<PAGE>
- ---MAS------------------------------------------------ADVISER CLASS PROSPECTUS--
- ---------
MAS FUNDS
January 31, 1997
As Revised June 6, 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, six of which are described in this Prospectus. Each portfolio in
this Prospectus operates as a separate diversified investment company. The
investment objective of each portfolio is described with a summary of
investment policies as referenced below. This Prospectus offers the Adviser
Class Shares of the Fund. The Fund also offers Institutional Class Shares and
Investment Class Shares.
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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.
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PORTFOLIO PAGE REFERENCE
------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
How to Use This Prospectus: 3 Fixed Income 16 Prospectus Glossary:
- -------------------------- -------------------
High Yield 17 Strategies 20
Portfolio Summaries: Limited Duration 18 Investments 24
- -------------------
Mid Cap Growth 14 Balanced 19
Value 15 General Shareholder
-------------------
Information: 36
-----------
Table of Contents: 51
-----------------
</TABLE>
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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 - ADVISER CLASS SHARES
The following tables illustrate the various expenses and fees that a
shareholder for that portfolio will incur either directly or indirectly. The
annual expenses and fees set forth below are estimated based upon the
portfolios attaining certain average asset levels. The Adviser may from time to
time waive fees or reimburse expenses thereby reducing total operating
expenses.
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses:
(as a percentage of average net assets after fee waivers)
12b-1 Fees 0.25%
Investment Total
Advisory Other Operating
Portfolio Fees Expenses Expenses
- ------------------ ------------ ---------- ----------
Mid Cap Growth 0.500% 0.150% 0.900%
Value 0.500* 0.150 0.900
Fixed Income 0.375 0.155 0.780
High Yield 0.375 0.175 0.800
Limited Duration 0.300* 0.150 0.700
Balanced 0.450 0.200 0.900
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
expenses that otherwise would be deducted from portfolio assets.
* The Adviser has voluntarily agreed to waive advisory fees and/or reimburse
certain other expenses, to the extent necessary, to keep the Total Operating
Expenses from exceeding, 0.900% and 0.700% for the Value and Limited Duration
Portfolios, respectively. Absent such waivers or reimbursements the Total
Operating Expenses would be 0.940% for the Value Portfolio. There are no such
waivers or reimbursements for the Limited Duration Portfolio.
- --------------------------------------------------------------------------------
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. Long-term shareholders may
eventually pay more than the economic equivalent of the maximum front-end sales
charge otherwise permitted by the Rules of Fair Practice of the National
Association of Securities Dealers, Inc.
Portfolio 1 year 3 year 5 year 10 year
- ------------------ -------- -------- -------- --------
Mid Cap Growth $9 $29 $50 $111
Value 9 29 50 111
Fixed Income 8 25 43 97
High Yield 8 26 44 99
Limited Duration 7 22 39 87
Balanced 9 29 50 111
- --------------------------------------------------------------------------------
HOW TO USE THIS PROSPECTUS
A PROSPECTUS SUMMARY begins on page 4;
FINANCIAL HIGHLIGHTS and a description of YIELD AND TOTAL RETURN begin on page
7;
GENERAL INFORMATION including INVESTMENT LIMITATIONS pertinent to all
portfolios begins on page 11;
SUMMARY PAGES for each portfolio's Objective, Policies and Strategies begin on
page 14;
The PROSPECTUS GLOSSARY which defines specific Allowable Investments, Policies
and Strategies printed in bold type throughout this Prospectus begins on page
20;
GENERAL SHAREHOLDER INFORMATION begins on page 36.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 3
<PAGE>
PROSPECTUS SUMMARY
EQUITY PORTFOLIOS
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.
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
Fixed Income - seeks to achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk, by investing primarily
in a diversified portfolio of U.S. Governments, Corporates, Mortgage
Securities, Foreign Bonds and other Fixed-Income Securities and Derivatives.
The portfolio's average weighted maturity will ordinarily exceed five years.
High Yield - seeks to achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by investing primarily in
a diversified portfolio of High Yield Securities, Corporates and other
Fixed-Income Securities (including bonds rated below investment grade) and
Derivatives. The portfolio's average weighted maturity will ordinarily exceed
five years.
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.
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.
- --------------------------------------------------------------------------------
MAS Funds - 4 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
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 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 may invest in certain instruments such as Forwards, certain
types of Futures & Options, certain types of Mortgage Securities and
When-Issued Securities which require the portfolio to segregate some or all of
its cash or liquid securities to cover its obligations pursuant to such
instruments. As asset segregation reaches certain levels, a portfolio may lose
flexibility in managing its investments properly, responding to shareholder
redemption requests, or meeting other obligations and may be forced to sell
other securities that it wanted to retain or to realize unintended gains or
losses;
o Investments in floating rate securities (Floaters) and inverse floating rate
securities (Inverse Floaters) and mortgage-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 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; and
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.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 5
<PAGE>
HOW TO INVEST: Adviser Class Shares of each portfolio are available to
Shareholders with combined investments of $500,000 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 Institutional and Investment Class Shares which
differ from the Adviser Class Shares in expenses charged and purchase
requirements. Further information relating to the other classes may be obtained
by calling 800-354-8185.
HOW TO REDEEM: Shares of each portfolio may be redeemed at any time at the net
asset value of the portfolio next determined after receipt of the redemption
request. The redemption price may be more or less than the purchase price. 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.
