 0.04 (0.51) ($ 0.04) (0.02)+
1993 10.58 0.32 0.22 0.54 (0.32) (0.08) --
1992 10.00 0.19 0.49 0.68 (0.10) -- --
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
Total End of Total Period to Average to Average Turnover
Distributions Period Return** (thousands) Net Assets Net Assets Rate
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
High Yield Portfolio (Commencement of Operations 2/28/89)#, ##
1996 ($ 0.92) $ 9.32 13.83% $289,810 0.49% 10.04% 115%
1995 (0.98) 9.08 13.58 220,785 0.50++ 10.68 96
1994 (0.85) 8.97 3.57 182,969 0.50++ 9.01 112
1993 (0.72) 9.49 20.12 50,396 0.53++ 8.94 99
1992 (0.85) 8.58 22.49 20,491 0.53++ 9.74 148
1991 (1.51) 7.80 36.70 6,453 0.76 19.45 106
1990 (1.45) 7.07 (16.26) 4,820 0.82 16.93 65
1989 (0.13) 9.98 0.91 3,479 0.73* 11.66* 17
Intermediate Duration Portfolio (Commencement of Operations 10/3/94)#, ##
1996 ($ 1.03) $10.28 6.27% $ 12,017 0.56%++ 6.17% 251%
1995 (0.43) 10.68 11.39 19,237 0.52*++ 6.56* 168
International Fixed Income Portfolio (Commencement of Operations 4/29/94)##
1996 ($ 0.88) $10.77 6.13% $143,137 0.53% 5.39% 124%
1995 (0.63) 11.01 16.36 127,882 0.54++ 6.35 140
1994 (0.05) 10.05 1.01 66,879 0.60*++ 5.83* 31
Limited Duration Portfolio (Commencement of Operations 3/31/92)#, ##
1996 ($ 0.58) $10.38 5.47% $123,227 0.43%++ 5.65% 174%
1995 (0.56) 10.41 7.95 100,186 0.43++ 5.96 119
1994 (0.57) 10.19 0.40 62,775 0.41++ 4.16 192
1993 (0.40) 10.72 5.33 128,991 0.42++ 3.92 217
1992 (0.10) 10.58 6.90 13,065 0.49* 4.99* 159
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
+ Represents distributions in excess of net realized gains.
++ For the periods indicated, the Adviser voluntarily agreed to waive its
advisory fees and reimburse certain expenses to the extent necessary, if any,
to keep the total annual operating expenses for the High Yield, Intermediate
Duration, International Fixed Income and Limited Duration Portfolios from
exceeding 0.525%, 0.52%, 0.60%, and 0.42%, respectively. Voluntarily waived
fees and reimbursed expenses totalled 0.22% and 0.09% in 1992 and 1993 for
the High Yield Portfolio; 0.08%* and 0.13% for the periods ended September
30, 1995 and 1996 for the Intermediate Duration Portfolio; 0.11%* in 1994 for
the International Fixed Income Portfolio; and 0.03% and 0.02% for the Limited
Duration Portfolio for the years ended September 30, 1993 and 1995,
respectively.
# Formerly High Yield Securities Portfolio, Intermediate Duration Fixed Income
Portfolio and Limited Duration Fixed Income Portfolio, respectively (through
December 23, 1994).
## For the periods ended September 30, 1995 and September 30, 1996, the Ratio of
Expenses to Average Net Assets for the Intermediate Duration and
International Fixed Income Portfolios excludes the effect of expense offsets.
If expense offsets were included, the Ratio of Expenses to Average Net Assets
would be 0.52% for the Intermediate Duration Portfolio and would not
significantly differ for the International Fixed Income Portfolio. For the
years ended September 30, 1995 and September 30, 1996, the Ratio of Expenses
to Average Net Assets for the High Yield and Limited Duration Portfolios
excludes the effect of expense offsets. If expense offsets were included, the
Ratio of Expenses to Average Net Assets would be 0.49% and 0.48%,
respectively, for the High Yield Portfolio and 0.42% and 0.42%, respectively,
for the Limited Duration Portfolio.
- --------------------------------------------------------------------------------
MAS Funds - 12 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Financial Highlights -- Fiscal Years Ended September 30
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Gains Dividend
Net Asset or Losses Distributions Capital Gain
Value- Net on Securities Total from (net Distributions
Beginning Investment (realized and Investment investment (realized net
of Period Income unrealized) Activities income) capital gains)
----------- ------------ --------------- ------------ --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage-Backed Securities Portfolio (Commencement of Operations 1/31/92)##
1996 $10.49 $0.68 ($0.07) $ 0.61 ($ 0.68) --
1995 9.95 0.72 0.47 1.19 (0.65) --
1994 10.95 0.52 (0.83) (0.31) (0.45) ($ 0.21)
1993 10.44 0.63 0.48 1.11 (0.60) --
1992 10.00 0.29 0.28 0.57 (0.13) --
Municipal Portfolio (Commencement of Operations 10/1/92)#, ##
1996 $10.75 $0.51 $ 0.49 $ 1.00 ($ 0.52) --
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) --
PA Municipal Portfolio (Commencement of Operations 10/1/92)#, ##
1996 $10.91 $0.51 $ 0.46 $ 0.97 ($ 0.51) --
1995 10.13 0.58 0.77 1.35 (0.57) --
1994 11.26 0.56 (1.00) (0.44) (0.64) ($ 0.05)
1993 10.00 0.39 1.17 1.56 (0.30) --
Special Purpose Fixed Income Portfolio (Commencement of Operations 3/31/92) ##
1996 $12.53 $0.83 $ 0.08 $ 0.91 ($ 0.88) ($ 0.30)
1995 11.52 0.91 0.75 1.66 (0.65) --
1994 13.40 0.80 (1.28) (0.48) (0.78) (0.53)
1993 12.72 0.88 0.92 1.80 (0.82) (0.30)
1992 11.80 0.39 0.72 1.11 (0.19) --
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
Other Total End of Total Period to Average to Average Turnover
Distributions Distributions Period Return** (thousands) Net Assets Net Assets Rate
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-Backed Securities Portfolio (Commencement of Operations 1/31/92)##
1996 -- ($ 0.68) $10.42 6.10% $ 50,925 0.50%++ 6.46% 116%
1995 -- (0.65) 10.49 12.52 49,766 0.50++ 6.35 107
1994 ($ 0.03)+ (0.69) 9.95 (2.95) 119,518 0.50++ 5.30 220
1993 -- (0.60) 10.95 11.03 50,249 0.50++ 6.92 93
1992 -- (0.13) 10.44 5.75 13,601 0.50*++ 8.11* 133
Municipal Portfolio (Commencement of Operations 10/1/92)#, ##
1996 -- ($ 0.52) $11.23 9.46% $ 54,536 0.51%++ 4.66% 78%
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
PA Municipal Portfolio (Commencement of Operations 10/1/92)#, ##
1996 -- ($ 0.51) $11.37 9.03% $ 28,488 0.51%++ 4.58% 51%
1995 -- (0.57) 10.91 13.74 15,734 0.50++ 5.56 57
1994 -- (0.69) 10.13 (4.08) 23,515 0.50++ 5.39 69
1993 -- (0.30) 11.26 15.81 15,633 0.50*++ 4.74* 94
Special Purpose Fixed Income Portfolio (Commencement of Operations 3/31/92) ##
1996 -- ($ 1.18) $12.26 7.74% $447,646 0.49% 6.75% 151%
1995 -- (0.65) 12.53 14.97 390,258 0.49 7.33 143
1994 ($ 0.09)+ (1.40) 11.52 (4.00) 384,731 0.50 6.66 100
1993 -- (1.12) 13.40 15.19 300,185 0.48 6.84 124
1992 -- (0.19) 12.72 9.47 274,195 0.53* 6.94* 138
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
+ Represents distributions in excess of net realized gains.
++ For the periods indicated, the Adviser voluntarily agreed to waive its
advisory fees and reimburse certain expenses to the extent necessary, if any,
to keep the total annual operating expenses for the Mortgage-Backed
Securities, Municipal and PA Municipal Portfolios from exceeding 0.50%,
0.50%, and 0.50%, respectively. Voluntarily waived fees and reimbursed
expenses totalled 0.30%*, 0.06%, 0.01%, 0.01% and 0.04% for the period ended
September 30, 1992, and the years ended 1993, 1994, 1995 and 1996,
respectively, for the Mortgage-Backed Securities Portfolio; 0.20%*, 0.06%,
0.09% and 0.09% in 1993, 1994, 1995 and 1996 for the Municipal Portfolio; and
0.25%*, 0.09%, 0.19% and 0.15% for 1993, 1994, 1995 and 1996, respectively,
for the PA Municipal Portfolio.
+ Represents distributions in excess of net investment income.
# Formerly Municipal Fixed Income Portfolio and Pennsylvania Municipal Fixed
Income Portfolio, respectively (through December 23, 1994).
## For the periods ended September 30, 1995 and September 30, 1996, the Ratio of
Expenses to Average Net Assets for the Mortgage-Backed Securities, Municipal
and Special Purpose Fixed Income Portfolios excludes the effect of expense
offsets. If expense offsets were included, the Ratio of Expenses to Average
Net Assets would not significantly differ for the Mortgage-Backed Securities
Portfolio; would be 0.50% and 0.50%, respectively, for the Municipal
Portfolio; and would be 0.48% and 0.49%, respectively, for the Special
Purpose Fixed Income Portfolio. For the year ended September 30, 1996, the
Ratio of Expenses to Average Net Assets for the PA Municipal Portfolio
excludes the effect of expense offsets. If expense offsets were included, the
Ratio of Expenses to Average Net Assets would be 0.50%. There were no such
offsets for the PA Municipal Portfolio during 1995.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 13
<PAGE>
Financial Highlights -- Fiscal Years Ended September 30
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Gains Dividend
Net Asset or Losses Distributions Capital Gain
Value- Net on Securities Total from (net Distributions
Beginning Investment (realized and Investment investment (realized net
of Period Income unrealized) Activities income) capital gains)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balanced Portfolio (Commencement of Operations 12/31/92)##
1996 $13.06 $0.53 $1.15 $1.68 ($0.50) ($0.43)
1995 11.28 0.54 1.78 2.32 (0.47) (0.07)
1994 11.84 0.47 (0.45) 0.02 (0.43) (0.15)
1993 11.06 0.25 0.66 0.91 (0.13) --
Multi-Asset-Class Portfolio (Commencement of Operations 7/29/94)#, ##
1996 $11.34 $0.46 $ 1.05 $ 1.51 ($0.42) ($0.15)
1995 9.97 0.44 1.33 1.77 (0.40) --
1994 10.00 0.07 (0.10) (0.03) -- --
</TABLE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
Other Total End of Total Period to Average to Average Turnover
Distributions Distributions Period Return** (thousands) Net Assets Net Assets Rate
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Portfolio (Commencement of Operations 12/31/92)##
1996 -- ($0.93) $13.81 13.47% $300,868 0.57% 3.85% 110%
1995 -- (0.54) 13.06 21.37 334,630 0.58 4.55 95
1994 -- (0.58) 11.28 0.19 309,596 0.58 4.06 75
1993 -- (0.13) 11.84 8.31 291,762 0.58* 3.99* 62
Multi-Asset-Class Portfolio (Commencement of Operations 7/29/94)#, ##
1996 -- ($0.57) $12.28 13.75% $129,558 0.58%++ 3.82% 122%
1995 -- (0.40) 11.34 18.28 96,839 0.58++ 4.56 112
1994 -- -- 9.97 (0.30) 51,877 0.58*++ 4.39* 20
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
++ For the periods indicated, the Adviser voluntarily agreed to waive its
advisory fees and reimburse certain expenses to the extent necessary, if
any, to keep the total annual operating expenses for the Multi-Asset-Class
Portfolio from exceeding 0.58%. Voluntarily waived fees for 1994, 1995 and
1996 were 0.26%*, 0.14% and 0.08%, respectively.
# Formerly known as Global Balanced Portfolio (through December 23, 1994).
## For the years ended September 30, 1995 and 1996, the Ratio of Expenses to
Average Net Assets for the Balanced Portfolio excludes the effect of expense
offsets. If expense offsets were included, the Ratio of Expenses to Average
Net Assets would be 0.57% and 0.57%, respectively. For the years ended
September 30, 1995 and September 30, 1996, the Ratio of Expenses to Average
Net Assets for the Multi-Asset-Class Portfolio excludes the effect of
expense offsets. If expense offsets were included, the Ratio of Expenses to
Average Net Assets would not significantly differ.
### For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose the average commission rate paid for trades on which commissions
were charged.
- --------------------------------------------------------------------------------
MAS Funds - 14 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
YIELD AND TOTAL RETURN:
From time to time each portfolio of the Fund advertises its yield and total
return. Both yield and total return figures are based on historical earnings
and are not intended to indicate future performance. The average annual total
return reflects changes in the price of a portfolio's shares and assumes that
any income dividends and/or capital gain distributions made by the portfolio
during the period were reinvested in additional shares of the portfolio.
Figures will be given for one-, five- and ten-year periods ending with the most
recent calendar quarter-end (if applicable), and may be given for other periods
as well (such as from commencement of the portfolio's operations). When
considering average total return figures for periods longer than one year, it
is important to note that a portfolio's annual total return for any one year in
the period might have been greater or less than the average for the entire
period.
In addition to average annual total return, a portfolio may also quote an
aggregate total return for various periods representing the cumulative change
in value of an investment in a portfolio for a specific period. Aggregate total
returns may be shown by means of schedules, charts or graphs and may include
subtotals of the various components of total return (e.g., income dividends or
returns for specific types of securities such as industry or country types).
The yield of a portfolio (other than the Cash Reserves Portfolio) is computed
by dividing the net investment income per share (using the average number of
shares entitled to receive dividends) earned during the 30-day period stated in
the advertisement by the closing price per share on the last day of the period.
For the purpose of determining net investment income, the calculation includes
as expenses of the portfolio all recurring fees and any non recurring charges
for the period stated. The yield formula provides for semiannual compounding,
which assumes that net investment income is earned and reinvested at a constant
rate and annualized at the end of a six-month period. Methods used to calculate
advertised yields are standardized for all stock and bond mutual funds.
However, these methods differ from the accounting methods used by the portfolio
to maintain its books and records, therefore the advertised 30-day yield may
not reflect the income paid to your own account or the yield reported in the
portfolio's reports to shareholders. A portfolio may also advertise or quote a
yield which is gross of expenses.
The Municipal and PA Municipal Portfolios may also advertise or quote
tax-equivalent yields and after-tax total returns. A tax-equivalent yield shows
the level of taxable yield needed to produce an after-tax equivalent to the
portfolio's tax-free yield. This is done by increasing the portfolio's yield
(computed as above) by the amount necessary to reflect the payment of Federal
income tax (and Pennsylvania income tax, in the case of the PA Municipal
Portfolio) at a tax rate stated in the advertisement or quote. An after-tax
return reflects the average annual or cumulative change in value over the
measuring period after the deduction of taxes at rates stated in the
advertisement or quote.
From time to time the Cash Reserves Portfolio may advertise or quote its yield
and effective yield. The yield of the Cash Reserves Portfolio refers to the
income generated by an investment in the portfolio over a stated seven day
period. This income is then annualized. That is, the amount of income generated
by the investment during that week is assumed to be generated each week over a
52-week period and is shown as a percentage of the investment. The effective
yield is calculated similarly, but the income earned over the seven day period
by an investment in the portfolio is assumed to be reinvested when the return
is annualized. The "effective yield" will be higher than the yield because of
the compounding effect of this assumed reinvestment.
The performance of a portfolio may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported
in financial and industry publications, returns of other investment advisers
and mutual funds, and various indices as further described in the Statement of
Additional Information.
The performance of Institutional Class Shares, Investment Class Shares and
Adviser Class Shares differ because of any class specific expenses paid by each
class and the shareholder servicing fees charged to Investment Class Shares and
distribution fees charged to Adviser Class Shares.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 15
<PAGE>
The Annual Report to Shareholders of the Fund for the Fund's most recent fiscal
year-end contains additional performance information that includes comparisons
with appropriate indices. The Annual Report is available without charge upon
request by writing to the Fund or calling the Client Services Group at the
telephone number shown on the front cover of this Prospectus.
GENERAL INFORMATION:
The following information relates to each portfolio of the Fund and should be
read in conjunction with the specific information about each portfolio.
Objectives: Each portfolio seeks to achieve its investment objective relative
to the universe of securities in which it is authorized to invest and,
accordingly, the total return or current income achieved by a portfolio may not
be as great as that achieved by another portfolio that can invest in a broader
range of securities. Fixed-Income Portfolios will seek to produce total return
by actively trading portfolio securities. The objective of each portfolio is
fundamental and may only be changed with approval of holders of a majority of
the shares of each portfolio. The achievement of any portfolio's objective
cannot be assured.
Suitability: The Fund's portfolios are designed for long-term investors who can
accept the risks entailed in investing in the stock and bond markets, and are
not meant to provide a vehicle for playing short-term swings in the market. The
Fund's portfolios are designed principally for the investments of tax-exempt
fiduciary investors who are entrusted with the responsibility of investing
assets held for the benefit of others. Since such investors are not subject to
Federal income taxes, securities transactions for all portfolios except the
Municipal and PA Municipal Portfolios will not be influenced by the different
tax treatment of long-term capital gains, short-term capital gains, and
dividend income under the Internal Revenue Code. Investments in the Municipal
and PA Municipal Portfolios are suitable for taxable investors who would
benefit from the portfolios' tax-exempt income.
Securities Lending: Each portfolio may lend its securities to qualified
brokers, dealers, banks and other financial institutions for the purpose of
realizing additional income. Loans of securities will be collateralized by
cash, letters of credit, or securities issued or guaranteed by the U.S.
Government or its agencies. The collateral will equal at least 100% of the
current market value of the loaned securities. In addition, a portfolio will
not loan its portfolio securities to the extent that greater than one-third of
its total assets, at fair market value, would be committed to loans at that
time.
Illiquid Securities/Restricted Securities: Each of the portfolios may invest up
to 15% of its net assets (except the Cash Reserves Portfolio, which may invest
up to 10% of its net assets) in securities that are illiquid by virtue of the
absence of a readily available market, or because of legal or contractual
restrictions on resale. This policy does not limit the acquisition of (i)
restricted securities eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933 or (ii) commercial paper
issued pursuant to Section 4(2) under the Securities Act of 1933, that are
determined to be liquid in accordance with guidelines established by the Fund's
Board of Trustees.
Turnover: The Adviser manages the portfolios generally without regard to
restrictions on portfolio turnover, except those imposed by provisions of the
federal tax laws regarding short-term trading. In general, the portfolios will
not trade for short-term profits, but when circumstances warrant, investments
may be sold without regard to the length of time held.
With respect to the Fixed Income Portfolios and the fixed-income portion of the
Balanced, Multi-Asset-Class and Balanced Plus Portfolios, the annual turnover
rate will ordinarily exceed 100% due to changes in portfolio duration, yield
curve strategy or commitments to forward delivery mortgage-backed securities.