- --------------------------------------------------------------------------------
MAS Funds - 6 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Financial Highlights -- Fiscal Years Ended September 30
Selected per share data and ratio for a share of each Portfolio outstanding
throughout each period
The following information should be read in conjunction with the Fund's
financial statements which are included in the Annual Report to Shareholders
and incorporated by reference in the Statement of Additional Information. The
Fund's financial statements for the year ended September 30, 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.
The Adviser Class shares of the Mid Cap Growth, Fixed Income, High Yield,
Limited Duration and Balanced Portfolios had not commenced operations as of
September 30, 1996, therefore, Institutional Class share financial information
is provided to investors for informational purposes only and should be referred
to as a historical guide to a Portfolio's operations and expenses. Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
<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>
Mid Cap Growth Portfolio (Commencement of Institutional Class 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) --
Value Portfolio (Commencement of Adviser Class Operations 7/17/96)##
1996 $14.11 $0.01 $1.49 $1.50 -- --
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Other Total Value- End of Expenses Net Income Portfolio Average
Distri- Distri- End of Total Period to Average to Average Turnover Commission
butions butions Period Return** (thousands) Net Assets Net Assets Rate Rate###
--------- --------- ----------- ---------- ------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mid Cap Growth Portfolio (Commencement of Institutional Class 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
Value Portfolio (Commencement of Adviser Class Operations 7/17/96)##
1996 -- -- $15.61 10.63% $ 15,493 0.86%* 1.66%* 53% $0.0572
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
# Formerly Emerging Growth Portfolio (through May 17, 1995)
## For the years ended September 30, 1995 and 1996, the Ratio of Expenses to
Average Net Assets for the Mid Cap Growth Portfolio excludes the effect of
expense offsets. If expense offsets were included, the Ratio of Expenses to
Average Net Assets would be 0.60%. For the period ended September 30, 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 0.85%*
### For fiscal years beginning on or after Sepember 1, 1995 a fund is required
to disclose the average commission rate per share it paid for trades on
which commissions were charged.
+++ Adjusted to reflect a 2.5 for 1 share split as of August 13, 1993.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds -7
<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>
Fixed Income Portfolio (Commencement of Institutional Class 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)
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)
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Other Total Value- End of Expenses Net Income Portfolio
Distri- Distri- End of Total Period to Average to Average Turnover
butions butions Period Return (thousands) Net Assets Net Assets Rate
------------- --------- ----------- -------- ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Income Portfolio (Commencement of Institutional Class 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 ($0.13)+ (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
</TABLE>
+ Represents distributions in excess of realized net gain.
## For the years ended September 30, 1995 and 1996, the Ratio of Expenses to
Average Net Assets for the Fixed Income Portfolio excludes the effect of
expense offsets. If expense offsets were included, the Ratio of Expenses to
Average Net Assets would be 0.48%.
+++ Adjusted to reflect a 2.5 for 1 share split as of August 13, 1993.
- --------------------------------------------------------------------------------
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 Other
Beginning Investment (realized and Investment investment (realized net Distri-
of Period Income unrealized) Activities income) capital gains) butions
----------- ------------ --------------- ------------ --------------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
High Yield Portfolio (Commencement of Institutional Class 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) -- --
Limited Duration Portfolio (Commencement of Institutional Class 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) -- --
Balanced Portfolio (Commencement of Institutional Class 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) -- --
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Total Value- End of Expenses Net Income Portfolio Average
Distri- End of Total Period to Average to Average Turnover Commission
butions Period Return** (thousands) Net Assets Net Assets Rate Rate###
----------- ----------- ---------- ------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Portfolio (Commencement of Institutional Class 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
Limited Duration Portfolio (Commencement of Institutional Class 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
Balanced Portfolio (Commencement of Institutional Class Operations 12/31/92)##, +++
1996 ($0.93) $13.81 13.47% $300,868 0.57% 3.85% 110% $0.0521
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
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
+ Represents distributions in excess of net realized gains.
++ For the years 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 and
Limited Duration Portfolios from exceeding 0.525% 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; 0.03% and 0.02% for the Limited
Duration Portfolio for the years ended September 30, 1993 and 1995,
respectively.
# Formerly High Yield Securities Portfolio and Limited Duration Fixed Income
Portfolio, respectively (through December 23, 1994).
## For the years ended September 30, 1995 and 1996, the Ratio of Expenses to
Average Net Assets for the High Yield, Limited Duration and Balanced
Portfolios excludes the effect of expense offsets. If expense offsets were
included, the Ratio of Expenses to Average Net Assets would be 0.49%, 0.42%
and 0.57%, respectively, for 1995 and 0.48%, 0.42%, and 0.57% respectively,
for 1996..
### For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose the average commission rate per share it paid for trades on
which commissions were charged.
+++ Adjusted to reflect a 2.5 for 1 share split as of August 13, 1993.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 9
<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 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 performance of a portfolio may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported
in financial and industry publications, returns of other investment advisers
and mutual funds, and various indices as further described in the Statement of
Additional Information.
The performance of Institutional Class Shares, Investment Class Shares and
Adviser Class Shares differ because of any class-specific expenses paid by each
class and the shareholder servicing fees charged to Investment Class Shares and
distribution fees charged to Adviser Class Shares.
The Annual Report to Shareholders of the Fund for the Fund's most recent fiscal
year-end contains additional performance information that includes comparisons
with appropriate indices. The Annual Report is available without charge upon
request by writing to the Fund or calling the Client Services Group at the
telephone number shown on the front cover of this Prospectus.
- --------------------------------------------------------------------------------
MAS Funds - 10 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
GENERAL INFORMATION
The following information relates to each portfolio of the Fund and should be
read in conjunction with the specific information about each portfolio.