The Balanced Plus Portfolio's annual turnover rate is not expected to exceed
100% with respect to Equity Secur-
ities. The annual turnover rate with respect to the fixed income portion of the
portfolio will ordinarily exceed 100% due to changes in portfolio duration,
yield curve strategy or commitments to forward delivery mortgage-backed
securities.
- --------------------------------------------------------------------------------
MAS Funds - 16 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Portfolio turnover rates for certain portfolios are as follows: Mid Cap Growth
- - 141%, Mid Cap Value - 377%, Small Cap Value - 145%, Domestic Fixed Income -
168%, Fixed Income - 162%, Fixed Income II - 165%, Global Fixed Income - 133%,
High Yield - 115%, Intermediate Duration - 251%, International Fixed Income -
124%, Limited Duration - 174%, Mortgage-Backed Securities - 116%, Special
Purpose Fixed Income - 151%, Balanced - 110% and Multi-Asset-Class - 122%.
High rates of portfolio turnover necessarily result in correspondingly heavier
brokerage and portfolio trading costs which are paid by a portfolio. Trading in
Fixed-Income Securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs. In addition to
portfolio trading costs, higher rates of portfolio turnover may result in the
realization of capital gains. To the extent net short-term capital gains are
realized, any distributions resulting from such gains are considered ordinary
income for federal income tax purposes.
Cash Equivalents/Temporary Defensive Investing: Although each portfolio intends
to remain substantially fully invested, a small percentage of a portfolio's
assets are generally held in the form of Cash Equivalents in order to meet
redemption requests and otherwise manage the daily affairs of each portfolio.
In addition, any portfolio may, when the Adviser deems that market conditions
are such that a temporary defensive approach is desirable, invest in cash
equivalents or the Fixed-Income Securities listed for that portfolio without
limit. In addition, the Adviser may, for temporary defensive purposes, increase
or decrease the average weighted maturity or duration of any Fixed-Income
portfolio without regard to that portfolio's usual average weighted maturity.
Concentration: Concentration is defined as investment of 25% or more of a
portfolio's total assets in the securities of issuers operating in any one
industry. Except as provided in a portfolio's specific investment policies, or
as detailed in Investment Limitations, a portfolio will not concentrate
investments in any one industry.
Investment Limitations: Each portfolio is subject to certain limitations
designed to reduce its exposure to specific situations. Some of these
limitations are:
(a) with respect to 75% of its assets, a portfolio will not purchase securities
of any issuer if, as a result, more than 5% of the portfolio's total assets
taken at market value would be invested in the securities of any single issuer
except that this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities. This limitation is
not applicable to the Global Fixed Income and International Fixed Income
Portfolios. However, these portfolios will comply with the diversification
requirements imposed by Sub-Chapter M of the Internal Revenue Code;
(b) with respect to 75% of its assets, a portfolio will not purchase a security
if, as a result, the portfolio would hold more than 10% of the outstanding
voting securities of any issuer. This limitation is not applicable to the
Global Fixed Income and International Fixed Income Portfolios. However, these
portfolios will comply with the diversification requirements imposed by
Sub-Chapter M of the Internal Revenue Code;
(c) a portfolio will not acquire any securities of companies within one
industry, if, as a result of such acquisition, more than 25% of the value of
the portfolio's total assets would be invested in securities of companies
within such industry; provided, however, that (1) there shall be no limitation
on the purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; (2) the Cash Reserves Portfolio may invest
without limitation in certificates of deposit or bankers' acceptances of
domestic banks; (3) utility companies will be divided according to their
services, for example, gas, gas transmission, electric and telephone will each
be considered a separate industry; (4) financial service companies will be
classified according to the end users of their services, for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry; (5) asset-backed securities will be classified
according to the underlying assets securing such securities, and (6) the
Mortgage-Backed Securities Portfolio will concentrate in mortgage-backed
securities.
(d) a portfolio will not make loans except (i) by purchasing debt securities in
accordance with its investment objectives and policies, or entering into
Repurchase Agreements, (ii) by lending its portfolio securities and (iii) by
lending portfolio assets to other portfolios of the Fund, so long as such loans
are not inconsistent with the Invest-
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 17
<PAGE>
ment Company Act of 1940, as amended or the Rules and Regulations, or
interpretations or orders of the Securities and Exchange Commission thereunder;
(e) a portfolio will not borrow money, except (i) as a temporary measure for
extraordinary or emergency purposes or (ii) in connection with reverse
repurchase agreements provided that (i) and (ii) in combination do not exceed
33 1/3% of the portfolio's total assets (including the amount borrowed) less
liabilities (exclusive of borrowings);
(f) Each portfolio may pledge, mortgage or hypothecate assets in an amount up
to 50% of its total assets, provided that each portfolio may also segregate
assets without limit in order to comply with the requirements of Section 18(f)
of the Investment Company Act of 1940, as amended, and applicable
interpretations thereof published from time to time by the Securities and
Exchange Commission and its staff.
(g) a portfolio will not invest its assets in securities of any Investment
Company, except as permitted by the 1940 Act or the rules, regulations,
interpretations or orders of the SEC and its staff thereunder.
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 each
portfolio. The other investment limitations described here and in the Statement
of Additional Information are not fundamental policies meaning that the Board
of Trustees may change them without shareholder approval. If a percentage
limitation on investment or utilization of assets as set forth above is adhered
to at the time an investment is made, a later change in percentage resulting
from changes in the value or total cost of the portfolio's assets will not be
considered a violation of the restriction, and the sale of securities will not
be required.
- --------------------------------------------------------------------------------
MAS Funds - 18 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Equity Portfolio
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing primarily in dividend-paying common stocks of
companies which are deemed by the Adviser to demonstrate
long-term earnings growth that is greater than the economy in
general and greater than the expected rate of inflation.
Approach: The Adviser evaluates both short-term and long-term economic
trends and their impact on corporate profits and the relative
value offered by different sectors and securities within the
equity markets. Individual securities are selected based on
fundamental business and financial factors (such as earnings
growth, financial position, price volatility, and dividend
payment records) and the measurement of those factors relative
to the current market price of the security.
Policies: Generally at least 65% invested in Equity Securities
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally greater than $1 billion
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: ADRs Corporates Futures & Options Swaps
Agencies Foreign Bonds Investment Companies U.S. Governments
Cash Equivalents Foreign Currency Preferred Stock Warrants
Common Stock Foreign Equities Repurchase Agreements When Issued
Convertibles Forwards Rights Zero Coupons
</TABLE>
Comparative Index: S&P 500 Index
Strategies: Core Equity Investing
- --------------------------------------------------------------------------------
Growth Portfolio
Objective: To achieve long-term capital growth by investing primarily in
common stocks of large size companies which the Adviser
believes offer long-term growth potential.
Approach: The Adviser selects common stocks which meet certain criteria
which the Adviser believes are related to the stability and
growth of the fundamental characteristics of the company.
Policies: Generally at least 65% invested in Equity Securities of
companies offering long-term growth
potential
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally greater than $1 billion
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: ADRs Corporates Futures & Options Swaps
Agencies Foreign Bonds Investment Companies U.S. Governments
Cash Equivalents Foreign Currency Preferred Stock Warrants
Common Stock Foreign Equities Repurchase Agreements When Issued
Convertibles Forwards Rights Zero Coupons
</TABLE>
Comparative Index: S&P 500 Index
Strategy: Growth Stock Investing
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 19
<PAGE>
International Equity Portfolio
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in common stocks of companies based outside of the
United States.
Approach: The Adviser evaluates both short-term and long-term
international economic trends and the relative attractiveness
of non-U.S. equity markets and individual securities.
Policies: Generally at least 65% invested in Foreign Equities of issuers
in at least 3 countries other than the U.S.
Derivatives may be used to pursue portfolio strategy
<TABLE>
<S> <C> <C> <C> <C>
Allowable ADRs Eastern European Issuers Investment Companies Structured Notes
Investments: Agencies Emerging Markets Issuers Investment Funds Swaps
Brady Bonds Foreign Bonds Loan Participations U.S. Governments
Cash Equivalents Foreign Currency Preferred Stock Warrants
Common Stock Foreign Equities Repurchase Agreements When Issued
Convertibles Forwards Rights Zero Coupons
Corporates Futures & Options Structured Investments
</TABLE>
Comparative Index: MSCI World Ex-U.S. Index
Strategies: International Equity Investing
Emerging Markets Investing
Foreign Investing
- --------------------------------------------------------------------------------
Mid Cap Growth Portfolio
Objective: To achieve long-term capital growth by investing primarily in
common stocks of smaller and medium size companies which are
deemed by the Adviser to offer long-term growth potential. Due
to its emphasis on long-term capital growth, dividend income
will be lower than for the Equity and Value Portfolios.
Approach: The Adviser uses a four-part process combining quantitative,
fundamental, and valuation analysis with a strict sales
discipline. Stocks that pass an initial screen based on
estimate revisions undergo detailed fundamental research.
Valuation analysis is used to eliminate the most overvalued
securities. Holdings are sold when their estimate-revision
scores fall to unacceptable levels, when fundamental research
uncovers unfavorable trends, or when their valuations exceed
the level that the Adviser believes is reasonable given their
growth prospects.
Policies: Generally at least 65% invested in Equity Securities of mid-cap
companies offering long-term growth potential
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally $300 million to $3 billion
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: ADRs Corporates Futures & Options Swaps
Agencies Foreign Bonds Investment Companies U.S. Governments
Cash Equivalents Foreign Currency Preferred Stock Warrants
Common Stock Foreign Equities Repurchase Agreements When Issued
Convertibles Forwards Rights Zero Coupons
</TABLE>
Comparative Index: S&P MidCap 400 Index
Strategies: Growth Stock Investing
- --------------------------------------------------------------------------------
MAS Funds - 20 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Mid Cap Value Portfolio
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in common stocks with equity capitalizations in the
range of the companies represented in the S&P MidCap 400 Index
which are deemed by the Adviser to be relatively undervalued
based on certain proprietary measures of value. The Portfolio
will typically exhibit a lower price/earnings value ratio than
the S&P MidCap 400 Index.
Approach: The Adviser selects common stocks which are deemed to be
undervalued at the time of purchase, based on proprietary
measures of value. The Portfolio will be structured taking into
account the economic sector weights of the S&P MidCap 400
Index, with sector weights normally being within 5% of the
sector weights of the Index.
Policies: Generally at least 65% invested in Equity Securities of mid-cap
companies deemed to be undervalued
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally matching the S&P MidCap 400 Index (currently
$500 million to $6 billion)
<TABLE>
<S> <C> <C> <C> <C>
Allowable ADRs Corporates Futures & Options Swaps
Investments: Agencies Foreign Bonds Investment Companies U.S. Governments
Cash Equivalents Foreign Equities Preferred Stock Warrants
Common Stock Foreign Currency Repurchase Agreements When Issued
Convertibles Forwards Rights Zero Coupons
</TABLE>
Comparative Index: S&P MidCap 400 Index
Strategies: Value Stock Investing
- --------------------------------------------------------------------------------
Small Cap Value Portfolio (not currently being offered to new investors)
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in common stocks with equity capitalizations in the
range of the companies represented in the Russell 2000 Small
Stock Index which are deemed by the Adviser to be relatively
undervalued based on certain proprietary measures of value. The
Portfolio will typically exhibit lower price/earnings and
price/book value ratios than the Russell 2000. Dividend income
will typically be lower than for the Equity and Value
Portfolios.
Approach: The Adviser selects common stocks which are deemed to be
undervalued at the time of purchase, based on proprietary
measures of value. The Portfolio will be structured taking into
account the economic sector weights of the Russell 2000 Index,
with the portfolio's sector weights normally being within 5% of
the sector weights for the Index.
Policies: Generally at least 65% invested in Equity Securities of
small-cap companies deemed to be undervalued
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally matching the Russell 2000 size distribution
(currently $50 million to $1 billion)
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: ADRs Corporates Futures & Options Swaps
Agencies Foreign Bonds Investment Companies U.S. Governments
Cash Equivalents Foreign Currency Preferred Stock Warrants
Common Stock Foreign Equities Repurchase Agreements When Issued
Convertibles Forwards Rights Zero Coupons
</TABLE>
Comparative Index: Russell 2000 Index
Strategies: Value Stock Investing
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 21
<PAGE>
Value Portfolio
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in common stocks with equity capitalizations usually
greater than $300 million which are deemed by the Adviser to be
relatively undervalued, based on various measures such as
price/earnings ratios and price/book ratios. While capital
return will be emphasized somewhat more than income return, the
Portfolio's total return will consist of both capital and
income returns. It is expected that income return will be
higher than that of the Equity Portfolio because stocks which
are deemed to be undervalued in the marketplace have, under
most market conditions, provided higher dividend income returns
than stocks which are deemed to have long-term earnings growth
potential which normally sell at higher price/earnings ratios.
Approach: The Adviser selects common stocks which are deemed to be
undervalued relative to the stock market in general as measured
by the Standard & Poor's 500 Index, based on the value measures
such as price/earnings ratios and price/book ratios, as well as
fundamental research.
Policies: Generally at least 65% invested in Equity Securities deemed to
be undervalued
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally greater than $300 million
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: ADRs Corporates Futures & Options Swaps
Agencies Foreign Bonds Investment Companies U.S. Governments
Cash Equivalents Foreign Currency Preferred Stock Warrants
Common Stock Foreign Equities Repurchase Agreements When Issued
Convertibles Forwards Rights Zero Coupons
</TABLE>
Comparative Index: S&P 500 Index
Strategy: Value Stock Investing
- --------------------------------------------------------------------------------
Cash Reserves Portfolio
Objective: To realize maximum current income, consistent with the
preservation of capital and liquidity, by investing in money
market instruments and other short-term securities having
expected maturities of thirteen months or less. The Portfolio's
average weighted maturity will not exceed 90 days. The
securities in which the Portfolio will invest may not yield as
high a level of current income as securities of lower quality
or longer maturities which generally have less liquidity,
greater market risk and more price fluctuation. The Portfolio
is designed to provide maximum principal stability for
investors seeking to invest funds for the short term, or, for
investors seeking to combine a long-term investment program in
other portfolios of the Fund with an investment in money market
instruments. The Portfolio seeks to maintain, but there can be
no assurance that it will be able to maintain, a constant net
asset value of $1.00 per share.
Approach: The Adviser selects a diversified portfolio of money market
securities of government and corporate issuers, any of which
may be variable or floating rate, and which have remaining
maturities of thirteen months or less from the date of
purchase. For the purpose of determining remaining maturity on
Floaters, demand features and interest reset dates will be
taken into consideration.
Policies: The Portfolio seeks to maintain, but there can be no assurance
that it will be able to maintain, a constant net asset value of
$1.00 per share.
Quality Specifications: 100% of Commercial Paper Rated in Top Tier
Maturity and Duration: Dollar weighted average maturity less than 90 days
Individual maturities 13 months or less
<TABLE>
<S> <C> <C> <C>
Allowable Investments: Agencies Corporates Repurchase Agreements
Asset-Backeds Floaters U.S. Governments
Cash Equivalents Investment Companies Zero Coupons
</TABLE>
Comparative Index: Lipper Money Market Index
Strategy: Money Market Investing
- --------------------------------------------------------------------------------
MAS Funds - 22 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Domestic Fixed Income Portfolio
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in a diversified portfolio of U.S. Government
securities and other investment grade fixed-income securities
of domestic issuers.
Approach: The Adviser actively manages the maturity and duration
structure of the portfolio in anticipation of long-term trends
in interest rates and inflation. Investments are diversified
among a wide variety of U.S. Fixed-Income Securities in all
market sectors.
Policies: Generally at least 65% invested in Fixed-Income Securities
100% invested in domestic issuers
May invest greater than 50% in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 80% of securities rated A or higher
May invest up to 20% in securities rated BBB (or its
equivalent)
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Agencies Corporates Mortgage Securities Structured Notes
Asset-Backeds Floaters Municipals Swaps
Cash Equivalents Futures & Options Preferred Stock U.S. Governments
CMOs Inverse Floaters Repurchase Agreements When Issued
Convertibles Investment Companies SMBS Zero Coupons
</TABLE>
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 23
<PAGE>
Fixed Income Portfolio
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in a diversified portfolio of U.S. Government
securities, corporate bonds (including bonds rated below
investment grade, commonly referred to as junk bonds), foreign
fixed-income securities and mortgage-backed securities of
domestic issuers and other fixed-income securities. The
Portfolio's average weighted maturity will ordinarily be greater
than five years.
Approach: The Adviser actively manages the maturity and duration
structure of the Portfolio in anticipation of long-term trends
in interest rates and inflation. Investments are diversified
among a wide variety of Fixed-Income Securities in all market
sectors.
Policies: Generally at least 65% invested in Fixed-Income Securities
May invest greater than 50% in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 80% Investment Grade Securities
Up to 20% High Yield
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Agencies Floaters Investment Companies SMBS
Asset-Backeds Foreign Bonds Loan Participations Structured Notes
Brady Bonds Foreign Currency Mortgage Securities Swaps
Cash Equivalents Forwards Municipals U.S. Governments
CMOs Futures & Options Preferred Stock When Issued
Convertibles High Yield Repurchase Agreements Zero Coupons
Corporates Inverse Floaters
</TABLE>
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Fixed Income Investing
Foreign Investing
- --------------------------------------------------------------------------------
MAS Funds - 24 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Fixed Income Portfolio II
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in a diversified portfolio of U.S. Government
securities and other investment grade fixed-income securities.
Approach: The Adviser actively manages the maturity and duration
structure of the portfolio in anticipation of long-term trends
in interest rates and inflation. Investments are diversified
among a wide variety of Fixed-Income Securities in all market
sectors.
Policies: Generally at least 65% invested in Fixed-Income Securities
May invest greater than 50% in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 100% Investment Grade Securities
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Agencies Corporates Inverse Floaters SMBS
Asset-Backeds Floaters Investment Companies Structured Notes
Brady Bonds Foreign Bonds Mortgage Securities Swaps
Cash Equivalents Foreign Currency Municipals U.S. Governments
CMOs Forwards Preferred Stock When Issued
Convertibles Futures & Options Repurchase Agreements Zero Coupons
</TABLE>
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Fixed Income Investing
Foreign Investing
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 25
<PAGE>
Global Fixed Income Portfolio - (a non-diversified portfolio)
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in high grade fixed-income securities of United
States and foreign issuers. Total return is the combination of
income and changes in value. The Portfolio's average weighted
maturity will ordinarily be greater than five years.
Approach: The Adviser manages the duration, country, and currency
exposure of the Portfolio by combining fundamental research on
relative values with analyses of economic, interest-rate, and
exchange-rate trends. MAS will invest in mortgage and corporate
bonds when it believes they offer the most value, although most
foreign currency denominated investments are in government and
supranational securities.
Policies: Generally at least 65% invested in Fixed-Income Securities of
issuers in at least 3 countries, one of which may be the U.S.