Objectives: Each portfolio seeks to achieve its investment objective relative
to the universe of securities in which it is authorized to invest and,
accordingly, the total return or current income achieved by a portfolio may not
be as great as that achieved by another portfolio that can invest in a broader
range of securities. Fixed-Income Portfolios will seek to produce total return
by actively trading portfolio securities. The objective of each portfolio is
fundamental and may only be changed with approval of holders of a majority of
the shares of each portfolio. The achievement of any portfolio's objective
cannot be assured.
Suitability: The Fund's portfolios are designed for long-term investors who can
accept the risks entailed in investing in the stock and bond markets, and are
not meant to provide a vehicle for playing short-term swings in the market. The
Fund's portfolios are designed principally for the investments of tax-exempt
fiduciary investors who are entrusted with the responsibility of investing
assets held for the benefit of others. Since such investors are not subject to
Federal income taxes, securities transactions for all portfolios will not be
influenced by the different tax treatment of long-term capital gains,
short-term capital gains, and dividend income under the Internal Revenue Code.
Securities Lending: Each portfolio may lend its securities to qualified
brokers, dealers, banks and other financial institutions for the purpose of
realizing additional income. Loans of securities will be collateralized by
cash, letters of credit, or securities issued or guaranteed by the U.S.
Government or its agencies. The collateral will equal at least 100% of the
current market value of the loaned securities. In addition, a portfolio will
not loan its portfolio securities to the extent that greater than one-third of
its total assets, at fair market value, would be committed to loans at that
time.
Illiquid Securities/Restricted Securities: Each of the portfolios may invest up
to 15% of its net assets 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 Portfolio and the fixed-income portion of the
Balanced Portfolio, the annual turnover rate will ordinarily exceed 100% due to
changes in portfolio duration, yield curve strategy or commitments to forward
delivery mortgage-backed securities.
Portfolio turnover rates for certain portfolios as of September 30, 1996 were:
Mid Cap Growth - 141%, Fixed Income - 162%, High Yield - 115%, Limited Duration
- - 174% and Balanced - 110%.
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 bro-
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 11
<PAGE>
kerage 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 the 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;
(b) with respect to 75% of its assets, a portfolio will not purchase a security
if, as a result, the portfolio would hold more than 10% of the outstanding
voting securities of any issuer;
(c) a portfolio will not acquire any securities of companies within one
industry, if, as a result of such acquisition, more than 25% of the value of
the portfolio's total assets would be invested in securities of companies
within such industry; provided, however, that (1) there shall be no limitation
on the purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; (2) utility companies will be divided according
to their services, for example, gas, gas transmission, electric and telephone
will each be considered a separate industry; (3) financial service companies
will be classified according to the end users of their services, for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (4) asset-backed securities will be
classified according to the underlying assets securing such securities;
(d) a portfolio will not make loans except (i) by purchasing debt securities in
accordance with its investment objectives and policies, or entering into
Repurchase Agreements, (ii) by lending its portfolio securities and (iii) by
lending portfolio assets to other portfolios of the Fund, so long as such loans
are not inconsistent with the Investment Company Act of 1940, as amended or the
Rules and Regulations, or interpretations or orders of the Securities and
Exchange Commission thereunder;
(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);
- --------------------------------------------------------------------------------
MAS Funds - 12 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
(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; and
(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.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 13
<PAGE>
Mid Cap Growth Portfolio
Objective: To achieve long-term capital growth by investing primarily in
common stocks of smaller and medium size companies which are
deemed by the Adviser to offer long-term growth potential. Due
to its emphasis on long-term capital growth, dividend income
will be lower than for the Equity and Value Portfolios.
Approach: 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 - 14 Terms in bold type are defined in the Prospectus Glossary
<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
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 15
<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 - 16 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 Issuers High Yield Repurchase Agreements
Investments: Asset-Backeds Floaters Inverse Floaters SMBS
Brady Bonds Foreign Bonds Investment Companies Structured Notes
Cash Equivalents Foreign Currency Loan Participations Swaps
CMOs Foreign Equities Mortgage Securities U.S. Governments
Convertibles Forwards Municipals When Issued
Corporates Futures & Options Preferred Stock Zero Coupons
Eastern European Issuers
</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 - 17
<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 Mortgage Securities U.S. Governments
Brady Bonds Corporates Repurchase Agreements When Issued
Cash Equivalents Floaters Structured Notes Zero Coupons
</TABLE>
Comparative Index: Salomon 1-3 Year Index
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
- --------------------------------------------------------------------------------
MAS Funds - 18 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 - 19
<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 Portfolio,
the Adviser selects fixed-income securities not only on the basis of judgments
regarding Maturity and Duration Management and Value
- --------------------------------------------------------------------------------
MAS Funds - 20 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Investing, but also on the basis of the value offered by various segments of
the fixed-income securities market relative to Cash Equivalents and Equity
Securities. In this context, the Adviser may find that certain segments of the
fixed-income securities market offer more or less attractive relative value
when compared to Equity Securities than when compared to other Fixed-Income
Securities.
For example, in a given interest rate environment, equity securities may be
judged to be fairly valued when compared to intermediate duration fixed-income
securities, but overvalued compared to long duration fixed-income securities.
Consequently, while a portfolio investing only in fixed-income securities may
not emphasize long duration assets to the same extent, the fixed-income portion
of a balanced investment may invest a percentage of its assets in long duration
bonds on the basis of their valuation relative to equity securities.