Derivatives may be used to represent country investments, and
otherwise pursue portfolio strategy
Quality Specifications: 95% Investment Grade Securities
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Agencies Eastern European Issuers Inverse Floaters SMBS
Investments: Asset-Backeds Emerging Markets Issuers Investment Companies Structured Notes
Brady Bonds Floaters Mortgage Securities Swaps
Cash Equivalents Foreign Bonds Municipals U.S. Governments
CMOs Foreign Currency Preferred Stock When Issued
Convertibles Forwards Repurchase Agreements Zero Coupons
Corporates Futures & Options
</TABLE>
Comparative Index: Salomon World Government Bond Index
Strategies: Foreign Fixed Income Investing
Maturity and Duration Management
Value Investing
Foreign Investing
Non-Diversified Status
Emerging Markets Investing
Mortgage Investing
- --------------------------------------------------------------------------------
MAS Funds - 26 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
High Yield Portfolio
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in high yielding corporate fixed-income securities
(including bonds rated below investment grade, commonly referred
to as junk bonds). The Portfolio may also invest in U.S.
Government securities, mortgage-backed securities, investment
grade corporate bonds and in short- term fixed-income
securities, such as certificates of deposit, treasury bills, and
commercial paper. The Portfolio expects to achieve its objective
by earning a high rate of current income, although the Portfolio
may seek capital growth opportunities when consistent with its
objective. The Portfolio's average weighted maturity will
ordinarily be greater than five years.
Approach: The Adviser uses equity and fixed-income valuation techniques
and analyses of economic and industry trends to determine
portfolio structure. Individual securities are selected, and
monitored, by fixed-income portfolio managers who specialize in
corporate bonds and use in-depth financial analysis to uncover
opportunities in undervalued issues.
Policies: Generally at least 65% invested in High Yield securities
(including bonds rated below investment grade, commonly
referred to as junk bonds)
Derivatives may be used to pursue portfolio strategy
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Agencies Emerging Markets High Yield Repurchase Agreements
Investments: Asset-Backeds Issuers Inverse Floaters SMBS
Brady Bonds Floaters Investment Companies Structured Notes
Cash Equivalents Foreign Bonds Loan Participations Swaps
CMOs Foreign Currency Mortgage Securities U.S. Governments
Convertibles Foreign Equities Municipals When Issued
Corporates Forwards Preferred Stock Zero Coupons
Eastern European Issuers Futures & Options
</TABLE>
Comparative Index: Salomon High Yield Market Index
Strategies: High Yield Investing
Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Fixed Income Investing
Foreign Investing
Emerging Markets Investing
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 27
<PAGE>
Intermediate Duration Portfolio
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in a diversified portfolio of U.S. Government
securities and investment grade corporate, foreign and other
investment grade fixed-income securities. The Portfolio will
maintain an average duration of between two and five years.
Approach: The Adviser constructs a portfolio with a duration between two
and five years by actively managing the maturity and duration
structure of the portfolio in anticipation of long-term trends
in interest rates and inflation. Investments are diversified
among a wide variety of investment grade Fixed-Income
Securities in all market sectors.
Policies: Generally at least 65% invested in Fixed-Income Securities
Derivatives may be used to pursue portfolio strategy
May invest greater than 50% in Mortgage Securities
Quality Specifications: 100% Investment Grade Securities
Maturity and Duration: Average duration between 2 and 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Agencies Corporates Inverse Floaters SMBS
Asset-Backeds Floaters Investment Companies Structured Notes
Brady Bonds Foreign Bonds Mortgage Securities Swaps
Cash Equivalents Foreign Currency Municipals U.S. Governments
CMOs Forwards Preferred Stock When Issued
Convertibles Futures & Options Repurchase Agreements Zero Coupons
</TABLE>
Comparative Index: Lehman Brothers Intermediate Government/Corporate Index
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Fixed Income Investing
Foreign Investing
- --------------------------------------------------------------------------------
MAS Funds - 28 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
International Fixed Income Portfolio - (a non-diversified portfolio)
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing primarily in high-grade fixed-income securities of
foreign issuers.
Approach: The Adviser manages the duration, country, and currency
exposure of the portfolio by combining fundamental research on
relative values with analyses of economic, interest-rate, and
exchange-rate trends. MAS will invest in mortgage and corporate
bonds when it believes they offer the most value, although most
foreign currency denominated investments are in government and
supranational securities.
Policies: Generally at least 80% invested in Fixed-Income Securities of
issuers in at least 3 countries other than the U.S.
Derivatives may be used to represent country investments, and
otherwise pursue portfolio strategy
Quality Specifications: 95% Investment Grade Securities
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Agencies Eastern European Issuers Inverse Floaters SMBS
Investments: Asset-Backeds Emerging Markets Issuers Investment Companies Structured Notes
Brady Bonds Floaters Mortgage Securities Swaps
Cash Equivalents Foreign Bonds Municipals U.S. Governments
CMOs Foreign Currency Preferred Stock When Issued
Convertibles Forwards Repurchase Agreements Zero Coupons
Corporates Futures & Options
</TABLE>
Comparative Index: Salomon World Government Bond Index Except U.S.
Strategies: Foreign Fixed Income Investing
Maturity and Duration Management
Value Investing
Foreign Investing
Non-Diversified Status
Emerging Markets Investing
Mortgage Investing
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 29
<PAGE>
Limited Duration Portfolio
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in a diversified portfolio of U.S. Government
securities, investment-grade corporate bonds and other
fixed-income securities. The portfolio will maintain an average
duration of between one and three years. Duration is a measure
of the life of the portfolio's debt securities on a
present-value basis and is indicative of a security's price
volatility relative to interest rate changes.
Approach: The Adviser manages the duration of the overall portfolio as a
more effective way to control interest-rate risk than limiting
the maturity of individual securities within the portfolio. In
this way investors can benefit from opportunities across the
entire yield curve as well as in various market sectors, and at
the same time limit the volatility of investment returns. MAS
establishes the duration target through the use of its top-down
view of the economy and analysis of the current level of
interest rates and the shape of the yield curve. MAS then
strives to purchase the most attractively priced portfolio that
meets our duration and investment objectives. When purchasing
securities other than U.S. Governments, MAS evaluates credit,
liquidity, and option risk. When MAS believes the portfolio is
compensated for these risks, it includes agency, mortgage, and
corporate securities which meet the Portfolio's quality
specifications.
Policies: Generally at least 65% invested in Fixed-Income Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 100% Investment Grade Securities
Maturity and Duration: Average duration between 1 and 3 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Agencies CMOs Futures & Options Swaps
Investments: Asset-Backeds Convertibles Investment Companies U.S. Governments
Brady Bonds Corporates Mortgage Securities When Issued
Cash Equivalents Floaters Repurchase Agreements Zero Coupons
Structured Notes
</TABLE>
Comparative Index: Salomon 1-3 Year Index
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
- --------------------------------------------------------------------------------
MAS Funds - 30 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Mortgage-Backed Securities Portfolio
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing primarily (at least 65% of its assets under normal
circumstances) in mortgage-backed securities. In addition, the
portfolio may also invest in U.S. government securities and in
short-term fixed-income securities such as certificates of
deposit, treasury bills, and commercial paper. The portfolio's
average weighted maturity will ordinarily be greater than seven
years.
Approach: The Adviser sets three portfolio targets: (1) interest-rate
sensitivity; (2) yield-curve sensitivity; and (3) prepayment
sensitivity. The Adviser increases the sensitivity of the
portfolio to changes in interest rates when bonds offer greater
value on the basis of inflation-adjusted interest rates.
Similarly, the Adviser increases yield-curve sensitivity when
long-maturity interest rates offer exceptional value relative
to short-maturity interest rates. Finally, the Adviser
increases prepayment exposure when mortgage yields, adjusted
for probable prepayments, indicate unusual value in
mortgage-backed securities.
Policies: Generally at least 65% invested in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: Securities not guaranteed by the U.S. Government or a
private organization will be rated Investment Grade Securities
Maturity and Duration: Average weighted maturity generally greater than 7 years
Duration generally between 2 and 7 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Agencies Futures & Options Municipals Swaps
Asset-Backeds Inverse Floaters Repurchase Agreements U.S. Governments
Cash Equivalents Investment Companies SMBS When Issued
CMOs Mortgage Securities Structured Notes Zero Coupons
Floaters
</TABLE>
Comparative Index: Lehman Mortgage Index
Strategies: Mortgage Investing
Maturity and Duration Management
Value Investing
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 31
<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>
<S> <C> <C> <C> <C>
Allowable Agencies Eastern European Issuers High Yield SMBS
Investments: Asset-Backeds Emerging Markets Issuers Inverse Floaters Structured Notes
Brady Bonds Floaters Investment Companies Swaps
Cash Equivalents Foreign Bonds Mortgage Securities Taxable Investments
CMOs Foreign Currency Municipals U.S. Governments
Convertibles Forwards Preferred Stock When Issued
Corporates Futures & Options Repurchase Agreements Zero Coupons
</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 - 32 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
PA Municipal Portfolio
Objective: To realize above-average total return over a market cycle of
three to five years, consistent with the conservation of
capital and the realization of current income which is exempt
from federal income tax and Pennsylvania personal income tax by
investing primarily 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
federally or Pennsylvania State taxable bonds only in cases
where MAS believes they improve the risk/reward profile of the
portfolio on an after-tax basis for Pennsylvania residents.
Policies: Generally at least 80% invested in Municipal Securities
Generally at least 65% invested in PA Municipal Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 80% Investment Grade Securities
Up to 20% High Yield
Maturity and Duration: Average weighted maturity generally between 5 and 10
years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Agencies Emerging Markets Issuers Inverse Floaters SMBS
Asset-Backeds Floaters Investment Companies Structured Notes
Brady Bonds Foreign Bonds Mortgage Securities Swaps
Cash Equivalents Foreign Currency Municipals Taxable Investments
CMOs Forwards PA Municipals U.S. Governments
Convertibles Futures & Options Preferred Stock When Issued
Corporates High Yield Repurchase Agreements Zero Coupons
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
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 33
<PAGE>
Special Purpose Fixed Income Portfolio
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in a diversified portfolio of U.S. Government
securities, corporate bonds (including bonds rated below
investment grade, commonly referred to as junk bonds), foreign
fixed-income securities and mortgage-backed securities and
other fixed-income securities. The portfolio is structured to
complement an investment in one or more of the Fund's equity
portfolios for investors seeking a balanced investment.
Approach: The Adviser actively manages the maturity and duration
structure of the portfolio in anticipation of long-term trends
in interest rates and inflation. Investments are diversified
among a wide variety of Fixed-Income Securities in all market
sectors. Both duration/maturity strategy and sector allocation
are determined based on the presumption that investors are
combining an investment in the portfolio with an equity
investment.
Policies: Generally at least 65% invested in Fixed-Income Securities
May invest greater than 50% in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Agencies Floaters Investment Companies SMBS
Asset-Backeds Foreign Bonds Loan Participations Structured Notes
Brady Bonds Foreign Currency Mortgage Securities Swaps
Cash Equivalents Forwards Municipals U.S. Governments
CMOs Futures & Options Preferred Stock When Issued
Convertibles High Yield Repurchase Agreements Zero Coupons
Corporates Inverse Floaters
</TABLE>
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Fixed Income Investing
Foreign Investing
- --------------------------------------------------------------------------------
MAS Funds - 34 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Balanced Portfolio
Objective: To achieve above average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in a diversified portfolio of common stocks and
fixed-income securities. When the Adviser judges the relative
outlook for the equity and fixed-income markets to be neutral
the portfolio will be invested 60% in common stocks and 40% in
fixed-income securities. The asset mix may be changed, however,
with common stocks ordinarily representing between 45% and 75%
of the total investment. The average weighted maturity of the
fixed-income portion of the portfolio will ordinarily be
greater than five years.
Approach: The Adviser determines investment strategies for the equity and
fixed-income portions of the portfolio separately and then
determines the mix of those strategies expected to maximize the
return available from both the stock and bond markets.
Strategic judgments on the equity/fixed-income asset mix are
based on valuation disciplines and tools for analysis developed
by the Adviser over its twenty-five year history of managing
balanced accounts.
Policies: Generally 45% to 75% invested in Equity Securities
Up to 25% invested in Foreign Bonds and/or Foreign Equities
(excluding ADRs)
Up to 10% invested in Brady Bonds
At least 25% invested in senior Fixed-Income Securities
Derivatives may be used to pursue portfolio strategy
Equity Capitalization: Generally greater than $1 billion
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: ADRs Eastern European Issuers Inverse Floaters Rights
Agencies Floaters Investment Companies SMBS
Asset-Backeds Foreign Bonds Investment Funds Structured Notes
Brady Bonds Foreign Currency Loan Participations Swaps
Cash Equivalents Foreign Equities Mortgage Securities U.S. Governments
CMOs Forwards Municipals Warrants
Common Stock Futures & Options Preferred Stock When Issued
Convertibles High Yield Repurchase Agreements Zero Coupons
Corporates
</TABLE>
Comparative Index: A weighted blend of quarterly returns compiled by the
Adviser using:
60% S&P 500 Index
40% Salomon Broad Investment Grade Index
Strategies: Asset Allocation Management
Core Equity Investing
Fixed Income Management and Asset Allocation
Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Fixed Income Investing
Foreign Investing
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 35
<PAGE>
Multi-Asset-Class Portfolio
Objective: To achieve above average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in a diversified portfolio of common stocks and
fixed-income securities of United States and Foreign issuers.
Approach: The Adviser determines the mix of investments in domestic and
foreign equity and fixed-income and high yield securities
expected to maximize available total return. Strategic
judgments on the asset mix are based on valuation disciplines
and tools for analysis which have been developed by the Adviser
to compare the relative potential returns and risks of global
stock and bond markets.
Policies: Generally at least 65% invested in issuers located in at least
3 countries, including the U.S.
Derivatives may be used to pursue portfolio strategy
Domestic Equity
Capitalization: Generally greater than $1 billion
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: ADRs Eastern European Issuers Inverse Floaters SMBS
Agencies Emerging Markets Issuers Investment Companies Structured Investments
Asset-Backeds Floaters Investment Funds Structured Notes
Brady Bonds Foreign Bonds Loan Participations Swaps
Cash Equivalent Foreign Currency Mortgage Securities U.S. Governments
CMOs Foreign Equities Municipals Warrants
Common Stock Forwards Preferred Stock When Issued
Convertibles Futures & Options Repurchase Agreements Zero Coupons
Corporates High Yield Rights
</TABLE>
Comparative Index: A weighted blend of quarterly returns compiled by the
Adviser using:
50% S&P 500 Index
14% EAFE-GDP Weighted Index
24% Salomon Broad Investment Grade Index
6% Salomon World Government Bond Index Ex U.S.
6% Salomon High Yield Market Index
Strategies: Asset Allocation Management
Fixed Income Management and Asset Allocation
Maturity and Duration Management
Value Investing
Foreign Fixed Income Investing
Core Equity Investing
International Equity Investing
Emerging Markets Investing
High Yield Investing
Foreign Investing
Mortgage Investing
- --------------------------------------------------------------------------------
MAS Funds - 36 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Balanced Plus Portfolio
Objective: To achieve above average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in a diversified portfolio of common stocks of
domestic and foreign issuers and fixed-income securities.
Approach: The Adviser determines the mix of investments in domestic and
foreign equity and fixed-income securities expected to maximize
available total return. Strategic judgments on the asset mix
are based on valuation disciplines and tools for analysis which
have been developed by the Adviser to compare the relative
potential returns and risks of global stock and bond markets.
When the Adviser believes it to be in the best interests of the
fund, opportunistic investments in both the high yield and
international fixed-income markets will be made.
Policies: Generally at least 65% invested in issuers located in at least
3 countries, including the U.S.
Derivatives may be used to pursue portfolio strategy
At least 25% invested in senior Fixed-Income Securities
Domestic Equity
Capitalization: Generally greater than $1 billion
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: ADRs Eastern European Issuers Inverse Floaters SMBS
Agencies Emerging Markets Issuers Investment Companies Structured Investments
Asset-Backeds Floaters Investment Funds Structured Notes
Brady Bonds Foreign Bonds Loan Participations Swaps
Cash Equivalent Foreign Currency Mortgage Securities U.S. Governments
CMOs Foreign Equities Municipals Warrants
Common Stock Forwards Preferred Stock When Issued
Convertibles Futures & Options Repurchase Agreements Zero Coupons
Corporates High Yield Rights
</TABLE>
Comparative Index: A weighted blend of quarterly returns compiled by the
Adviser using:
54% S&P 500 Index
40% Salomon Broad Investment Grade Index
6% MSCI World Ex U.S. Index
Strategies: Asset Allocation Management
Fixed Income Management and Asset Allocation
Maturity and Duration Management
Value Investing
Foreign Fixed Income Investing
Core Equity Investing
International Equity Investing
Emerging Markets Investing
High Yield Investing
Foreign Investing
Mortgage Investing
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 37
<PAGE>
PROSPECTUS GLOSSARY
CHARACTERISTICS AND RISKS OF STRATEGIES AND INVESTMENTS
STRATEGIES
Asset Allocation Management: The Adviser's approach to asset allocation
management is to determine investment strategies for each asset class in a
portfolio separately, and then determine the mix of those strategies expected
to maximize the return available from each market. Strategic judgments on the
mix among asset classes are based on valuation disciplines and tools for
analysis which have been developed over the Adviser's twenty-five year history
of managing balanced accounts.
Tactical asset-allocation shifts are based on comparisons of prospective risks,
returns, and the likely risk-reducing benefits derived from combining different
asset classes into a single portfolio. Experienced teams of equity, fixed-
income, and international investment professionals manage the investments in
each asset class.
Core Equity Investing: The Adviser's "core" or primary equity strategy
emphasizes common stocks of large companies, with targeted investments in small
company stocks that promise special growth opportunities. Depending on MAS's
outlook for the economy and different market sectors, the mix between value
stocks and growth stocks will change.
Emerging Markets Investing: The Adviser's approach to emerging markets
investing is based on the Adviser's evaluation of both short-term and long-term
international economic trends and the relative attractiveness of emerging
markets and individual emerging market securities.
As used in this Prospectus, emerging markets describes any country which is
generally considered to be an emerging or developing country by the
international financial community such as the International Bank for
Reconstruction and Development (more commonly known as the World Bank) and the
International Finance Corporation. There are currently over 130 countries which
are generally considered to be emerging or developing countries by the
international financial community, approximately 40 of which currently have
stock markets. Emerging markets can include every nation in the world except
the United States, Canada, Japan, Australia, New Zealand and most nations
located in Western Europe.
Currently, investing in many emerging markets is either not feasible or very
costly, or may involve unacceptable political risks. Other special risks
include the possible increased likelihood of expropriation or the return to
power of a communist regime which would institute policies to expropriate,
nationalize or otherwise confiscate investments. A portfolio will focus its
investments on those emerging market countries in which the Adviser believes
the potential for market appreciation outweighs these risks and the cost of
investment. Investing in emerging markets also involves an extra degree of
custodial and/or market risk, especially where the securities purchased are not
traded on an official exchange or where ownership records regarding the
securities are maintained by an unregulated entity (or even the issuer itself).
Fixed Income Management and Asset Allocation: Within the Balanced,
Multi-Asset-Class, Balanced Plus and Special Purpose Fixed Income Portfolios,
the Adviser selects fixed-income securities not only on the basis of judgments
regarding Maturity and Duration Management and Value Investing, but also on the
basis of the value offered by various segments of the fixed-income securities
market relative to Cash Equivalents and Equity Secur- ities. In this context,
the Adviser may find that certain segments of the fixed-income securities
market offer more or less attractive relative value when compared to Equity
Securities than when compared to other Fixed-Income Securities.
For example, in a given interest rate environment, equity securities may be
judged to be fairly valued when compared to intermediate duration fixed-income
securities, but overvalued compared to long duration fixed-income securities.
Consequently, while a portfolio investing only in fixed-income securities may
not emphasize long duration assets to the same extent, the fixed-income portion
of a balanced investment may invest a percentage of its assets in long duration
bonds on the basis of their valuation relative to equity securities.
- --------------------------------------------------------------------------------
MAS Funds - 38 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Foreign Fixed Income Investing: The Adviser invests in Foreign Bonds and other
Fixed-Income Securities denominated in foreign currencies, where, in the
opinion of the Adviser, the combination of current yield and currency value
offer attractive expected returns. When the total return opportunities in a
foreign bond market appear attractive in local currency terms, but where in the
Adviser's judgment unacceptable currency risk exists, currency Futures &
Options, Forwards and Swaps may be used to hedge the currency risk.
Foreign Investing: Investors should recognize that investing in Foreign Bonds
and Foreign Equities involves certain special considerations which are not
typically associated with investing in domestic securities.
As non-U.S. companies are not generally subject to uniform accounting, auditing
and financial reporting standards and practices comparable to those applicable
to U.S. companies, there may be less publicly available information about
certain foreign securities than about U.S. securities. Foreign Bonds and
Foreign Equities may be less liquid and more volatile than securities of
comparable U.S. companies. There is generally less government supervision and
regulation of stock exchanges, brokers and listed companies than in the U.S.
With respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect U.S. investments in those countries.
Additionally, there may be difficulty in obtaining and enforcing judgments
against foreign issuers.
Since Foreign Bonds and Foreign Equities may be denominated in foreign
currencies, and since a portfolio may temporarily hold uninvested reserves in
bank deposits of foreign currencies prior to reinvestment or conversion to U.S.
dollars, a portfolio may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and may incur costs in
connection with conversions between various currencies.
Although a portfolio will endeavor to achieve the most favorable execution
costs in its portfolio transactions in foreign securities, fixed commissions on
many foreign stock exchanges are generally higher than negotiated commissions
on U.S. exchanges. In addition, it is expected that the expenses for custodial
arrangements of a portfolio's foreign securities will be greater than the
expenses for the custodial arrangements for handling U.S. securities of equal
value. Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income a portfolio receives from the companies comprising the portfolio's
investments.
Growth Stock Investing: Seeks to invest in Common Stocks generally
characterized by higher growth rates, betas, and price/earnings ratios, and
lower yields than the stock market in general as measured by the S&P 500 Index.
High Yield Investing: Involves investing in high yield securities based on the
Adviser's analysis of economic and industry trends and individual security
characteristics. The Adviser conducts credit analysis for each security
considered for investment to evaluate its attractiveness relative to its risk.
A high level of diversification is also maintained to limit credit exposure to
individual issuers.
To the extent a portfolio invests in high yield securities it will be exposed
to a substantial degree of credit risk. Lower-rated bonds are considered
speculative by traditional investment standards. High yield securities may be
issued as a consequence of corporate restructuring or similar events. Also,
high yield securities are often issued by smaller, less credit worthy
companies, or by highly leveraged (indebted) firms, which are generally less
able than more established or less leveraged firms to make scheduled payments
of interest and principal. The risks posed by securities issued under such
circumstances are substantial.
The market for high yield securities is still relatively new. Because of this,
a long-term track record for bond default rates does not exist. In addition,
the secondary market for high yield securities is generally less liquid than
that for investment grade corporate securities. In periods of reduced market
liquidity, high yield bond prices may become more volatile, and both the high
yield market and a portfolio may experience sudden and substantial price
declines. This lower liquidity might have an effect on a portfolio's ability to
value or dispose of such securities. Also, there
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 39
<PAGE>
may be significant disparities in the prices quoted for high yield securities
by various dealers. Under such conditions, a portfolio may find it difficult to
value its securities accurately. A portfolio may also be forced to sell
securities at a significant loss in order to meet shareholder redemptions.
These factors add to the risks associated with investing in high yield
securities.
High yield bonds may also present risks based on payment expectations. For
example, high yield bonds may contain redemption or call provisions. If an
issuer exercises these provisions in a declining interest rate market, a
portfolio would have to replace the security with a lower yielding security,
resulting in a decreased return for investors.
Certain types of high yield bonds are non-income paying securities. For
example, zero coupon bonds pay interest only at maturity and payment-in-kind
bonds pay interest in the form of additional securities. Payment in the form of
additional securities, or interest income recognized through discount
accretion, will, however, be treated as ordinary income which will be
distributed to shareholders even though the portfolio does not receive periodic
cash flow from these investments.
The table below provides a summary of ratings assigned to all U.S. and foreign
debt holdings of those portfolios with more than 5% invested in High Yield
securities as of September 30, 1996 (not including money market instruments).
These figures are dollar-weighted averages of month-end portfolio holdings and
do not necessarily indicate a portfolio's current or future debt holdings.
Portfolios whose debt holdings total less than 100% also invest in Equity
Securities. The Balanced Plus Portfolio had not commenced operations as of
September 30, 1996.
High Yield Portfolio Fixed Income Portfolio
QUALITY QUALITY
TSY, AGY, AAA 5.28% TSY, AGY, AAA 71.29%
AA 0.00% AA 7.83%
A 0.00% A 5.83%
BAA 3.97% BAA 4.62%
BA 30.28% BA 5.66%
B 47.43% B 2.84%
CAA 5.91% CAA 0.00%
CA OR BELOW 0.00% CA OR BELOW 0.00%
Not Available 7.13% Not Available 1.93%
TOTAL 100.00% TOTAL 100.00%
Special Purpose Fixed Income PA Municipal Portfolio
Portfolio
QUALITY QUALITY
TSY, AGY, AAA 66.33% TSY, AGY, AAA 79.70%
AA 10.95% AA 1.65%
A 6.96% A 5.16%
BAA 4.52% BAA 5.28%
BA 5.62% BA 0.99%
B 3.20% B 1.85%
CAA 0.00% CAA 0.00%
CA OR BELOW 0.00% CA OR BELOW 0.00%
Not Available 2.42% Not Available 5.37%
TOTAL 100.00% TOTAL 100.00%
Multi-Asset-Class
Portfolio
QUALITY
TSY, AGY, AAA 26.63%
AA 1.73%
A 1.16%
BAA 1.19%
BA 3.43%
B 4.61%
CAA 0.42%
CA OR BELOW 0.00%
Not Available 1.10%
TOTAL 40.27%
- --------------------------------------------------------------------------------
MAS Funds - 40 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
International Equity Investing: The Adviser's approach to international equity
investing is based on its evaluation of both short-term and long-term
international economic trends and the relative attractiveness of non-U.S.
equity markets and individual securities.
MAS considers fundamental investment characteristics, the principles of
valuation and diversification, and a relatively long-term investment time
horizon. Since liquidity will also be a consideration, emphasis will likely be
influenced by the relative market capitalizations of different non-U.S. stock
markets and individual securities. Portfolios seek to diversify investments
broadly among both developed and newly industrializing foreign countries. Where
appropriate, a portfolio may also invest in regulated Investment Companies or
Investment Funds which invest in such countries to the extent allowed by
applicable law.
Maturity and Duration Management: One of two primary components of the
Adviser's fixed-income investment strategy is maturity and duration management.
The maturity and duration structure of a portfolio investing in Fixed-Income
Securities is actively managed in anticipation of cyclical interest rate
changes. Adjustments are not made in an effort to capture short-term,
day-to-day movements in the market, but instead are implemented in anticipation
of longer term shifts in the levels of interest rates. Adjustments made to
shorten portfolio maturity and duration are made to limit capital losses during
periods when interest rates are expected to rise. Conversely, adjustments made
to lengthen maturity are intended to produce capital appreciation in periods
when interest rates are expected to fall. The foundation for maturity and
duration strategy lies in analysis of the U.S. and global economies, focusing
on levels of real interest rates, monetary and fiscal policy actions, and
cyclical indicators. See Value Investing for a description of the second
primary component of the Adviser's fixed-income strategy.
About Maturity and Duration: Most debt obligations provide interest (coupon)
payments in addition to a final (par) payment at maturity. Some obligations
also have call provisions. Depending on the relative magnitude of these
payments and the nature of the call provisions, the market values of debt
obligations may respond differently to changes in the level and structure of
interest rates. Traditionally, a debt security's term-to-maturity has been used
as a proxy for the sensitivity of the security's price to changes in interest
rates (which is the interest rate risk or volatility of the security). However,
term-to-maturity measures only the time until a debt security provides its
final payment, taking no account of the pattern of the security's payments
prior to maturity.
Duration is a measure of the expected life of a fixed-income security that was
developed as a more precise alternative to the concept of term-to-maturity.
Duration incorporates a bond's yield, coupon interest payments, final maturity
and call features into one measure. Duration is one of the fundamental tools
used by the Adviser in the selection of fixed-income securities. Duration is a
measure of the expected life of a fixed-income security on a present value
basis. Duration takes the length of the time intervals between the present time
and the time that the interest and principal payments are scheduled or, in the
case of a callable bond, expected to be received, and weights them by the
present values of the cash to be received at each future point in time. For any
fixed-income security with interest payments occurring prior to the payment of
principal, duration is always less than maturity. In general, all other factors
being the same, the lower the stated or coupon rate of interest of a
fixed-income security, the longer the duration of the security; conversely, the
higher the stated or coupon rate of interest of a fixed-income security, the
shorter the duration of the security.
There are some situations where even the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or
more years; however, their interest rate exposure corresponds to the frequency
of the coupon reset. Another example where the interest rate exposure is not
properly captured by duration is the case of mortgage pass-through securities.
The stated final maturity of such securities is generally 30 years, but current
prepayment rates are more critical in determining the securities' interest rate
exposure. In these and other similar situations, the Adviser will use
sophisticated analytical techniques that incorporate the economic life of a
security into the determination of its interest rate exposure.
Money Market Investing: A money market fund like the Cash Reserves Portfolio
invests in securities which present minimal credit risk and may not yield as
high a level of current income as securities of lower quality or longer
maturities which generally have less liquidity, greater market risk and more
price fluctuation. A money market portfolio is designed to provide maximum
principal stability for investors seeking to invest funds for the short-
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 41
<PAGE>
term, or, for investors seeking to combine a long-term investment program in
other portfolios of the Fund with an investment in money market instruments.
However, because the Cash Reserves Portfolio invests in the money market
obligations of private financial and non-financial corporations in addition to
those of the U.S. Government or its agencies and instrumentalities, it offers
higher credit risk and yield potential relative to money market funds which
invest exclusively in U.S. Government securities. The Cash Reserves Portfolio
seeks to maintain, but does not guarantee, a constant net asset value of $1.00
per share.
Mortgage Investing: At times it is anticipated that greater than 50% of a
fixed-income portfolio's assets may be invested in mortgage-related securities.
These include mortgage-backed securities, which represent interests in pools of
mortgage loans made by lenders such as commercial banks, savings and loan
associations, mortgage bankers and others. The pools are assembled by various
organizations, including the Government National Mortgage Association (GNMA),
Federal Home Loan Mortgage Corporation (FHLMC), Fannie Mae, other government
agencies, and private issuers. It is expected that a portfolio's primary
emphasis will be on mortgage-backed securities issued by the various
Government-related organizations. However, a portfolio may invest, without
limit, in mortgage-backed securities issued by private issuers when the Adviser
deems that the quality of the investment, the quality of the issuer, and market
conditions warrant such investments. Securities issued by private issuers will
be rated investment grade by Moody's or Standard & Poor's or be deemed by the
Adviser to be of comparable investment quality.
Municipals Management: MAS manages municipal portfolios in a total return
context. This means that taxable investments will regularly be included in a
portfolio when they have an attractive prospective after-tax total return,
regardless of the taxable nature of income on the security.
MAS Municipals Management emphasizes a diversified portfolio of high grade
municipal debt securities. Under normal circumstances, a portfolio will invest
at least 80% of net assets in municipal securities including AMT Bonds and at
least 80% will be Investment Grade Securities.
Under normal conditions, a portfolio may hold up to 20% of net assets in U.S.
Governments, Agencies, Corporates, Cash Equivalents, Preferred Stocks, Mortgage
Securities, Asset-Backeds, Floaters, and Inverse Floaters and other
Fixed-Income Securities (collectively "Taxable Investments").
Non-Diversified Status: A portfolio may be classified as a non-diversified
investment company under the Investment Company Act of 1940, as amended.
Non-diversified portfolios may invest more than 25% of assets in securities of
individual issuers representing greater than 5% each of a portfolio's total
assets, whereas diversified investment companies may only invest up to 25% of
assets in positions of greater than 5%. Both diversified and non-
diversified portfolios are subject to diversification specifications under the
Internal Revenue Code of 1986, as amended, which require that, as of the close
of each fiscal quarter, (i) no more than 25% of a portfolio's total assets may
be invested in the securities of a single issuer (except for U.S. Government
securities) and (ii) with respect to 50% of its total assets, no more than 5%
of such assets may be invested in the securities of a single issuer (except for
U.S. Government securities) or invested in more than 10% of the outstanding
voting securities of a single issuer. Because of its non-diversified status, a
portfolio may be subject to greater credit and other risks than a diversified
investment company.
Value Investing: One of two primary components of the Adviser's fixed-income
strategy is value investing, whereby MAS seeks to identify undervalued sectors
and securities through analysis of credit quality, option characteristics and
liquidity. Quantitative models are used in conjunction with judgment and
experience to evaluate and select securities with embedded put or call options
which are attractive on a risk- and option-adjusted basis. Successful value
investing will permit a portfolio to benefit from the price appreciation of
individual securities during periods when interest rates are unchanged. See
Maturity and Duration Management for a description of the other key component
of MAS's fixed-income investment strategy.
Value Stock Investing: Emphasizes Common Stocks which are deemed by the Adviser
to be undervalued relative to the stock market in general as measured by the
appropriate market index, based on value measures such as price/earnings ratios
and price/book ratios. Value stocks are generally dividend paying common
stocks. However, non-dividend paying stocks may also be selected for their
value characteristics.
- --------------------------------------------------------------------------------
MAS Funds - 42 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
INVESTMENTS
Each Portfolio may invest in the securities defined below in accordance with
their listing of Allowable Investments and any quality or policy constraints.
ADRs--American Depository Receipts: are dollar-denominated securities which are
listed and traded in the United States, but which represent claims to shares of
foreign stocks. ADRs may be either sponsored or unsponsored. Unsponsored ADR
facilities typically provide less information to ADR holders. ADRs also include
American Depository Shares.
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 or any of
several other agencies.
Asset-Backeds: are securities collateralized by shorter term loans such as
automobile loans, home equity loans, computer leases, or credit card
receivables. The payments from the collateral are passed through to the
security holder. The collateral behind asset-backed securities tends to have
prepayment rates that do not vary with interest rates. In addition the
short-term nature of the loans reduces the impact of any change in prepayment
level. Due to amortization, the average life for these securities is also the
conventional proxy for maturity.
Possible Risks: Due to the possibility that prepayments (on automobile loans
and other collateral) will alter the cash flow on asset-backed securities, it
is not possible to determine in advance the actual final maturity date or
average life. Faster prepayment will shorten the average life and slower
prepayments will lengthen it. However, it is possible to determine what the
range of that movement could be and to calculate the effect that it will have
on the price of the security. In selecting these securities, the Adviser will
look for those securities that offer a higher yield to compensate for any
variation in average maturity.
Brady Bonds: are debt obligations which are created through the exchange of
existing commercial bank loans to foreign entities for new obligations in
connection with debt restructuring under a plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the Brady Plan). Brady Bonds have
been issued only recently, and, accordingly, do not have a long payment
history. They may be collateralized or uncollateralized and issued in various
currencies (although most are dollar-denominated) and they are actively traded
in the over-the-counter secondary market. For further information on these
securities, see the Statement of Additional Information. Portfolios will only
invest in Brady Bonds consistent with quality specifications.
Cash Equivalents: are short-term fixed-income instruments comprising:
(1) Time deposits, certificates of deposit (including marketable variable rate
certificates of deposit) and bankers' acceptances issued by a commercial bank
or savings and loan association. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. Certificates of deposit are negotiable short-term obligations
issued by commercial banks or savings and loan associations against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods).
A portfolio may invest in obligations of U.S. banks, foreign branches of U.S.
banks (Eurodollars), and U.S. branches of foreign banks (Yankee dollars). Euro
and Yankee dollar investments will involve some of the same risks of investing
in international securities that are discussed in the Foreign Investing section
of this Prospectus.
Portfolios will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion, or the equivalent in
other currencies, or, in the case of domestic banks which do not have total
assets of at least $1 billion, the aggregate investment made in any one such
bank is limited to $100,000 and the princi-
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 43
<PAGE>
pal amount of such investment is insured in full by the Federal Deposit
Insurance Corporation, (ii) in the case of U.S. banks, it is a member of the
Federal Deposit Insurance Corporation, and (iii) in the case of foreign
branches of U.S. banks, the security is deemed by the Adviser to be of an
investment quality comparable with other debt securities which may be purchased
by the portfolio.
(2) Each portfolio (except Cash Reserves) may invest in commercial paper rated
at time of purchase by one or more 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). The Cash Reserves Portfolio invests only in commercial paper rated in
the highest category;
(3) Short-term corporate obligations rated high-grade at the time of purchase
by a NRSRO (e.g. A or better by Moody's, Standard & Poor's or Fitch);
(4) U.S. Government obligations including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of the
U.S. Government and differ mainly in interest rates, maturities and dates of
issue;
(5) Government Agency securities issued or guaranteed by U.S. Government
sponsored instrumentalities and Federal agencies. These include securities
issued by the Federal Home Loan Banks, Federal Land Bank, Farmers Home
Administration, Farm Credit Banks, Federal Intermediate Credit Bank, Fannie
Mae, Federal Financing Bank, the Tennessee Valley Authority, and others;
(6) Repurchase agreements collateralized by securities listed above; and
(7) Investments by the Cash Reserve Portfolio in Cash Equivalents are limited
by the quality, maturity and diversification requirements adopted under Rule
2a-7 of the 1940 Act.