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.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 21
<PAGE>
High Yield Investing: Involves investing in high yield securities based on the
Adviser's analysis of economic and industry trends and individual security
characteristics. The Adviser conducts credit analysis for each security
considered for investment to evaluate its attractiveness relative to its risk.
A high level of diversification is also maintained to limit credit exposure to
individual issuers.
To the extent a portfolio invests in high yield securities it will be exposed
to a substantial degree of credit risk. Lower-rated bonds are considered
speculative by traditional investment standards. High yield securities may be
issued as a consequence of corporate restructuring or similar events. Also,
high yield securities are often issued by smaller, less credit worthy
companies, or by highly leveraged (indebted) firms, which are generally less
able than more established or less leveraged firms to make scheduled payments
of interest and principal. The risks posed by securities issued under such
circumstances are substantial.
The market for high yield securities is still relatively new. Because of this,
a long-term track record for bond default rates does not exist. In addition,
the secondary market for high yield securities is generally less liquid than
that for investment grade corporate securities. In periods of reduced market
liquidity, high yield bond prices may become more volatile, and both the high
yield market and a portfolio may experience sudden and substantial price
declines. This lower liquidity might have an effect on a portfolio's ability to
value or dispose of such securities. Also, there may be significant disparities
in the prices quoted for high yield securities by various dealers. Under such
conditions, a portfolio may find it difficult to value its securities
accurately. A portfolio may also be forced to sell securities at a significant
loss in order to meet shareholder redemptions. These factors add to the risks
associated with investing in high yield securities.
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.
- --------------------------------------------------------------------------------
MAS Funds - 22 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
The following table provides a summary of ratings assigned to all U.S. and
foreign debt holdings of those portfolios with more than 5% invested in High
Yield securities 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.
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%
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
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security with interest payments occurring prior to the payment of principal,
duration is always less than maturity. In general, all other factors being the
same, the lower the stated or coupon rate of interest of a fixed-income
security, the longer the duration of the security; conversely, the higher the
stated or coupon rate of interest of a fixed-income security, the shorter the
duration of the security.
There are some situations where even the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or
more years; however, their interest rate exposure corresponds to the frequency
of the coupon reset. Another example where the interest rate exposure is not
properly captured by duration is the case of mortgage pass-through securities.
The stated final maturity of such securities is generally 30 years, but current
prepayment rates are more critical in determining the securities' interest rate
exposure. In these and other similar situations, the Adviser will use
sophisticated analytical techniques that incorporate the economic life of a
security into the determination of its interest rate exposure.
Mortgage Investing: At times it is anticipated that a substantial portion 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.
Value Investing: One of two primary components of the Adviser's fixed-income
strategy is value investing, whereby MAS seeks to identify undervalued sectors
and securities through analysis of credit quality, option characteristics and
liquidity. Quantitative models are used in conjunction with judgment and
experience to evaluate and select securities with embedded put or call options
which are attractive on a risk- and option-adjusted basis. Successful value
investing will permit a portfolio to benefit from the price appreciation of
individual securities during periods when interest rates are unchanged. See
Maturity and Duration Management for a description of the other key component
of MAS's fixed-income investment strategy.
Value Stock Investing: Emphasizes Common Stocks which are deemed by the Adviser
to be undervalued relative to the stock market in general as measured by the
appropriate market index, based on value measures such as price/earnings ratios
and price/book ratios. Value stocks are generally dividend paying common
stocks. However, non-dividend paying stocks may also be selected for their
value characteristics.
INVESTMENTS
Each portfolio may invest in the securities defined below in accordance with
their listing of Allowable Investments and any quality or policy constraints.
ADRs--American Depository Receipts: are dollar-denominated securities which are
listed and traded in the United States, but which represent claims to shares of
foreign stocks. ADRs may be either sponsored or unsponsored. Unsponsored ADR
facilities typically provide less information to ADR holders. ADRs also include
American Depositary Shares.
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MAS Funds - 24 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
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 principal amount of such investment is
insured in full by the Federal Deposit Insurance Corporation, (ii) in the case
of U.S. banks, it is a member of the Federal Deposit Insurance Corporation, and
(iii) in the case of foreign branches of U.S. banks, the security is deemed by
the Adviser to be of an investment quality comparable with other debt
securities which may be purchased by the portfolio.
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<PAGE>
(2) Each portfolio may invest in commercial paper rated at time of purchase by
one or more Nationally Recognized Statistical Rating Organizations ("NRSRO") in
one of their two highest categories, (e.g., A-l or A-2 by Standard & Poor's or
Prime 1 or Prime 2 by Moody's), or, if not rated, issued by a corporation
having an outstanding unsecured debt issue rated high-grade by a NRSRO (e.g. A
or better by Moody's, Standard & Poor's or Fitch);
(3) Short-term corporate obligations rated high-grade at the time of purchase
by a NRSRO (e.g. A or better by Moody's, Standard & Poor's or Fitch);
(4) U.S. Government obligations including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of the
U.S. Government and differ mainly in interest rates, maturities and dates of
issue;
(5) 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; and
(6) Repurchase agreements collateralized by securities listed above.
CMOs--Collateralized Mortgage Obligations: are Derivatives which are
collateralized by mortgage pass-through securities. Cash flows from the
mortgage pass-through securities are allocated to various tranches (a "tranche"
is essentially a separate security) in a predetermined, specified order. Each
tranche has a stated maturity - the latest date by which the tranche can be
completely repaid, assuming no prepayments - and has an average life - the
average of the time to receipt of a principal payment weighted by the size of
the principal payment. The average life is typically used as a proxy for
maturity because the debt is amortized (repaid a portion at a time), rather
than being paid off entirely at maturity, as would be the case in a straight
debt instrument.