CMOs--Collateralized Mortgage Obligations: are Derivatives which are
collateralized by mortgage pass-through securities. Cash flows from the
mortgage pass-through securities are allocated to various tranches (a "tranche"
is essentially a separate security) in a predetermined, specified order. Each
tranche has a stated maturity - the latest date by which the tranche can be
completely repaid, assuming no prepayments - and has an average life - the
average of the time to receipt of a principal payment weighted by the size of
the principal payment. The average life is typically used as a proxy for
maturity because the debt is amortized (repaid a portion at a time), rather
than being paid off entirely at maturity, as would be the case in a straight
debt instrument.
Possible Risks: Due to the possibility that prepayments (on home mortgages and
other collateral) will alter the cash flow on CMOs, it is not possible to
determine in advance the actual final maturity date or average life. Faster
prepayment will shorten the average life and slower prepayments will lengthen
it. However, it is possible to determine what the range of that movement could
be and to calculate the effect that it will have on the price of the security.
In selecting these securities, the Adviser will look for those securities that
offer a higher yield to compensate for any variation in average maturity.
Like bonds in general, mortgage-backed securities will generally decline in
price when interest rates rise. 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.
- --------------------------------------------------------------------------------
MAS Funds - 44 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Common Stocks: are Equity Securities which represent an ownership interest in a
corporation, entitling the shareholder to voting rights and receipt of
dividends paid based on proportionate ownership.
Convertibles: are convertible bonds or shares of convertible Preferred Stock
which may be exchanged for a fixed number of shares of Common Stock at the
purchaser's option.
Corporates--Corporate bonds: are debt instruments issued by private
corporations. Bondholders, as creditors, have a prior legal claim over common
and preferred stockholders of the corporation as to both income and assets for
the principal and interest due to the bondholder. A portfolio will buy
Corporates subject to any quality constraints. If a security held by a
portfolio is down-graded, the portfolio may retain the security if the Adviser
deems retention of the security to be in the best interests of the portfolio.
Depositary Receipts: include both Global Depositary Receipts ("GDRs") and
European Depositary Receipts ("EDRs"), in addition to other similar types of
depositary shares, and are securities that can be traded in U.S. or foreign
securities markets but which represent ownership interests in a security or
pool of securities by a foreign or U.S. corporation. Depositary Receipts may be
sponsored or unsponsored. The depositary of unsponsored Depositary Receipts may
provide less information to receipt holders.
Derivatives: A financial instrument whose value and performance are based on
the value and performance of another security or financial instrument. The
Adviser will use derivatives only in circumstances where they offer the most
economic means of improving the risk/reward profile of the portfolio. The
Adviser will not use derivatives to increase portfolio risk above the level
that could be achieved in the portfolio using only traditional investment
securities. In addition, the Adviser will not use derivatives to acquire
exposure to changes in the value of assets or indexes of assets that are not
listed in the applicable Allowable Investments for the portfolio. Any
applicable limitations are described under each investment definition. All of
the portfolios of MAS Funds, except the Cash Reserves Portfolio, may enter into
over-the-counter Derivatives transactions (Swaps, Caps, Floors, Puts, etc., but
excluding CMOs, Forwards, Futures and Options, and SMBS) with counterparties
approved by MAS in accordance with guidelines established by the Board of
Trustees. These guidelines provide for a minimum credit rating for each
counterparty and various credit enhancement techniques (for example,
collateralization of amounts due from counterparties) to limit exposure to
counterparties with ratings below AA. Derivatives include, but are not limited
to, CMOs, Forwards, Futures and Options, SMBS, Structured Investments,
Structured Notes and Swaps. See each individual Portfolio's listing of
Allowable Investments to determine which of these the Portfolio may hold.
Eastern European Issuers: The economies of Eastern European countries are
currently suffering both from the stagnation resulting from centralized
economic planning and control and the higher prices and unemployment associated
with the transition to market economics. Unstable economic and political
conditions may adversely affect security values. Upon the accession to power of
Communist regimes during the 1940's, 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.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 45
<PAGE>
Equity Securities: Commonly include but are not limited to Common Stock,
Preferred Stock, ADRs, Rights, Warrants, Convertibles, and Foreign Equities.
See each individual portfolio listing of Allowable Investments to determine
which of the above the portfolio can hold. Preferred Stock is contained in both
the definition of Equity Securities and Fixed-Income Securities since it
exhibits characteristics commonly associated with each type.
Fixed-Income Securities: Commonly include but are not limited to U.S.
Governments, Zero Coupons, Agencies, Corporates, High Yield, Mortgage
Securities, SMBS, CMOs, Asset-Backeds, Convertibles, Brady Bonds, Floaters,
Inverse Floaters, Cash Equivalents, Repurchase Agreements, Preferred Stock, and
Foreign Bonds. See each individual portfolio listing of Allowable Investments
to determine which securities a portfolio may hold. Preferred Stock is
contained in both the definition of Equity Securities and Fixed-Income
Securities since it exhibits characteristics commonly associated with each type
of security.
Floaters--Floating and Variable Rate Obligations: are debt obligations with a
floating or variable rate of interest, i.e. the rate of interest varies with
changes in specified market rates or indices, such as the prime rate, or at
specified intervals. Certain floating or variable rate obligations may carry a
demand feature that permits the holder to tender them back to the issuer of the
underlying instrument, or to a third party, at par value prior to maturity.
When the demand feature of certain floating or variable rate obligations
represents an obligation of a foreign entity, the demand feature will be
subject to certain risks discussed under Foreign Investing.
Foreign Bonds: are Fixed-Income Securities denominated in foreign currency and
issued and traded primarily outside of the U.S., including: (1) obligations
issued or guaranteed by foreign national governments, their agencies,
instrumentalities, or political subdivisions; (2) debt securities issued,
guaranteed or sponsored by supranational organizations established or supported
by several national governments, including the World Bank, the European
Community, the Asian Development Bank and others; (3) non-government foreign
corporate debt securities; and (4) foreign Mortgage Securities and various
other mortgage and asset-backed securities.
Foreign Currency: Portfolios investing in foreign securities will regularly
transact security purchases and sales in foreign currencies. These portfolios
may hold foreign currency or purchase or sell currencies on a forward basis
(see Forwards).
Foreign Equities: are Common Stock, Preferred Stock, Rights and Warrants of
foreign issuers denominated in foreign currency and traded primarily in
non-U.S. markets. Foreign Equities also include Depositary Receipts. Investing
in foreign companies involves certain special considerations which are not
typically associated with investing in U.S. companies (see Foreign Investing).
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.
A portfolio may use currency exchange contracts in the normal course of
business to lock in an exchange rate in connection with purchases and sales of
securities denominated in foreign currencies (transaction hedge) or to lock in
the U.S. dollar value of portfolio positions (position hedge). In addition, the
portfolios may cross hedge currencies by entering into a transaction to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which a portfolio has or expects to have
portfolio exposure. Portfolios may also engage in proxy hedging which is
defined as entering into positions in one currency to hedge investments
denominated in another currency, where the two currencies are economically
linked. A portfolio's entry into forward contracts, as well as any use of cross
or proxy hedging techniques will generally require the portfolio to hold liquid
securities or cash equal to the portfolio's obligations in a segregated account
throughout the duration of the contract.
- --------------------------------------------------------------------------------
MAS Funds - 46 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
A portfolio may also combine forward contracts with investments in securities
denominated in other currencies in order to achieve desired credit and currency
exposures. Such combinations are generally referred to as synthetic securities.
For example, in lieu of purchasing a foreign bond, a portfolio may purchase a
U.S. dollar-denominated security and at the same time enter into a forward
contract to exchange U.S. dollars for the contract's underlying currency at a
future date. By matching the amount of U.S. dollars to be exchanged with the
anticipated value of the U.S. dollar-denominated security, a portfolio may be
able to lock in the foreign currency value of the security and adopt a
synthetic investment position reflecting the credit quality of the U.S.
dollar-denominated security.
There is a risk in adopting a transaction hedge or position hedge to the extent
that the value of a security denominated in foreign currency is not exactly
matched with a portfolio's obligation under the forward contract. On the date
of maturity, a portfolio may be exposed to some risk of loss from fluctuations
in that currency. Although the Adviser will attempt to hold such mismatching to
a minimum, there can be no assurance that the Adviser will be able to do so.
For proxy hedges, cross hedges or a synthetic position, there is an additional
risk in that these transactions create residual foreign currency exposure. When
a portfolio enters into a forward contract for purposes of creating a position
hedge, transaction hedge, cross hedge or a synthetic security, it will
generally be required to hold liquid securities or cash in a segregated account
with a daily value at least equal to its obligation under the forward contract.
Futures & Options--Futures Contracts, Options on Futures Contracts and
Options: are Derivatives. Futures contracts provide for the sale by one party
and purchase by another party of a specified amount of a specific security, at
a specified future time and price. An option is a legal contract that gives the
holder the right to buy or sell a specified amount of the underlying security
or futures contract at a fixed or determinable price upon the exercise of the
option. A call option conveys the right to buy and a put option conveys the
right to sell a specified quantity of the underlying security.
A portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts in
combination with its outstanding obligations with respect to options
transactions would exceed 50% of its total assets. It will maintain assets
sufficient to meet its obligations under such contracts in a segregated account
with the custodian bank or will otherwise comply with the SEC's position on
asset coverage.
Possible Risks: The primary risks associated with the use of futures and
options are (i) imperfect correlation between the change in market value of the
securities held by a portfolio and the prices of futures and options relating
to the stocks, bonds or futures contracts purchased or sold by a portfolio; and
(ii) possible lack of a liquid secondary market for a futures contract and the
resulting inability to close a futures position which could have an adverse
impact on a portfolio's ability to execute futures and options strategies.
Additional risks associated with options transactions are (i) the risk that an
option will expire worthless; (ii) the risk that the issuer of an over-the-
counter option will be unable to fulfill its obligation to the portfolio due to
bankruptcy or related circumstances; (iii) the risk that options may exhibit
greater short-term price volatility than the underlying security; and (iv) the
risk that a portfolio may be forced to forego participation in the appreciation
of the value of underlying securities, futures contracts or currency due to the
writing of a call option.
High Yield: High yield securities are generally considered to be corporate
bonds, preferred stocks, and convertible securities rated Ba through C by
Moody's or BB through D by Standard & Poor's, and unrated securities considered
to be of equivalent quality. Securities rated less than Baa by Moody's or BBB
by Standard & Poor's are classified as non-investment grade securities and are
commonly referred to as junk bonds or high yield, high risk securities. Such
securities carry a high degree of risk and are considered speculative by the
major credit rating agencies. The following are excerpts from the Moody's and
Standard & Poor's definitions for speculative-grade debt obligations:
Moody's: Ba-rated bonds have "speculative elements" so their future
"cannot be considered assured," and protection of principal and interest
is "moderate" and "not well safeguarded during both good and bad times in
the future." B-rated bonds "lack characteristics of a desirable
investment" and the assurance of interest or principal payments "may be
small." Caa-rated bonds are "of poor standing" and "may be in default" or
may have "elements of danger with respect to principal or interest."
Ca-rated bonds represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked
shortcomings. C-rated bonds are the "lowest rated" class of bonds, and
issues so
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 47
<PAGE>
rated can be regarded as having "extremely poor prospects" of ever
attaining any real investment standing.
Standard & Poor's: BB-rated bonds have "less near-term vulnerability to
default" than B- or CCC-rated securities but face "major ongoing
uncertainties . . . which may lead to inadequate capacity" to pay interest
or principal. B-rated bonds have a "greater vulnerability to default than
BB-rated bonds and the ability to pay interest or principal will likely be
impaired by adverse business conditions." CCC-rated bonds have a currently
identifiable "vulnerability to default" and, without favorable business
conditions, will be "unable to repay interest and principal." C The rating C
is reserved for income bonds on which "no interest is being paid." D - Debt
rated D is in "default", and "payment of interest and/or repayment of
principal is in arrears."
While these securities offer high yields, they also normally carry with them a
greater degree of risk than securities with higher ratings. Lower-rated bonds
are considered speculative by traditional investment standards. High yield
securities may be issued as a consequence of corporate restructuring or similar
events. Also, high yield securities are often issued by smaller, less credit
worthy companies, or by highly leveraged (indebted) firms, which are generally
less able than more established or less leveraged firms to make scheduled
payments of interest and principal. The price movement of these securities is
influenced less by changes in interest rates and more by the financial and
business position of the issuing corporation when compared to investment grade
bonds.
The risks posed by securities issued under such circumstances are substantial.
If a security held by a portfolio is down-graded, the portfolio may retain the
security.
Inverse Floaters--Inverse Floating Rate Obligations: are Fixed-Income
Securities, which have coupon rates that vary inversely at a multiple of a
designated floating rate, such as LIBOR (London Inter-Bank Offered Rate). Any
rise in the reference rate of an inverse floater (as a consequence of an
increase in interest rates) causes a drop in the coupon rate while any drop in
the reference rate of an inverse floater causes an increase in the coupon rate.
Inverse floaters may exhibit substantially greater price volatility than fixed
rate obligations having similar credit quality, redemption provisions and
maturity, and inverse floater CMOs exhibit greater price volatility than the
majority of mortgage pass-through securities or CMOs. In addition, some inverse
floater CMOs exhibit extreme sensitivity to changes in prepayments. As a
result, the yield to maturity of an inverse floater CMO is sensitive not only
to changes in interest rates but also to changes in prepayment rates on the
related underlying mortgage assets.
Investment Companies: The portfolios are permitted to invest in shares of other
open-end or closed-end investment companies. The Investment Company Act of
1940, as amended, generally prohibits the portfolios from acquiring more than
3% of the outstanding voting shares of an investment company and limits such
investments to no more than 5% of the portfolio's total assets in any one
investment company and no more than 10% in any combination of investment
companies. The 1940 Act also prohibits the portfolios from acquiring in the
aggregate more than 10% of the outstanding voting shares of any registered
closed-end investment company.
To the extent a portfolio invests a portion of its assets in Investment
Companies, those assets will be subject to the expenses of the investment
company as well as to the expenses of the portfolio itself. The portfolios may
not purchase shares of any affiliated investment company except as permitted by
SEC Rule or Order.
Investment Funds: Some emerging market countries have laws and regulations that
currently preclude direct foreign investment in the securities of their
companies. However, indirect foreign investment in the securities of companies
listed and traded on the stock exchanges in these countries is permitted by
certain emerging market countries through investment funds. Portfolios that may
invest in these investment funds are subject to applicable law as discussed
under Investment Restrictions and will invest in such investment funds only
where appropriate given that the portfolio's shareholders will bear indirectly
the layer of expenses of the underlying investment funds in addition to their
proportionate share of the expenses of the portfolio. Under certain
circumstances, an investment in an investment fund will be subject to the
additional limitations that apply to investments in Investment Companies.
- --------------------------------------------------------------------------------
MAS Funds - 48 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Investment Grade Securities: are those rated by one or more nationally
recognized statistical rating organization (NRSRO) in one of the four highest
rating categories at the time of purchase (e.g. AAA, AA, A or BBB by Standard &
Poor's Corporation (Standard & Poor's) or Fitch Investors Service, Inc.,
(Fitch) or Aaa, Aa, A or Baa by Moody's Investors Service, Inc. (Moody's)).
Securities rated BBB or Baa represent the lowest of four levels of investment
grade securities and are regarded as borderline between definitely sound
obligations and those in which the speculative element begins to predominate.
Mortgage-backed securities, including mortgage pass-throughs and collateralized
mortgage obligations (CMOs), deemed investment grade by the Adviser, will
either carry a guarantee from an agency of the U.S. Government or a private
issuer of the timely payment of principal and interest (such guarantees do not
extend to the market value of such securities or the net asset value per share
of the portfolio) or, in the case of unrated securities, be sufficiently
seasoned that they are considered by the Adviser to be investment grade
quality. The Adviser may retain securities if their ratings falls below
investment grade if it deems retention of the security to be in the best
interests of the portfolio. Any Portfolio permitted to hold Investment Grade
Securities may hold unrated securities if the Adviser considers the risks
involved in owning that security to be equivalent to the risks involved in
holding an Investment Grade Security.
Loan Participations: are loans or other direct debt instruments which are
interests in amounts owed by a corporate, governmental or other borrower to
another party. They may represent amounts owed to lenders or lending
syndicates, to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments involve the risk of
loss in case of default or insolvency of the borrower. Direct debt instruments
may offer less legal protection to the portfolio in the event of fraud or
misrepresentation. In addition, loan participations involve a risk of
insolvency of the lending bank or other financial intermediary. Direct debt
instruments may also include standby financing commitments that obligate the
investing portfolio to supply additional cash to the borrower on demand. Loan
participations involving Emerging Market Issuers may relate to loans as to
which there has been or currently exists an event of default or other failure
to make payment when due, and may represent amounts owed to financial
institutions that are themselves subject to political and economic risks,
including the risk of currency devaluation, expropriation, or failure. Such
loan participations present additional risks of default or loss.
Mortgage Securities--Mortgage-backed securities represent an ownership interest
in a pool of residential and commercial mortgage loans. Generally, these
securities are designed to provide monthly payments of interest and principal
to the investor. The mortgagee's monthly payments to his/her lending
institution are passed through to investors such as the portfolio. Most issuers
or poolers provide guarantees of payments, regardless of whether the mortgagor
actually makes the payment. The guarantees made by issuers or poolers are
supported by various forms of credit, collateral, guarantees or insurance,
including individual loan, title, pool and hazard insurance purchased by the
issuer. The pools are assembled by various Governmental, Government-related and
private organizations. Portfolios may invest in securities issued or guaranteed
by the Government National Mortgage Association (GNMA), Federal Home Loan
Mortgage Corporation (FHLMC), Fannie Mae, 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.
There are two methods of trading mortgage-backed securities. A specified pool
transaction is a trade in which the pool number of the security to be delivered
on the settlement date is known at the time the trade is made. This is in
contrast with the typical mortgage security transaction, called a TBA (to be
announced) transaction, in which the type of mortgage securities to be
delivered is specified at the time of trade but the actual pool numbers of the
securities that will be delivered are not known at the time of the trade. The
pool numbers of the pools to be delivered at settlement will be announced
shortly before settlement takes place. The terms of the TBA trade may be made
more specific if desired. Generally, agency pass-through mortgage-backed
securities are traded on a TBA basis.
A mortgage-backed bond is a collateralized debt security issued by a thrift or
financial institution. The bondholder has a first priority perfected security
interest in collateral, usually consisting of agency mortgage pass-through
securities, although other assets, including U.S. Treasuries (including Zero
Coupon Treasury Bonds), agencies, cash equivalent securities, whole loans and
corporate bonds, may qualify. The amount of collateral must be continuously
maintained at levels from 115% to 150% of the principal amount of the bonds
issued, depending on the specific issue structure and collateral type.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 49
<PAGE>
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. Rising interest rates also tend to discourage refinancings of home
mortgages, with the result that the average life of mortgage securities held by
a portfolio may be lengthened. This extension of average life causes the market
price of the securities to decrease further than if their average lives were
fixed. However, when interest rates fall, mortgages may not enjoy as large a
gain in market value due to prepayment risk because additional mortgage
prepayments must be reinvested at lower interest rates. Faster prepayment will
shorten the average life and slower prepayments will lengthen it. However, it
is possible to determine what the range of that movement could be and to
calculate the effect that it will have on the price of the security. In
selecting these securities, the Adviser will look for those securities that
offer a higher yield to compensate for any variation in average maturity.