Possible Risks: Due to the possibility that prepayments (on home mortgages and
other collateral) will alter the cash flow on CMOs, it is not possible to
determine in advance the actual final maturity date or average life. Faster
prepayment will shorten the average life and slower prepayments will lengthen
it. However, it is possible to determine what the range of that movement could
be and to calculate the effect that it will have on the price of the security.
In selecting these securities, the Adviser will look for those securities that
offer a higher yield to compensate for any variation in average maturity.
Like bonds in general, mortgage-backed securities will generally decline in
price when interests rates rise. 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.
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.
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MAS Funds - 26 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
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 type 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 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 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.
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 27
<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 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 denomi-
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MAS Funds - 28 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
nated 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.
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 those transactions create residual foreign currency exposure. When
a portfolio enters into a forward contract for purposes of creating a position
hedge, transaction hedge, cross hedge, or a synthetic security, it will
generally be required to hold liquid securities or cash in a segregated account
with a daily value at least equal to its obligation under the forward contract.
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 con-
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 29
<PAGE>
sidered to be of equivalent quality. Securities rated less than Baa by Moody's
or BBB by Standard & Poor's are classified as non-investment grade securities
and are commonly referred to as junk bonds or high yield, high risk securities.
Such securities carry a high degree of risk and are considered speculative by
the major credit rating agencies. The following are excerpts from the Moody's
and Standard & Poor's definitions for speculative-grade debt obligations:
Moody's: Ba-rated bonds have "speculative elements" so their future "cannot be
considered assured," and protection of principal and interest is "moderate" and
"not well safeguarded during both good and bad times in the future." B-rated
bonds "lack characteristics of a desirable investment" and the assurance of
interest or principal payments "may be small." Caa-rated bonds are "of poor
standing" and "may be in default" or may have "elements of danger with respect
to principal or interest." Ca-rated bonds represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. C-rated bonds are the "lowest rated" class of bonds, and
issues so rated can be regarded as having "extremely poor prospects" of ever
attaining any real investment standing.
Standard & Poor's: BB-rated bonds have "less near-term vulnerability to
default" than B- or CCC-rated securities but face "major ongoing uncertainties
. . . which may lead to inadequate capacity" to pay interest or principal.
B-rated bonds have a "greater vulnerability to default than BB-rated bonds and
the ability to pay interest or principal will likely be impaired by adverse
business conditions." CCC-rated bonds have a currently identifiable
"vulnerability to default" and, without favorable business conditions, will be
"unable to repay interest and principal." C The rating C is reserved for income
bonds on which "no interest is being paid." D - Debt rated D is in "default",
and "payment of interest and/or repayment of principal is in arrears."
While these securities offer high yields, they also normally carry with them a
greater degree of risk than securities with higher ratings. Lower-rated bonds
are considered speculative by traditional investment standards. High yield
securities may be issued as a consequence of corporate restructuring or similar
events. Also, high yield securities are often issued by smaller, less credit
worthy companies, or by highly leveraged (indebted) firms, which are generally
less able than more established or less leveraged firms to make scheduled
payments of interest and principal. The price movement of these securities is
influenced less by changes in interest rates and more by the financial and
business position of the issuing corporation when compared to investment grade
bonds.
The risks posed by securities issued under such circumstances are substantial.
If a security held by a portfolio is down-graded, the portfolio may retain the
security.
Inverse Floaters--Inverse Floating Rate Obligations: are Fixed-Income
Securities, which have coupon rates that vary inversely at a multiple of a
designated floating rate, such as LIBOR (London Inter-Bank Offered Rate). Any
rise in the reference rate of an inverse floater (as a consequence of an
increase in interest rates) causes a drop in the coupon rate while any drop in
the reference rate of an inverse floater causes an increase in the coupon rate.
Inverse floaters may exhibit substantially greater price volatility than fixed
rate obligations having similar credit quality, redemption provisions and
maturity, and inverse floater CMOs exhibit greater price volatility than the
majority of mortgage pass-through securities or CMOs. In addition, some inverse
floater CMOs exhibit extreme sensitivity to changes in prepayments. As a
result, the yield to maturity of an inverse floater CMO is sensitive not only
to changes in interest rates but also to changes in prepayment rates on the
related underlying mortgage assets.
Investment Companies: The portfolios that are permitted to invest in shares of
other open-end or closed-end investment companies. The Investment Company Act
of 1940, as amended, generally prohibits the portfolios from
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MAS Funds - 30 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
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.
Investment Grade Securities: are those rated by one or more nationally
recognized statistical rating organization (NRSRO) in one of the four highest
rating categories at the time of purchase (e.g. AAA, AA, A or BBB by Standard &
Poor's Corporation (Standard & Poor's) or Fitch Investors Service, Inc.,
(Fitch) or Aaa, Aa, A or Baa by Moody's Investors Service, Inc. (Moody's)).
Securities rated BBB or Baa represent the lowest of four levels of investment
grade securities and are regarded as borderline between definitely sound
obligations and those in which the speculative element begins to predominate.
Mortgage-backed securities, including mortgage pass-throughs and collateralized
mortgage obligations (CMOs), deemed investment grade by the Adviser, will
either carry a guarantee from an agency of the U.S. Government or a private
issuer of the timely payment of principal and interest (such guarantees do not
extend to the market value of such securities or the net asset value per share
of the portfolio) or, in the case of unrated securities, be sufficiently
seasoned that they are considered by the Adviser to be investment grade
quality. The Adviser may retain securities if their ratings falls below
investment grade if it deems retention of the security to be in the best
interests of the portfolio. Any portfolio permitted to hold Investment Grade
Securities may hold unrated securities if the Adviser considers the risks
involved in owning that security to be equivalent to the risks involved in
holding an Investment Grade Security.
Loan Participations: are loans or other direct debt instruments which are
interests in amounts owed by a corporate, governmental or other borrower to
another party. They may represent amounts owed to lenders or lending
syndicates, to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments involve the risk of
loss in case of default or insolvency of the borrower. Direct debt instruments
may offer less legal protection to the portfolio in the event of fraud or
misrepresentation. In addition, loan participations involve a risk of
insolvency of the lending bank or other financial intermediary. Direct debt
instruments may also include standby financing commitments that obligate the
investing portfolio to supply additional cash to the borrower on demand. Loan
participations involving Emerging Market Issuers may relate to loans as to
which there has been or currently exists an event of default or other failure
to make payment when due, and may represent amounts owed to financial
institutions that are themselves subject to political and economic risks,
including the risk of currency devaluation, expropriation, or failure. Such
loan participations present additional risks of default or loss.
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 31
<PAGE>
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.
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
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MAS Funds - 32 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
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.
Debt of Government Agencies, Authorities and Commissions: Certain state-created
agencies have statutory authorization to incur debt for which legislation
providing for state appropriations to pay debt service thereon is not required.
The debt of these agencies is supported by assets of, or revenues derived from,
the various projects financed; it is not an obligation of the Commonwealth.
Some of these agencies, however, such as the Delaware River Joint Toll Bridge
Commission, are indirectly dependent on Commonwealth funds through various
state-assisted programs.
Preferred Stock: are non-voting ownership shares in a corporation which pay a
fixed or variable stream of dividends.
Repurchase Agreements: are transactions by which a portfolio purchases a
security and simultaneously commits to resell that security to the seller (a
bank or securities dealer) at an agreed upon price on an agreed upon date
(usually within seven days of purchase). The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or date of maturity of the purchased security. Such agreements
permit the portfolio to keep all its assets at work while retaining overnight
flexibility in pursuit of investments of a longer term nature. The Adviser will
continually monitor the value of the underlying collateral to ensure that its
value, including accrued interest, always equals or exceeds the repurchase
price.
Pursuant to an order issued by the Securities and Exchange Commission, the
Fund's portfolios may pool their daily uninvested cash balances in order to
invest in repurchase agreements on a joint basis. By entering into repurchase
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 33
<PAGE>
agreements on a joint basis, it is expected that the portfolios will incur
lower transaction costs and potentially obtain higher rates of interest on such
repurchase agreements. Each portfolio's participation in the income from
jointly purchased repurchase agreements will be based on that portfolio's
percentage share in the total purchase agreement.
Rights: represent a preemptive right of stockholders to purchase additional
shares of a stock at the time of a new issuance, before the stock is offered to
the general public, allowing the stockholder to retain the same ownership
percentage after the new stock offering.
SMBS--Stripped Mortgage-Backed Securities: are Derivatives in the form of
multi-class mortgage securities. SMBS may be issued by agencies or
instrumentalities of the U.S. Government and private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose entities of the
foregoing.
SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of mortgage assets. One
type of SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the principal. In some cases, one class will
receive all of the interest (the 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 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.
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MAS Funds - 34 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
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.
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.
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 35
<PAGE>
GENERAL SHAREHOLDER INFORMATION
PURCHASE OF SHARES
Adviser Class Shares are available to Shareholders with combined investments of
$500,000 and Shareholder Organizations who have a contractual arrangement with
the Fund or the Fund's Distributor, including institutions such as trusts,
foundations or broker-dealers purchasing for the accounts of others.
Adviser Class Shares of each portfolio may be purchased at the net asset value
per share next determined after receipt of the purchase order. Such portfolios
determine net asset value 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.
Initial Purchase by Mail: Subject to acceptance by the Fund, an account may be
opened by completing and signing an Account Registration Form (provided at the
end of the prospectus) and mailing it to the MAS Funds, c/o Miller Anderson &
Sherrerd, LLP, One Tower Bridge, West Conshohocken, Pennsylvania 19428-0868
together with a check ($500,000 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. 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, Adviser 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, notification must be
given to MAS Funds' Client Services Group at 1-800-354-8185 prior to the
determination of net asset value. Adviser Class Shares will be purchased at the
net asset value per share next determined after receipt of the purchase order.
(Prior notification must also be received from investors with existing
accounts.) Instruct your bank to send a Federal Funds Wire in a specified amount
to the Fund's Custodian Bank using the following wiring instructions:
The Chase Manhattan Bank
1 Chase Manhattan Plaza
New York, NY 10081
ABA #021000021
DDA #910-2-734143
Attn: MAS Funds Subscription Account
Ref: (Portfolio Name, Account Number, Account Name)
Additional Investments: Additional investments of Adviser Class Shares at net
asset value may be made at any time (minimum investment $1,000) by mailing a
check (payable to MAS Funds) to MAS Funds' Client Services
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MAS Funds - 36 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Group at the address noted under Initial Investments by Mail or by wiring
Federal Funds to the Custodian Bank as outlined above. Shares will be purchased
at the net asset value per share next determined after receipt of the purchase
order. For all portfolios, notification must be given to MAS Funds' Client
Services Group at 1-800-354-8185 prior to the determination of net asset value.