Municipals--Municipal Securities: are debt obligations issued by local, state
and regional governments that provide interest income which is exempt from
federal income taxes. Municipal securities include both municipal bonds (those
securities with maturities of five years or more) and municipal notes (those
with maturities of less than five years). Municipal bonds are issued for a wide
variety of reasons: to construct public facilities, such as airports, highways,
bridges, schools, hospitals, mass transportation, streets, water and sewer
works; to obtain funds for operating expenses; to refund outstanding municipal
obligations; and to loan funds to various public institutions and facilities.
Certain industrial development bonds are also considered municipal bonds if
their interest is exempt from federal income tax. Industrial development bonds
are issued by or on behalf of public authorities to obtain funds for various
privately-operated manufacturing facilities, housing, sports arenas, convention
centers, airports, mass transportation systems and water, gas or sewage works.
Industrial development bonds are ordinarily dependent on the credit quality of
a private user, not the public issuer.
General obligation municipal bonds are secured by the issuer's pledge of full
faith, credit and taxing power. Revenue or special tax bonds are payable from
the revenues derived from a particular facility or, in some cases, from a
special excise or other tax, but not from general tax revenue.
Municipal notes are issued to meet the short-term funding requirements of
local, regional and state governments. Municipal notes include bond
anticipation notes, revenue anticipation notes and tax and revenue anticipation
notes. These are short-term debt obligations issued by state and local
governments to aid cash flows while waiting for taxes or revenue to be
collected, at which time the debt is retired. Other types of municipal notes in
which the portfolio may invest are construction loan notes, short-term discount
notes, tax-exempt commercial paper, demand notes, and similar instruments.
Demand notes permit an investor (such as the portfolio) to demand from the
issuer payment of principal plus accrued interest upon a specified number of
days' notice. The portfolios eligible to purchase municipal bonds may also
purchase AMT bonds. AMT bonds are tax-exempt private activity bonds issued
after August 7, 1986, the proceeds of which are directed, at least in part, to
private, for-profit organizations. While the income from AMT bonds is exempt
from regular federal income tax, it is a tax preference item in the calculation
of the alternative minimum tax. The alternative minimum tax is a special
separate tax that applies to a limited number of taxpayers who have certain
adjustments to income or tax preference items.
PA Municipals: are obligations of the Pennsylvania state government, state
agencies and various local governments, including counties, cities, townships,
special districts and authorities. In general, the credit quality and credit
risk of any issuer's debt is contingent upon the state and local economy, the
health of the issuer's finances, the amount of the issuer's debt, the quality
of management and the strength of legal provisions in the debt document that
protect debt holders. Credit risk is usually lower wherever the economy is
strong, growing and diversified, where financial operations are sound and the
debt burden is reasonable.
Concentration of investment in the securities of one state exposes a portfolio
to greater credit risks than would be present in a nationally diversified
portfolio of municipal securities. The risks associated with investment in the
securities of a single state include possible tax changes or a deterioration in
economic conditions and differing levels of supply and demand for the municipal
obligations of that state.
Debt of Government Agencies, Authorities and Commissions: Certain state-created
agencies have statutory authorization to incur debt for which legislation
providing for state appropriations to pay debt service thereon is not
- --------------------------------------------------------------------------------
MAS Funds - 50 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
required. The debt of these agencies is supported by assets of, or revenues
derived from, the various projects financed; it is not an obligation of the
Commonwealth. Some of these agencies, however, such as the Delaware River Joint
Toll Bridge Commission, are indirectly dependent on Commonwealth funds through
various state-assisted programs.
Preferred Stock: are non-voting ownership shares in a corporation which pay a
fixed or variable stream of dividends.
Repurchase Agreements: are transactions by which a portfolio purchases a
security and simultaneously commits to resell that security to the seller (a
bank or securities dealer) at an agreed upon price on an agreed upon date
(usually within seven days of purchase). The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or date of maturity of the purchased security. Such agreements
permit the portfolio to keep all its assets at work while retaining overnight
flexibility in pursuit of investments of a longer term nature. The Adviser will
continually monitor the value of the underlying collateral to ensure that its
value, including accrued interest, always equals or exceeds the repurchase
price.
Pursuant to an order issued by the Securities and Exchange Commission, the
Fund's portfolios may pool their daily uninvested cash balances in order to
invest in repurchase agreements on a joint basis. By entering into repurchase
agreements on a joint basis, it is expected that the portfolios will incur
lower transaction costs and potentially obtain higher rates of interest on such
repurchase agreements. Each portfolio's participation in the income from
jointly purchased repurchase agreements will be based on that portfolio's
percentage share in the total repurchase agreement.
Rights: represent a preemptive right of stockholders to purchase additional
shares of a stock at the time of a new issuance, before the stock is offered to
the general public, allowing the stockholder to retain the same ownership
percentage after the new stock offering.
SMBS--Stripped Mortgage-Backed Securities: are Derivatives in the form of
multi-class mortgage securities. SMBS may be issued by agencies or
instrumentalities of the U.S. Government and private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose entities of the
foregoing.
SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of mortgage assets. One
type of SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the principal. In some cases, one class will
receive all of the interest (the 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 mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on a portfolio yield to maturity. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, a portfolio may
fail to fully recoup its initial investment in these securities, even if the
security is in one of the highest rating categories.
Although SMBS are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, these securities were
only recently developed. As a result, established trading markets have not yet
developed and, accordingly, certain of these securities may be deemed illiquid
and subject to a portfolio's limitations on investment in illiquid securities.
Structured Investments: are Derivatives in the form of a unit or units
representing an undivided interest(s) in assets held in a trust that is not an
investment company as defined in the Investment Company Act of 1940. A trust
unit pays a return based on the total return of securities and other
investments held by the trust and the trust may enter into one or more Swaps to
achieve its objective. For example, a trust may purchase a basket of securities
and
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 51
<PAGE>
agree to exchange the return generated by those securities for the return
generated by another basket or index of securities. A portfolio will purchase
Structured Investments in trusts that engage in such Swaps only where the
counterparties are approved by MAS in accordance with credit-risk guidelines
established by the Board of Trustees.
Structured Notes: are Derivatives on which the amount of principal repayment
and or interest payments is based upon the movement of one or more factors.
These factors include, but are not limited to, currency exchange rates,
interest rates (such as the prime lending rate and LIBOR) and stock indices
such as the S&P 500 Index. In some cases, the impact of the movements of these
factors may increase or decrease through the use of multipliers or deflators.
The use of Structured Notes allows a portfolio to tailor its investments to the
specific risks and returns the Adviser wishes to accept while avoiding or
reducing certain other risks.
Swaps--Swap Contracts: are Derivatives in the form of a contract or other
similar instrument which is an agreement to exchange the return generated by
one instrument for the return generated by another instrument. The payment
streams are calculated by reference to a specified index and agreed upon
notional amount. The term specified index includes, but is not limited to,
currencies, fixed interest rates, prices and total return on interest rate
indices, fixed-income indices, stock indices and commodity indices (as well as
amounts derived from arithmetic operations on these indices). For example, a
portfolio may agree to swap the return generated by a fixed-income index for
the return generated by a second fixed-income index. The currency swaps in
which the portfolios may enter will generally involve an agreement to pay
interest streams in one currency based on a specified index in exchange for
receiving interest streams denominated in another currency. Such swaps may
involve initial and final exchanges that correspond to the agreed upon notional
amount.
A portfolio will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a portfolio receiving or paying, as the case
may be, only the net amount of the two returns. A portfolio's obligations under
a swap agreement will be accrued daily (offset against any amounts owing to the
portfolio) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash
or liquid securities. A portfolio will not enter into any swap agreement unless
the counterparty meets the rating requirements set forth in guidelines
established by the Fund's Board of Trustees.
Possible Risks: Interest rate and total rate of return swaps do not involve the
delivery of securities, other underlying assets, or principal. Accordingly, the
risk of loss with respect to interest rate and total rate of return swaps is
limited to the net amount of interest payments that a portfolio is
contractually obligated to make. If the other party to an interest rate or
total rate of return swap defaults, a portfolio's risk of loss consists of the
net amount of interest payments that a portfolio is contractually entitled to
receive. In contrast, currency swaps 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, a
portfolio may have contractual remedies pursuant to the agreements related to
the transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals
and as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Swaps that include caps, floors, and
collars are more recent innovations for which standardized documentation has
not yet been fully developed and, accordingly, they are less liquid than swaps.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the portfolios would be less favorable than it would have been if this
investment technique were not used.
Taxable Investments: comprise Fixed-Income Securities and other instruments
which pay income that is not exempt from taxation. Investors may be liable for
tax on the income distributed as a result of the portfolio holding taxable
investments. In this event, shareholders will receive an IRS form 1099
disclosing the taxable income paid for a calendar year.
- --------------------------------------------------------------------------------
MAS Funds - 52 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
U.S. Governments--U.S. Treasury securities: are Fixed-Income Securities which
are backed by the full faith and credit of the U.S. Government as to the
payment of both principal and interest.
Warrants: are options issued by a corporation which give the holder the option
to purchase stock.
When-Issued Securities: are securities purchased at a certain price even though
the securities may not be delivered for up to 90 days. No payment or delivery
is made by a portfolio in a when-issued transaction until the portfolio
receives payment or delivery from the other party to the transaction. Although
a portfolio receives no income from the above described securities prior to
delivery, the market value of such securities is still subject to change. As a
consequence, it is possible that the market price of the securities at the time
of delivery may be higher or lower than the purchase price. A portfolio will
maintain with the custodian a segregated account consisting of cash or liquid
securities in an amount at least equal to these commitments.
Zero Coupons--Zero Coupon Obligations: are Fixed-Income Securities that do not
make regular interest payments. Instead, zero coupon obligations are sold at
substantial discounts from their face value. The difference between a zero
coupon obligation's issue or purchase price and its face value represents the
imputed interest an investor will earn if the obligation is held until
maturity. Zero coupon obligations may offer investors the opportunity to earn
higher yields than those available on ordinary interest-paying obligations of
similar credit quality and maturity. However, zero coupon obligation prices may
also exhibit greater price volatility than ordinary fixed-
income securities because of the manner in which their principal and interest
are returned to the investor.
GENERAL SHAREHOLDER INFORMATION
PURCHASE OF SHARES
Institutional Class Shares are available to clients of the Adviser with
combined investments of $5,000,000 and Shareholder Organizations who have a
contractual arrangement with the Fund or the Fund's Distributor, including
institutions such as trusts, foundations or broker-dealers purchasing for the
accounts of others.
Institutional Class Shares of each portfolio except for the Cash Reserves
Portfolio may be purchased at the net asset value per share next determined
after receipt of the purchase order. Such portfolios determine net asset value
as described under Other Information-Valuation of Shares each day that the
portfolios are open for business. See Other Information-Closed Holidays and
Valuation of Shares.
The Cash Reserves Portfolio declares dividends daily and, therefore, at the
time of a purchase must have funds immediately available for investment. As a
result, payment for the purchase of shares must be in the form of Federal Funds
(monies credited to the portfolio's Custodian by a Federal Reserve Bank) before
they can be accepted by the portfolio. The portfolio is credited with Federal
Funds on the same day if the investment is made by Federal Funds. Institutional
Class Shares of the Cash Reserves Portfolio may be purchased at the net asset
value next determined after an order is received by the portfolio and Federal
Funds are received by the Custodian. The Cash Reserves Portfolio determines net
asset value as of 12:00 noon (Eastern Time) each day that the portfolios are
open for business. See Other Information-Closed Holidays and Valuation of
Shares.
Initial Purchase by Mail: Subject to acceptance by the Fund, an account may be
opened by 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, LLP, One Tower Bridge, West Conshohocken, Pennsylvania 19428-0868
together with a check ($5,000,000 minimum) payable to MAS Funds.
The portfolios requested should be designated on the Account Registration Form.
Subject to acceptance by the Fund, payment for the purchase of shares received
by mail will be credited at the net asset value per share of the portfolio next
determined after receipt. Such payment need not be converted into Federal Funds
(monies credited to the Fund's Custodian Bank by a Federal Reserve Bank) before
acceptance by the Fund, except for the Cash Reserves Portfolio. Purchases made
by check in the Cash Reserves Portfolio are ordinarily credited at the net
asset
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 53
<PAGE>
value per share determined two business days after receipt of the check by the
Fund. Please note that purchases made by check in any portfolio are not
permitted to be redeemed until payment of the purchase has been collected,
which may take up to eight business days after purchase. Shareholders can avoid
this delay by purchasing shares by wire.
Initial Purchase by Wire: Subject to acceptance by the Fund, Institutional
Class Shares of each 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 portfolios (except the Cash
Reserves Portfolio), notification must be given to MAS Funds' Client Services
Group at 1-800-354-8185 prior to the determination of net asset value.
Institutional 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: (Portfolio Name, Account Number, Account Name)
Purchases in the Cash Reserves Portfolio may also be made by Federal Funds wire
to the Fund's Custodian. If the portfolio receives notification of an order
prior to 12:00 noon (Eastern Time) and funds are received by the Custodian the
same day, purchases of portfolio shares will become effective and begin to earn
income on that business day. Orders received after 12:00 noon (Eastern Time)
will be effective on the next business day upon receipt of funds. Federal Funds
purchases will be accepted only on a day on which the portfolio is open for
business. See Other Information-Closed Holidays.
Additional Investments: Additional investments of Institutional Class Shares at
net asset value may be made at any time (minimum investment $1,000) by mailing
a check (payable to MAS Funds) to MAS Funds' Client Services Group at the
address noted under Initial Purchase by Mail or by wiring Federal Funds to the
Custodian Bank as outlined above. Shares will be purchased at the net asset
value per share next determined after receipt of the purchase order. For all
portfolios, except the Cash Reserves Portfolio, notification must be given to
MAS Funds' Client Services Group at 1-800-354-8185 prior to the determination
of net asset value. For the Cash Reserves Portfolio, notification of a Federal
Funds wire must be received by 12:00 noon (Eastern Time). Purchases made by
check in the Cash Reserves Portfolio are ordinarily credited at the net asset
value per share determined two business days after receipt of the check by the
Fund.
Other Purchase Information: The Fund reserves the right, in its sole
discretion, to suspend the offering of Institutional Class Shares of any of its
portfolios or to reject any purchase orders when, in the judgment of
management, such suspension or rejection is in the best interest of the Fund.
The Fund also reserves the right, in its sole discretion, to waive the minimum
initial and subsequent investment amounts.
Purchases of a portfolio's Institutional Class Shares will be made in full and
fractional shares of the portfolio calculated to three decimal places. In the
interest of economy and convenience, certificates for shares will not be issued
except at the written request of the shareholder. Certificates for fractional
shares, however, will not be issued.
Institutional Class Shares of the Fund's portfolios are also sold to
corporations or other institutions such as trusts, foundations or
broker-dealers purchasing for the accounts of others (Shareholder
Organizations). Investors purchasing and redeeming shares of the portfolios
through a Shareholder Organization may be charged a transaction-based fee or
other fee for the services of such organization. Each Shareholder Organization
is responsible for transmitting to its customers a schedule of any such fees
and information regarding any additional or different conditions
- --------------------------------------------------------------------------------
MAS Funds - 54 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
regarding purchases and redemptions. Customers of Shareholder Organizations
should read this Prospectus in light of the terms governing accounts with their
organization. The Fund does not pay compensation to or receive compensation
from Shareholder Organizations for the sale of Institutional Class Shares.
REDEMPTION OF SHARES
Institutional Class Shares of each portfolio may be redeemed by mail, or, if
authorized, by telephone. No charge is made for redemptions. The value of
Institutional Class Shares redeemed may be more or less than the purchase
price, depending on the net asset value at the time of redemption which is
based on the market value of the investment securities held by the portfolio.
See other Information-Closed Holidays and Valuation of Shares.
By Mail: Each portfolio will redeem Institutional Class Shares at the net asset
value next determined after the request is received in good order. Requests
should be addressed to MAS Funds, c/o Miller Anderson & Sherrerd, LLP, 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, LLP, 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.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 55
<PAGE>
Payment of the redemption proceeds will ordinarily be made within three
business days after receipt of an order for a redemption. The Fund may suspend
the right of redemption or postpone the date of redemption at times when the
NYSE, the Custodian, or the Fund is closed (see Other Information-Closed
Holidays) or under any emergency circumstances as determined by the Securities
and Exchange Commission.
If the Board of Trustees determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay the redemption proceeds in whole or in part by
a distribution in-kind of readily marketable securities held by a portfolio in
lieu of cash in conformity with applicable rules of the Securities and Exchange
Commission. Investors may incur brokerage charges on the sale of portfolio
securities received in such payments of redemptions.
SHAREHOLDER SERVICES
Exchange Privilege: Each portfolio's Institutional Class Shares may be
exchanged for shares of the Fund's other portfolios offering Institutional
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, LLP, 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, LLP, 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
Equity, Growth, International Equity, Mid Cap Growth, Mid Cap Value, Small Cap
Value and Value Portfolios:
Net asset value per share is determined by dividing the total market value of
each portfolio's investments and other assets, less any liabilities, by the
total outstanding shares of that portfolio. Net asset value per share is
determined as of the close of the NYSE (normally 4:00 p.m. Eastern Time) on
each day the portfolio is open for business (See Other Information-Closed
Holidays). Equity Securities listed on a U.S. securities exchange or NASDAQ for
which market quotations are available are valued at the last quoted sale price
on the day the valuation is made. Price information on listed Equity Securities
is taken from the exchange where the security is primarily traded. Equity
Securities listed on a foreign exchange are valued at the latest quoted sales
price available before the time when assets are valued. For purposes of net
asset value per share, all assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at the bid price of such
currencies against U.S. dollars. Unlisted Equity Securities and listed U.S.
Equity Securities not traded on the valuation date for which market quotations
are readily available are valued at the mean of the most recent quoted bid and
asked price. The value of other assets and securities for which no quotations
are readily available (including restricted securities) are determined in good
faith at fair value using methods approved by the Trustees.
- --------------------------------------------------------------------------------
MAS Funds - 56 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Domestic Fixed Income, Fixed Income, Fixed Income Portfolio II, Global Fixed
Income, High Yield, Intermediate Duration, International Fixed Income, Limited
Duration, Mortgage-Backed Securities, Municipal, PA Municipal and Special
Purpose Fixed Income Portfolios:
Net asset value per share is computed by dividing the total value of the
investments and other assets of the portfolio, less any liabilities, by the
total outstanding shares of the portfolio. The net asset value per share is
determined as of one hour after the close of the bond markets (normally 4:00
p.m. Eastern Time) on each day the portfolio is open for business (See Other
Information-Closed Holidays). Bonds and other Fixed-Income Securities listed on
a foreign exchange are valued at the latest quoted sales price available before
the time when assets are valued. For purposes of net asset value per share, all
assets and liabilities initially expressed in foreign currencies will be
converted into U.S. dollars at the bid price of such currencies against U.S.
dollars.