Other Purchase Information: The Fund reserves the right, in its sole
discretion, to suspend the offering of Adviser Class Shares of any of its
portfolios or to reject any purchase orders when, in the judgment of
management, such suspension or rejection is in the best interest of the Fund.
The Fund also reserves the right, in its sole discretion, to waive the minimum
initial and subsequent investment amounts.
Purchases of a portfolio's Adviser Class Shares will be made in full and
fractional shares of the portfolio calculated to three decimal places. In the
interest of economy and convenience, certificates for shares will not be issued
except at the written request of the shareholder. Certificates for fractional
shares, however, will not be issued.
Adviser Class Shares of the Fund's portfolios are also sold to corporations or
other institutions such as trusts, foundations or broker-dealers purchasing for
the accounts of others (Shareholder Organizations). Investors purchasing and
redeeming shares of the portfolios through a Shareholder Organization may be
charged a transaction-based fee or other fee for the services of such
organization. Each Shareholder Organization is responsible for transmitting to
its customers a schedule of any such fees and information regarding any
additional or different conditions regarding purchases and redemptions.
Customers of Shareholder Organizations should read this Prospectus in light of
the terms governing accounts with their organization. The Fund may pay
compensation to or receive compensation from Shareholder Organizations for the
sale of Adviser Class Shares.
REDEMPTION OF SHARES
Adviser Class Shares of each portfolio may be redeemed by mail, or, if
authorized, by telephone. No charge is made for redemptions. The value of
Adviser Class Shares redeemed may be more or less than the purchase price,
depending on the net asset value at the time of redemption which is based on
the market value of the investment securities held by the portfolio. See other
Information-Closed Holidays and Valuation of Shares.
By Mail: Each portfolio will redeem Adviser Class Shares at the net asset value
next determined after the request is received in good order. Requests should be
addressed to MAS Funds, c/o Miller Anderson & Sherrerd, 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.
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 37
<PAGE>
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.
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 Adviser Class Shares may be exchanged for
shares of the Fund's other portfolios offering Adviser Class Shares based on
the respective net asset values of the shares involved. The exchange privilege
is only available, however, with respect to portfolios that are registered for
sale in a shareholder's state of residence. There are no exchange fees.
Exchange requests should be sent to MAS Funds, c/o Miller Anderson & Sherrerd,
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.
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MAS Funds - 38 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
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
Mid Cap Growth 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.
Fixed Income, High Yield and Limited Duration 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
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 39
<PAGE>
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 Portfolio: 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 Portfolio is determined as of the latter of the
close of the NYSE or one hour after the close of the bond markets on each day
the portfolios are open for business. Equity, fixed-income and other securities
held by the portfolios will be valued using the policies described above.
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 Value, Fixed Income, High Yield, Limited Duration and Balanced Portfolios
normally distribute substantially all of their net investment income to
shareholders in the form of quarterly dividends.
o The Mid Cap Growth Portfolio normally distributes substantially all of its
net investment income in the form of annual 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 undistributed net investment income is included in the
portfolio's net assets for the purpose of calculating net asset value per
share. Therefore, on the ex-dividend date, the net asset value per share
excludes the dividend (i.e., is reduced by the per share amount of the
dividend). Dividends paid shortly after the purchase of shares by an investor,
although in effect a return of capital, are taxable as ordinary income.
Certain Mortgage Securities may provide for periodic or unscheduled payments of
principal and interest as the mortgages underlying the securities are paid or
prepaid. However, such principal payments (not otherwise characterized as
ordinary discount income or bond premium expense) will not normally be
considered as income to the portfolio and therefore will not be distributed as
dividends. Rather, these payments on mortgage-backed securities will be
reinvested on behalf of the shareholders by the portfolio in accordance with
its investment objectives and policies.
Federal Taxes: The 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
- --------------------------------------------------------------------------------
MAS Funds - 40 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
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 net investment company taxable income and net capital gains (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 from net
investment income will be taxable to shareholders as ordinary income. In the
case of the Value, Mid Cap Growth, and Balanced 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 of such portfolios 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
undistributed 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 year declared 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. No portfolio will be
able to elect to treat shareholders as having paid their proportionate share of
such taxes for foreign tax credit purposes.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 41
<PAGE>
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.
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.
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
------
Mid Cap Growth Portfolio .500%
Value Portfolio .500
Fixed Income Portfolio .375
High Yield Portfolio .375
Limited Duration Portfolio .300
Balanced Portfolio .450
Until further notice, the Adviser has voluntarily agreed to waive advisory fees
and/or reimburse certain other expenses to the extent necessary to keep Total
Operating Expenses actually deducted from portfolio assets for the Adviser
Class of Value and Limited Duration Portfolios from exceeding 0.900% and
0.700%, respectively.
For the fiscal year ended September 30, 1996, the Adviser received the
following as compensation for its services:
Rate
------
Mid Cap Growth Portfolio .500%
Value Portfolio .500
Fixed Income Portfolio .375
High Yield Portfolio .375
Limited Duration Portfolio .300
Balanced Portfolio .450
<PAGE>
PORTFOLIO MANAGEMENT:
The investment professionals of MAS who are primarily responsible for the
day-to-day management of the Fund's portfolios are as follows:
Mid Cap Growth Portfolio: Arden C. Armstrong and Abhi Y. Kanitkar;
Value Portfolio: Robert J. Marcin, Richard M. Behler and Nicholas J. Kovich;
Fixed Income: Thomas L. Bennett, Kenneth B. Dunn and Richard B. Worley;
High Yield Portfolio: Stephen F. Esser, Thomas L. Bennett and Robert E.