Net asset value includes interest on bonds and other Fixed-Income Securities
which is accrued daily. Bonds and other Fixed-Income Securities which are
traded over the counter and on an exchange will be valued according to the
broadest and most representative market, and it is expected that for bonds and
other Fixed-Income Securities this ordinarily will be the over-the-counter
market.
However, bonds and other Fixed-Income Securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. The prices provided by a pricing
service are determined without regard to bid or last sale prices but take into
account institutional size trading in similar groups of securities and any
developments related to specific securities. Bonds and other Fixed-
Income Securities not priced in this manner are valued at the most recent
quoted bid price, or when stock exchange valuations are used, at the latest
quoted sale price on the day of valuation. If there is no such reported sale,
the latest quoted bid price will be used. Securities purchased with remaining
maturities of 60 days or less are valued at amortized cost when the Board of
Trustees determines that amortized cost reflects fair value. In the event that
amortized cost does not approximate market, market prices as determined above
will be used. Other assets and securities, for which no quotations are readily
available (including restricted securities), will be valued in good faith at
fair value using methods approved by the Board of Trustees.
Balanced, Multi-Asset-Class and Balanced Plus Portfolios: Net asset value per
share is computed by dividing the total value of the investments and other
assets of the portfolio, less any liabilities, by the total outstanding shares
of the portfolio. The net asset value per share of the Balanced,
Multi-Asset-Class and Balanced Plus Portfolios is determined as of the later of
the close of the NYSE or one hour after the close of the bond markets on each
day the portfolios are open for business. Equity, fixed-income and other
securities held by the portfolios will be valued using the policies described
above.
Cash Reserves Portfolio: The net asset value per share of the Cash Reserves
Portfolio is calculated daily as of 12:00 noon (Eastern Time) on each day that
the portfolio is open for business (See Other Information-Closed Holidays). The
portfolio determines its net asset value per share by subtracting the
portfolio's liabilities (including accrued expenses and dividends payable) from
the total value of the portfolio's investments and other assets and dividing
the result by the total outstanding shares of the portfolio.
For the purpose of calculating the portfolio's net asset value per share,
securities are valued by the amortized cost method of valuation, which does not
take into account unrealized gains or losses. This involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method
provides certainty in valuation, it may result in periods during which value
based on amortized cost is higher or lower than the price the portfolio would
receive if it sold the instrument.
The use of amortized cost and the maintenance of the portfolio's per share net
asset value at $1.00 is based on its election to operate under the provisions
of Rule 2a-7 under the Investment Company Act of 1940, as amended. As
conditions of operating under Rule 2a-7, the portfolio must maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of thirteen months or less and invest
only in U.S. dollar-denominated securities which are determined by the Trustees
to present minimal credit risks and which are of eligible quality as determined
under the rule.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 57
<PAGE>
The Trustees have also agreed to establish procedures reasonably designed,
taking into account current market conditions and the portfolio's investment
objective, to stabilize the net asset value per share as computed for the
purposes of sales and redemptions at $1.00. These procedures include periodic
review, as the Trustees deem appropriate and at such intervals as are
reasonable in light of current market conditions, of the relationship between
the amortized cost value per share and a net asset value per share based upon
available indications of market value. In such a review, investments for which
market quotations are readily available are valued at the most recent bid price
or quoted yield equivalent for such securities or for securities of comparable
maturity, quality and type as obtained from one or more of the major market
makers for the securities to be valued. Other investments and assets are valued
at fair value, as determined in good faith by the Trustees.
In the event of a deviation of over 1/2 of 1% between a portfolio's net asset
value based upon available market quotations or market equivalents and $1.00
per share based on amortized cost, the Trustees will promptly consider what
action, if any, should be taken. The Trustees will also take such action as
they deem appropriate to eliminate or to reduce to the extent reasonably
practicable any material dilution or other unfair results which might arise
from differences between the two. Such action may include redeeming shares in
kind, selling instruments prior to maturity to realize capital gains or losses
or to shorten average maturity, withholding dividends, paying distributions
from capital or capital gains, or utilizing a net asset value per share not
equal to $1.00 based upon available market quotations.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES: Dividends and Capital Gains
Distributions: The Fund maintains different dividend and capital gain
distribution policies for each portfolio. These are:
o The Equity, Value, Growth, Fixed Income, Fixed Income Portfolio II, Special
Purpose Fixed Income, High Yield, Limited Duration, Intermediate Duration,
Mortgage-Backed Securities, Balanced, Multi-Asset-Class, Global Fixed
Income, International Fixed Income, Domestic Fixed Income and Balanced Plus
Portfolios normally distribute substantially all of their net investment
income to shareholders in the form of quarterly dividends.
o The International Equity, Small Cap Value, Mid Cap Value and Mid Cap Growth
Portfolios normally distribute substantially all of their net investment
income in the form of annual dividends.
o The Municipal and the PA Municipal Portfolios normally distribute
substantially all of their net investment income in the form of monthly
dividends.
o The Cash Reserves Portfolio declares dividends daily and normally distributes
substantially all of its investment income in the form of monthly dividends.
If any portfolio does not have income available to distribute, as determined in
compliance with the appropriate tax laws, no distribution will be made.
If any net capital gains are realized from the sale of underlying securities,
the portfolios normally distribute such gains with the last dividend for the
calendar year.
All dividends and capital gains distributions are automatically paid in
additional shares of the portfolio unless the shareholder elects otherwise.
Such election must be made in writing to the Fund and may be made on the
Account Registration Form.
In all portfolios except the Cash Reserves Portfolio, undistributed net
investment income is included in the portfolio's net assets for the purpose of
calculating net asset value per share. Therefore, on the ex-dividend date, the
net asset value per share excludes the dividend (i.e., is reduced by the per
share amount of the dividend). Dividends paid shortly after the purchase of
shares by an investor, although in effect a return of capital, are taxable as
ordinary income.
- --------------------------------------------------------------------------------
MAS Funds - 58 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Certain Mortgage Securities may provide for periodic or unscheduled payments of
principal and interest as the mortgages underlying the securities are paid or
prepaid. However, such principal payments (not otherwise characterized as
ordinary discount income or bond premium expense) will not normally be
considered as income to the portfolio and therefore will not be distributed as
dividends. Rather, these payments on mortgage-backed securities will be
reinvested on behalf of the shareholders by the portfolio in accordance with
its investment objectives and policies.
Special Considerations for the Cash Reserves Portfolio: Net investment income
is computed and dividends declared as of 12:00 noon (Eastern Time), on each
day. Such dividends are payable to Cash Reserves Portfolio shareholders of
record as of 12:00 noon (Eastern Time) on that day, if the portfolio is open
for business. Shareholders who redeem prior to 12:00 noon (Eastern Time) are
not entitled to dividends for that day. Dividends declared for Saturdays,
Sundays and holidays are payable to shareholders of record as of 12:00 noon
(Eastern Time) on the preceding business day on which the portfolio was open
for business.
Net realized short-term capital gains, if any, of the Cash Reserves Portfolio
will be distributed whenever the Trustees determine that such distributions
would be in the best interest of shareholders, but at least once a year. The
portfolio does not expect to realize any long-term capital gains. Should any
such gains be realized, they will be distributed annually.
Federal Taxes: The following summary of Federal income tax consequences is
based on current tax laws and regulations, which may be changed by legislative,
judicial or administrative action. No attempt has been made to present a
detailed explanation of the federal income tax treatment of the portfolio or
its shareholders. In addition, state and local tax consequences of an
investment in the portfolio may differ from the Federal income tax consequences
described below. Accordingly, shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state and local taxes.
Each portfolio of the Fund intends to qualify for taxation as a regulated
investment company under the Internal Revenue Code of 1986 (the "Code") so that
each portfolio will not be subject to Federal income tax to the extent it
distributes investment company taxable income and net capital gain (the excess
of net long-term capital gain over net short-term capital loss) to
shareholders. Each Portfolio is treated as a separate entity for Federal income
tax purposes and is not combined with any of the Funds' other portfolios.
Dividends, either in cash or reinvested in shares, paid by a portfolio, except
for the Municipal and PA Municipal Portfolios (see Special Tax Considerations
for the Municipal and PA Municipal Portfolios) from net investment income will
be taxable to shareholders as ordinary income. In the case of the Equity,
Value, Small Cap Value, Mid Cap Growth, Growth, Balanced, Balanced Plus,
Multi-Asset-Class and Mid Cap Value Portfolios, such dividends paid to
corporate shareholders will generally qualify in part for the dividends
received deduction for corporations to the extent attributable to dividends
received by such portfolios from domestic corporations. The Fund will send each
shareholder a statement each year indicating the amount of the dividend income
which qualifies for such treatment.
Whether paid in cash or additional shares of a portfolio, and regardless of the
length of time the shares in such portfolio have been owned by the shareholder,
distributions from long-term capital gains are taxable to shareholders as such,
and are not eligible for the dividends received deduction for corporations.
Shareholders are notified annually by the Fund as to Federal tax status of
dividends and distributions paid by a portfolio. Such dividends and
distributions may also be subject to state and local taxes.
Exchanges and redemptions of shares in a portfolio are taxable events for
Federal income tax purposes. Individual shareholders may also be subject to
state and municipal taxes on such exchanges and redemptions.
Each portfolio intends to declare and pay dividends and capital gain
distributions so as to avoid imposition of the Federal excise tax. To do so,
each portfolio expects to distribute an amount at least equal to (i) 98% of its
calendar year ordinary income, (ii) 98% of its capital gains net income (the
excess of short and long-term capital gain over short and long-term capital
loss) for the one-year period ending October 31st, and (iii) 100% of any
undistrib-
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 59
<PAGE>
uted ordinary and capital gain net income from the prior year. Dividends
declared in October, November or December by a portfolio will be deemed to have
been paid by such portfolio and received by shareholders on December 31st of
the declared year provided that the dividends are paid before February 1 of the
following year.
The Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gains distributions, and redemptions)
paid to shareholders who have not complied with IRS regulations. In order to
avoid this withholding requirement, you must certify on the Account
Registration Form that your Social Security or Taxpayer Identification Number
provided is correct and that you are not currently subject to back-up
withholding, or that you are exempt from back-up withholding.
Foreign Income Taxes: Investment income received by the portfolios from sources
within foreign countries may be subject to foreign income taxes withheld at the
source. The U.S. has entered into Tax Treaties with many foreign countries
which entitle these portfolios to a reduced rate of tax or exemption from tax
on such income. It is impossible to determine the effective rate of foreign tax
in advance since the amount of the portfolios' assets to be invested within
various countries is not known. The portfolios intend to operate so as to
qualify for treaty reduced rates of tax where applicable.
The International Equity, Global Fixed Income and International Fixed Income
Multi-Asset-Class and Balanced Plus Portfolios may file an election with the
Internal Revenue Service to pass through to the portfolio's shareholders the
amount of foreign income taxes paid by the portfolio, but may do so only if
more than 50% of the value of the total assets of the portfolio at the end of
the fiscal year is represented by foreign securities. These portfolios will
make such an election only if they deem it to be in the best interests of their
shareholders. The other portfolios will not be able to make this election.
If this election is made, shareholders of the portfolio will be required to:
(i) include in gross income, even though not actually received, their
respective pro rata share of foreign taxes paid by the portfolio; (ii) treat
their pro rata share of foreign taxes as paid by them; and (iii) either deduct
their pro rata share of foreign taxes in computing their taxable income or use
it within the limitations set forth in the Internal Revenue Code as a foreign
tax credit against U.S. income taxes (but not both).
Each shareholder of the portfolio will be notified within 60 days after the
close of each taxable (fiscal) year of the Fund if the foreign taxes paid by
the portfolio will pass through for that year, and, if so, the amount of each
shareholder's pro rata share (by country) of (i) the foreign taxes paid, and
(ii) the portfolio's gross income from foreign sources. Shareholders who are
not liable for Federal income taxes, such as retirement plans qualified under
Section 401 of the Internal Revenue Code, will not be affected by any such
"pass through" of foreign tax credits.
State and Local Taxes: The Fund is formed as a Pennsylvania Business Trust and
therefore is not liable, under current law, for any corporate income or
franchise tax of the Commonwealth of Pennsylvania. The Fund will provide
Pennsylvania taxable values on a per share basis upon request.
Special Tax Considerations for the Municipal and PA Municipal Portfolios: These
portfolios intend to invest a sufficient portion of their assets in municipal
bonds and notes so that each will qualify to pay exempt-interest dividends to
shareholders. Such exempt-interest dividends are excluded from a shareholder's
gross income for Federal income tax purposes. Tax-exempt dividends received
from the Municipal and PA Municipal Portfolios may be subject to state and
local taxes. However, some states allow shareholders to exclude that portion of
a portfolio's tax-exempt income which is attributable to municipal securities
issued within the shareholder's state of residence. Furthermore, the PA
Municipal Portfolio invests at least 65% of its assets in PA Municipals. As a
result, the income of the portfolio that is derived from PA Municipals and U.S.
Governments will not be subject to the Pennsylvania personal income tax or to
the Philadelphia School District investment net income tax. Distributions by
the PA Municipal Portfolio to a Pennsylvania resident that are attributable to
most other sources may be subject to the Pennsylvania personal income tax and
(for residents of Philadelphia) to the Philadelphia School District investment
net income tax.
- --------------------------------------------------------------------------------
MAS Funds - 60 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
To the extent, if any, that dividends paid to shareholders of the Municipal and
PA Municipal Portfolios are derived from taxable interest or long-term or
short-term capital gains, such dividends will be subject to Federal personal
income tax (whether such dividends are paid in cash or in additional shares)
and may also be subject to state and local taxes. In addition, the Municipal
and PA Municipal Portfolios may invest in private activity municipal
securities, the interest on which is subject to the Federal alternative minimum
tax for corporations and individuals and the Federal environmental tax for
corporations only. Exempt-interest dividends from such private activity
securities issued after August 7, 1986, will generally be an item of tax
preference and therefore potentially subject to the alternative minimum tax
environmental tax. A shareholder may lose the tax exempt status of the accrued
income of these portfolios if they redeem their shares before a dividend has
been declared.
The Municipal and PA Municipal Portfolios may not be appropriate investments
for persons who are "substantial users" (or persons related to "substantial
users") of facilities financed by industrial development bonds or private
activity bonds. Such persons should consult their tax advisers before
purchasing shares.
TRUSTEES OF THE TRUST: The affairs of the Trust are supervised by the Trustees
under the laws governing business trusts in the Commonwealth of Pennsylvania.
The Trustees have approved contracts under which, as described above, certain
companies provide essential management, administrative and shareholder services
to the Trust.
INVESTMENT ADVISER: The Investment Adviser to the Fund, Miller Anderson &
Sherrerd, LLP (the "Adviser"), is a Pennsylvania limited liability partnership
founded in 1969, wholly owned by indirect subsidiaries of Morgan Stanley, Dean
Witter, Discover & Co., and is located at One Tower Bridge, West Conshohocken,
PA 19428. The Adviser provides investment services to employee benefit plans,
endowment funds, foundations and other institutional investors and as of March
31, 1997 had in excess of $43 billion in assets under management. On May 31,
1997, Morgan Stanley Group Inc., then the indirect parent of the Adviser,
merged with Dean Witter, Discover & Co. to form Morgan Stanley, Dean Witter,
Discover & Co. In connection with this transaction, the Adviser entered into a
new Investment Management Agreement ("Agreement") with MAS Funds dated May 31,
1997, which Agreement was approved by the shareholders of each portfolio at a
special meeting held on May 1, 1997 or at an adjournment of such meeting held
on May 12, 1997. The Adviser will retain its name and remain at its current
location, One Tower Bridge, West Conshohocken, PA 19428. The Adviser will
continue to provide investment counseling services to employee benefit plans,
endowments, foundations and other institutional investors.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 61
<PAGE>
Under the Agreement with the Fund, the Adviser, subject to the control and
supervision of the Fund's Board of Trustees and in conformance with the stated
investment objectives and policies of each portfolio of the Fund, manages the
investment and reinvestment of the assets of each portfolio of the Fund. In
this regard, it is the responsibility of the Adviser to make investment
decisions for the Fund's portfolios and to place each portfolio's purchase and
sales orders. As compensation for the services rendered by the Adviser under
the Agreement, each portfolio pays the Adviser an advisory fee calculated by
applying a quarterly rate, based on the following annual percentage rates, to
the portfolio's average daily net assets for the quarter:
Rate
------
Equity Portfolio .500%
Growth Portfolio .500
International Equity Portfolio .500
Mid Cap Growth Portfolio .500
Mid Cap Value Portfolio* .750
Small Cap Value Portfolio* .750
Value Portfolio .500
Cash Reserves Portfolio .250
Domestic Fixed Income Portfolio .375
Fixed Income Portfolio .375
Fixed Income Portfolio II .375
Global Fixed Income Portfolio .375
High Yield Portfolio .375
Intermediate Duration Portfolio .375
International Fixed Income Portfolio .375
Limited Duration Portfolio .300
Mortgage-Backed Securities Portfolio .375
Municipal Portfolio .375
PA Municipal Portfolio .375
Special Purpose Fixed Income Portfolio .375
Balanced Portfolio .450
Multi-Asset-Class Portfolio .650
Balanced Plus Portfolio .550
* Advisory fees in excess of 0.750% of average net assets are considered higher
than normal for most investment companies, but are not unusual for
portfolios that invest primarily in small capitalization stocks or in
countries with emerging market economies.
Until further notice, the Adviser has voluntarily agreed to waive its advisory
fees and reimburse certain expenses to the extent necessary to keep Total
Operating Expenses actually deducted from portfolio assets for the Mid Cap
Value, Cash Reserves, Domestic Fixed Income, Intermediate Duration, Limited
Duration, Mortgage-Backed Securities, Municipal, PA Municipal and
Multi-Asset-Class Portfolios from exceeding 0.88%, 0.32%, 0.50%, 0.52%, 0.42%,
0.50%, 0.50%, 0.50% and 0.78%, respectively.
- --------------------------------------------------------------------------------
MAS Funds - 62 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
For the fiscal year ended September 30, 1996, the Adviser received the
following as compensation for its services:
Rate
------
Equity Portfolio .500%
International Equity Portfolio .500%
Mid Cap Growth Portfolio .500%
Mid Cap Value Portfolio .564%
Small Cap Value Portfolio .750%
Value Portfolio .500%
Cash Reserves Portfolio .155%
Domestic Fixed Income Portfolio .362%
Fixed Income Portfolio .375%
Fixed Income Portfolio II .375%
Global Fixed Income Portfolio .375%
High Yield Portfolio .375%
Intermediate Duration Portfolio .244%
International Fixed Income Portfolio .375%
Limited Duration Portfolio .300%
Mortgage-Backed Securities Portfolio .335%
Municipal Portfolio .288%
PA Municipal Portfolio .228%
Special Purpose Fixed Income Portfolio .375%
Balanced Portfolio .450%
Multi-Asset-Class Portfolio .372%
Balanced Plus Portfolio N/A
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 63
<PAGE>
PORTFOLIO MANAGEMENT
The investment professionals who are primarily responsible for the day-to-day
management of the Fund's portfolios are as follows:
Equity Portfolio: Arden C. Armstrong, Kurt A. Feuerman, James J. Jolinger,
Nicholas J. Kovich, Robert J. Marcin and Gary G. Schlarbaum;
Value Portfolio: Robert J. Marcin, Richard M. Behler and Nicholas J. Kovich;
Small Cap Value and Mid Cap Value Portfolios: Gary G. Schlarbaum, Bradley S.
Daniels and William B. Gerlach;
Mid Cap Growth Portfolio: Arden C. Armstrong and Abhi Y. Kanitkar;
Growth Portfolio: Arden C. Armstrong and Gary G. Schlarbaum;
Fixed Income, Domestic Fixed Income, Special Purpose Fixed Income, and Fixed
Income II Portfolios: Thomas L. Bennett, Kenneth B. Dunn and Richard B. Worley;
Mortgage-Backed Securities Portfolio: Kenneth B. Dunn and Scott F. Richard;
High Yield Portfolio: Stephen F. Esser, Thomas L. Bennett and Robert E.
Angevine;
Cash Reserves Portfolio: Abigail Jones Feder and Ellen D. Harvey;
Limited Duration and Intermediate Duration Portfolios: Ellen D. Harvey, Scott
F. Richard and Christian G. Roth;
Municipal and PA Municipal Portfolios: Steven K. Kreider, Kenneth B. Dunn and
Scott F. Richard;
Balanced Portfolio: Thomas L. Bennett, John D. Connolly, Gary G. Schlarbaum,
Horacio A. Valeiras and Richard B. Worley;
Multi-Asset-Class Portfolio: Thomas L. Bennett, John D. Connolly, J. David
Germany, Gary G. Schlarbaum, Horacio A. Valeiras and Richard B. Worley;
International Equity Portfolio: Horacio A. Valerias and Hassan Elmasry;
Global Fixed Income and International Fixed Income Portfolios: J. David
Germany, Michael Kushma, Paul F. O'Brien and Richard B. Worley;
Balanced Plus Portfolio: Thomas L. Bennett, John D. Connolly, Gary G.
Schlarbaum, Horacio A. Valeiras, Richard B. Worley and J. David Germany.
A description of their business experience during the past five years is as
follows:
- --------------------------------------------------------------------------------
MAS Funds - 64 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Robert E. Angevine, Principal, Morgan Stanley, joined Morgan Stanley Asset
Management in 1988. He assumed responsibility for the High Yield Portfolio in
1996.
Arden C. Armstrong, Managing Director, Morgan Stanley, joined MAS in 1986. She
assumed responsibility for the Mid Cap Growth Portfolio in 1990, the Growth
Portfolio in 1993 and the Equity Portfolio in 1994.
Richard M. Behler, Principal, Morgan Stanley, joined MAS in 1995. He served as
a Portfolio Manager from 1992 through 1995 for Moore Capital Management and as
Senior Vice President for Merrill Lynch Economics from 1987 through 1992. He
assumed responsibility for the Value Portfolio in 1996.
Thomas L. Bennett, Managing Director, Morgan Stanley, joined MAS in 1984. He
assumed responsibility for the Fixed Income Portfolio in 1984, the Domestic
Fixed Income Portfolio 1987, the High Yield Portfolio in 1985, the Fixed Income
Portfolio II in 1990, the Special Purpose Fixed Income and Balanced Portfolios
in 1992 and the Multi-Asset-Class Portfolio in 1994.
John D. Connolly, Principal, Morgan Stanley, joined MAS in 1990. He assumed
responsibility for the Balanced Portfolio in 1992 and the Multi-Asset-Class
Portfolio in 1994.
Bradley S. Daniels, Vice President, Morgan Stanley, joined MAS in 1985. He
assumed responsibility for the Small Cap Value Portfolio in 1986 and the Mid
Cap Value Portfolio in 1994.
Kenneth B. Dunn, 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.
Hassan Elmasry, Principal, Morgan Stanley, joined MAS in 1995. He served as
First Vice President & International Equity Portfolio Manager from 1987 through
1995 for Mitchell Hutchins Asset Management. He assumed responsibility for the
International Equity Portfolio in 1996.
Stephen F. Esser, Managing Director, Morgan Stanley, joined MAS in 1988. He
assumed responsibility for the High Yield Portfolio in 1989.
Abigail Jones Feder, Principal, Morgan Stanley, joined Morgan Stanley in 1985.
She assumed responsibility for the Cash Reserves Portfolio in 1996.
Kurt Feuerman, Managing Director, Morgan Stanley, joined Morgan Stanley in
1990. He assumed responsibility for the Equity Portfolio in 1996.
William B. Gerlach, Vice President, Morgan Stanley, joined MAS in 1991. He
assumed responsibility for the Small Cap Value and Mid Cap Value Portfolios in
1996.
J. David Germany, Managing Director, Morgan Stanley, joined MAS in 1991. He
served as Vice President & Senior Economist for Morgan Stanley & Co. from 1989
to 1991. He assumed responsibility for the Global Fixed Income and
International Fixed Income Portfolios in 1993 and the Multi-Asset-Class
Portfolio in 1994.
Ellen D. Harvey, Principal, Morgan Stanley, joined MAS in 1984. She assumed
responsibility for the Cash Reserves Portfolio in 1990, the Limited Duration
Portfolio in 1992 and the Intermediate Duration Portfolio in 1994.
James J. Jolinger, Vice President, Morgan Stanley, joined MAS in 1994. He
served as Equity Analyst for Oppenheimer Capital from 1987-1994. He assumed
responsibility for the Equity Portfolio in 1997.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 65
<PAGE>
Abhi Y. Kanitkar, Vice President, Morgan Stanley, joined MAS in 1994. He served
as an Investment Analyst from 1993 through 1994 for Newbold's Asset Management
and as Director & Investment Analyst from 1990 through 1993 for Kanitkar
Investment Services, Inc. He assumed responsibility for the Mid Cap Growth
Portfolio in 1996.
Nicholas J. Kovich, Managing Director, Morgan Stanley, joined MAS in 1988. He
assumed responsibility for the Equity Portfolio in 1994 and the Value Portfolio
in 1997.
Steven K. Kreider, Principal, Morgan Stanley, joined MAS in 1988. He assumed
responsibility for the Municipal and the PA Municipal Portfolios in 1992.
Michael Kushma, Principal, Morgan Stanley, joined Morgan Stanley in 1988. He
assumed responsibility for the Global Fixed Income and International Fixed
Income Portfolios in 1996.
Robert J. Marcin, Managing Director, Morgan Stanley, joined MAS in 1988. He
assumed responsibility for the Value Portfolio in 1990 and the Equity Portfolio
in 1994.
Paul F. O'Brien, Principal, Morgan Stanley, joined MAS in 1996. He served as
Head of European Economics from 1993 through 1995 for JP Morgan and as
Principal Administrator from 1991 through 1992 for the Organization for
Economic Cooperation and Development. He assumed responsibility for the Global
Fixed Income and International Fixed Income Portfolios in 1996.
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, the Limited Duration, Intermediate Duration, Municipal and PA Municipal
Portfolios in 1994 and the Advisory Mortgage Portfolio in 1995.
Christian G. Roth, Principal, Morgan Stanley, joined MAS in 1991. He assumed
responsibility for the Limited Duration and Intermediate Duration Portfolios in
1994.
Gary G. Schlarbaum, Managing Director, Morgan Stanley; Director, MAS Fund
Distribution, Inc.; joined MAS in 1987. He assumed responsibility for the
Equity and Small Cap Value Portfolios in 1987, the Balanced Portfolio in 1992
and the Multi-Asset-Class and Mid Cap Value Portfolios in 1994.
Horacio A. Valeiras, Principal, Morgan Stanley, joined MAS in 1992. He served
as an International Strategist from 1989 through 1992 for Credit Suisse First
Boston and as Director-Equity Research in 1992. He assumed responsibility for
the International Equity Portfolio in 1992, the Emerging Markets Portfolio in
1993, the Multi-Asset-Class Portfolio in 1994 and the Balanced Portfolio in
1996.
Richard B. Worley, Managing Director, Morgan Stanley, joined MAS in 1978. He
assumed responsibility for the Fixed Income Portfolio in 1984, the Domestic
Fixed Income Portfolio in 1987, the Fixed Income Portfolio II in 1990, the
Balanced and Special Purpose Fixed Income Portfolios in 1992, the Global Fixed
Income and International Fixed Income Portfolios in 1993 and the
Multi-Asset-Class Portfolio in 1994.
ADMINISTRATIVE SERVICES: MAS serves as Administrator to the Fund pursuant to an
Administration Agreement dated as of November 18, 1993. 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.
- --------------------------------------------------------------------------------
MAS Funds - 66 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
GENERAL DISTRIBUTION AGENT: Shares of the Fund are distributed exclusively
through MAS Fund Distribution, Inc., a wholly-owned subsidiary of the Adviser.
PORTFOLIO TRANSACTIONS: The investment advisory agreement authorizes the
Adviser to select the brokers or dealers that will execute the purchases and
sales of investment securities for each of the Fund's portfolios and directs
the Adviser to use its best efforts to obtain the best execution with respect
to all transactions for the portfolios. In doing so, a portfolio may pay higher
commission rates than the lowest available when the Adviser believes it is
reasonable to do so in light of the value of the research, statistical, and
pricing services provided by the broker effecting the transaction.
It is not the Fund's practice to allocate brokerage or principal business on
the basis of sales of shares which may be made through intermediary brokers or
dealers. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Fund's Portfolios or who act as agents in the
purchase of shares of the portfolios for their clients.
Some securities considered for investment by each of the Fund's portfolios may
also be appropriate for other clients served by the Adviser. If purchase or
sale of securities consistent with the investment policies of a portfolio and
one or more of these other clients served by the Adviser is considered at or
about the same time, transactions in such securities will be allocated among
the portfolio and clients in a manner deemed fair and reasonable by the
Adviser. Although there is no specified formula for allocating such
transactions, the various allocation methods used by the Adviser, and the
results of such allocations, are subject to periodic review by the Fund's
Trustees. MAS may use its broker dealer affiliates, including Morgan Stanley &
Co., a wholly owned subsidiary of Morgan Stanley. Dean Witter, Discover & Co.,
the parent of MAS's general partner and limited partner, to carry out the
Fund's transactions, provided the Fund receives brokerage services and
commission rates comparable to those of other broker dealers.
OTHER INFORMATION: Description of Shares and Voting Rights: The Fund was
established under Pennsylvania law by a Declaration of Trust dated February 15,
1984, as amended and restated as of November 18, 1993. The Fund is authorized
to issue an unlimited number of shares of beneficial interest, without par
value, from an unlimited number of series (portfolios) of shares. Currently the
Fund consists of twenty-six portfolios.
The shares of each portfolio of the Fund are fully paid and non-assessable, and
have no preference as to conversion, exchange, dividends, retirement or other
features. The shares of each portfolio of the Fund have no preemptive rights.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Trustees can
elect 100% of the Trustees if they choose to do so. Shareholders are entitled
to one vote for each full share held (and a fractional vote for each fractional
share held), then standing in their name on the books of the Fund.
Meetings of shareholders will not be held except as required by the Investment
Company Act of 1940, as amended, and other applicable law. A meeting will be
held to vote on the removal of a Trustee or Trustees of the Fund if requested
in writing by the holders of not less than 10% of the outstanding shares of the
Fund. The Fund will assist in shareholder communication in such matters to the
extent required by law.
As of January 2, 1997, The Northern Trust Co. (Chicago, IL) owned a controlling
interest (as that term is defined by the Investment Company Act of 1940, as
amended) of the Cash Reserves Portfolio; the Inglis House Foundation
(Philadelphia, PA) owned a controlling interest in the Mortgage-Backed
Securities Portfolio; Richard B. Worley (West Conshohocken, PA) owned a
controlling interest in the PA Municipal Portfolio; Wendell & Co. (New York,
NY) owned a controlling interest in the Balanced Portfolio; the Charles A Dana
Foundation (New York, NY) owned a controlling interest in the Global Fixed
Income Portfolio and the Morgan Stanley Group, Inc. (New York, NY) owned a
controlling interest in the Intermediate Duration Portfolio.
Custodians: The Chase Manhattan Bank, New York, NY and Morgan Stanley Trust
Company (NY), Brooklyn, NY serve as custodians for the Fund. The custodians
hold cash, securities and other assets as required by the 1940 Act.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 67
<PAGE>
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 the Funds' Transfer Agent and dividend disbursing agent.
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 Fund is closed for
business are: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. In addition,
the Cash Reserves Portfolio will be closed on Martin Luther King Day, Columbus
Day and Veteran's Day.
- --------------------------------------------------------------------------------
MAS Funds - 68 Terms in bold type are defined in the Prospectus Glossary
<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 Corporation; Director, Sun Company, Inc.; Director,
Federal National Mortgage Association; Director, Reliance Group Holdings;
Director, Melville Corporation.
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, MAS Funds; Partner, Morgan, Lewis & Bockius,
LLP; formerly Attorney, Ropes & Gray.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 69
<PAGE>
(This page intentionally left blank)
- --------------------------------------------------------------------------------
MAS Funds - 70 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
MAS ACCOUNT REGISTRATION FORM
- ---------
MAS FUNDS MAS Fund Distribution, Inc.
General Distribution Agent
- -------------------------------------------------------------------------------
1 REGISTRATION/PRIMARY
MAILING ADDRESS
Confirmations and month-end statements will be mailed to this address.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Attention
---------------------------------------------------------------------
Street or P.O. Box
------------------------------------------------------------
City State Zip
---------------------------- --------------------- -------------
Telephone No.
-----------------------
Type of Account:
/ / Defined Benefit Plan / / Defined Contribution Plan
/ / Profit Sharing/Thrift Plan
/ / Other Employee Benefit Plan
-----------------------------------------------
/ / Endowment / / Foundation / / Taxable / / Other (Specify)
-------------
/ / United States Citizen / / Resident Alien / / Non-Resident Alien,
Indicate Country of Residence
------------------
===============================================================================
2 INTERESTED PARTY OPTION
In addition to the account statement sent to the above registered address,
the Fund is authorized to mail duplicate statements to the name and address
provided at right.
For additional interested party mailings, please attach a separate sheet.
Attention
---------------------------------------------------------------------
Company
(If Applicable)
----------------------------------------------------------------
Street or P.O. Box
------------------------------------------------------------
City State Zip
---------------------------- --------------------- -------------
Telephone No.
-----------------------
===============================================================================
3 INVESTMENT
For Purchase of:
<TABLE>
<CAPTION>
<S> <C> <C>
/ / Equity Portfolio / / Fixed Income Portfolio / / InternationalEquity Portfolio
/ / Value Portfolio / / Fixed Income Portfolio II / / Emerging Markets Portfolio
/ / Growth Portfolio / / Special Purpose Fixed Income Portfolio / / International Fixed Income Portfolio
/ / Mid Cap Growth Portfolio / / High Yield Portfolio / / Global Fixed Income Portfolio
/ / Mid Cap Value Portfolio / / Limited Duration Portfolio / / Municipal Portfolio
/ / Balanced Portfolio / / Intermediate Duration Portfolio / / PA Municipal Portfolio
/ / Multi-Asset-Class Portfolio / / Mortgage-Backed Securities Portfolio
/ / Balanced Plus Portfolio / / Cash Reserves Portfolio
/ / Domestic Fixed Income Portfolio
</TABLE>
<PAGE>
===============================================================================
4 TAXPAYER IDENTIFICATION NUMBER
Part 1.
Social Security Number
---------------------
or
Employer Identification Number
------------------------------
Part 2. BACKUP WITHHOLDING
/ / Check the box if the account is subject to Backup Withholding under
the provisions of Section 3406(a)(1)(C) of the Internal Revenue Code.
- -------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION
You (as a payee) are required by law to provide us (as payer) with your correct
taxpayer identification number. Accounts that have a missing or incorrect
taxpayer identification number will be subject to backup withholding at a 31%
rate on ordinary income and capital gains distribution as well as redemptions.
Backup withholding is not an additional tax; the tax liability of person subject
to backup withholding will be reduced by the amount of tax withheld.
You may be notified that you are subject to backup withholding under section
3406(a)(1)(C) because you have underreported interest or dividends or you were
required to, but failed to, file a return which would have included a reportable
interest or dividend payment. If you have been so notified, check the box in
PART 2 at left.
- -------------------------------------------------------------------------------
MILLER
ANDERSON
& SHERRERD, LLP ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428 o 800-354-8185
- -------------------------------------------------------------------------------
SIDE ONE OF TWO
<PAGE>
MAS
- ---------
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 unless either box below is
checked. 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.
===============================================================================
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)
<PAGE>
===============================================================================
SIGNATURE(S) OF ALL HOLDERS AND TAXPAYER CERTIFICATION
The undersigned certify that I/we have full authority and legal capacity to
purchase shares of the Fund and affirm that I/we have received a current MAS
Funds Prospectus and agree to be bound by its terms. Under penalties of
perjury I/we certify that the information provided in Section 4 above is true,
correct and complete. The Internal Revenue Service does not require your
consent to any provision of this 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>
(This page intentionally left blank)
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 73
<PAGE>
(This page intentionally left blank)
- --------------------------------------------------------------------------------
MAS Funds - 74 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
(This page intentionally left blank)
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 75
<PAGE>
- ------MAS------------------------------------------------------- PROSPECTUS----
---------
MAS FUNDS
January 31, 1997
As Revised June 5, 1997
Investment Adviser and Administrator: Transfer Agent:
Miller Anderson & Sherrerd, LLP Chase Global Funds Services Company
One Tower Bridge 73 Tremont Street
West Conshohocken, Boston, Massachusetts 02108-0913
Pennsylvania 19428-2899
General Distribution Agent:
MAS Fund Distribution, Inc.
One Tower Bridge
P.O. Box 868
West Conshohocken,
Pennsylvania 19428-0868
-------------------------------------------------------------------------------
Table of Contents
Page Page
Fund Expenses 2 General Shareholder Information
Prospectus Summary 4 Purchase of Shares 53
Financial Highlights 8 Redemption of Shares 55
Yield and Total Return 15 Shareholder Services 56
Investment Suitability 16 Valuation of Shares 56
Investment Limitations 17 Dividends, Capital Gains
Portfolio Summaries 19 Distributions and Taxes 58
Equity Investments 19 Investment Adviser 61
Fixed-Income Investments 22 Portfolio Management 64
Prospectus Glossary: Administrative Services 66
Strategies 38 General Distribution Agent 67
Investments 43 Portfolio Transactions 67
Other Information 67
Trustees and Officers 69
MILLER
ANDERSON
& SHERRERD, LLP__ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428 o 800-354-8185