Angevine;
Limited Duration Portfolio: Ellen D. Harvey, Scott F. Richard and Christian G.
Roth;
Balanced Portfolio: Thomas L. Bennett, John D. Connolly, Gary G. Schlarbaum,
Horacio A. Valeiras and Richard B. Worley;
A description of their business experience during the past five years is as
follows:
Robert E. Angevine, Principal, Morgan Stanley, joined Morgan Stanley Asset
Management in 1988. He assumed responsibility for 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.
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 responsiblity 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 High Yield
Portfolio in 1985 and the Balanced Portfolio in 1992.
John D. Connolly, Principal, Morgan Stanley, joined MAS in 1990. He assumed
responsibility for the Mid Cap Growth Portfolio in 1990 and the Balanced
Portfolio in 1992.
Kenneth B. Dunn, Managing Director, Morgan Stanley, joined MAS in 1987. He
assumed responsibility for the Fixed Income Portfolio in 1987.
Stephen F. Esser, Managing Director, Morgan Stanley, joined MAS in 1988. He
assumed responsibility for the High Yield Portfolio in 1989.
Ellen D. Harvey, Principal, Morgan Stanley, joined MAS in 1984. She assumed
responsibility for the Limited Duration Portfolio in 1992.
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 Value Portfolio in 1997.
Robert J. Marcin, Managing Director, Morgan Stanley, joined MAS in 1988. He
assumed responsibility for the Value Portfolio in 1990.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 43
<PAGE>
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 Limited Duration Portfolio in 1994.
Christian G. Roth, Principal, Morgan Stanley, joined MAS in 1991. He assumed
responsibility for the Limited Duration Portfolio in 1994.
Gary G. Schlarbaum, Managing Director, Morgan Stanley; Director, MAS Fund
Distribution, Inc.; joined MAS in 1987. He assumed responsibility for the
Balanced Portfolio in 1992.
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 a Director-Equity Research in 1992. He assumed responsibility for
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 and the Balanced
Portfolio in 1992.
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.
DISTRIBUTION PLAN: Adviser Class Shares are sold without a sales charge, but
are subject to a Rule 12b-1 fee. The Fund, on behalf of the applicable
portfolio, will make monthly payments to the Fund's distributor under the
Distribution Plan approved by the Board of Trustees at an annual rate of up to
.25% of each portfolio's average daily net assets attributable to Adviser Class
Shares. The Fund's distributor will use the Rule 12b-1 fee it receives for (i)
compensation for its services in connection with distribution assistance or
provision of shareholder or account maintenance services, or (ii) payments to
financial intermediaries, plan fiduciaries, and investment professionals,
including the Adviser, for providing distribution support services, and/or
account maintenance services to shareholders (including, where applicable, any
underlying beneficial owners) of Adviser Class Shares.
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.
- --------------------------------------------------------------------------------
MAS Funds - 44 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
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, Wendell & Co. (New York, NY) owned a controlling
interest (as that term is defined by Investment Company Act of 1940, as
amended) of the Balanced 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.
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 Fund's 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, Martin Luther King Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 45
<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.
- --------------------------------------------------------------------------------
MAS Funds - 46 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 47
<PAGE>
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MAS Funds - 48 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Funds - 49
<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.
-----------------------
Form of Business Entity: / / Corporation / / Partnership / / Trust / / Other___
Type of Account:
/ / Defined Benefit Plan / / Defined Contribution Plan
/ / Profit Sharing/Thrift Plan
/ / Other Employee Benefit Plan
-----------------------------------------------
/ / Endowment / / Foundation / / Taxable / / Other (Specify)
-------------
/ / United States Citizen / / Resident Alien / / Non-Resident Alien,
Indicate Country of Residence
------------------
===============================================================================
2 INTERESTED PARTY OPTION
In addition to the account statement sent to the above registered address,
the Fund is authorized to mail duplicate statements to the name and address
provided at right.
For additional interested party mailings, please attach a separate sheet.
Attention
---------------------------------------------------------------------
Company
(If Applicable)
----------------------------------------------------------------
Street or P.O. Box
------------------------------------------------------------
City State Zip
---------------------------- --------------------- -------------
Telephone No.
-----------------------
===============================================================================
3 INVESTMENT
For Purchase of:
/ / Mid Cap Growth Portfolio $__________________________
/ / Value Portfolio __________________________
/ / Fixed Income Portfolio __________________________
/ / High Yield Portfolio __________________________
/ / Limited Duration Portfolio __________________________
/ / Balanced Portfolio __________________________
===============================================================================
<PAGE>
4 TAXPAYER IDENTIFICATION NUMBER
Part 1.
Social Security Number
---------------------
or
Employer Identification Number
------------------------------
Part 2. BACKUP WITHHOLDING
/ / Check the box if the account is subject to Backup Withholding under
the provisions of Section 3406(a)(1)(C) of the Internal Revenue Code.
- -------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION
You (as a payee) are required by law to provide us (as payer) with your correct
taxpayer identification number. Accounts that have a missing or incorrect
taxpayer identification number will be subject to backup withholding at a 31%
rate on ordinary income and capital gains distribution as well as redemptions.
Backup withholding is not an additional tax; the tax liability of person subject
to backup withholding will be reduced by the amount of tax withheld.
You may be notified that you are subject to backup withholding under section
3406(a)(1)(C) because you have underreported interest or dividends or you were
required to, but failed to, file a return which would have included a reportable
interest or dividend payment. If you have been so notified, check the box in
PART 2 at left.
- -------------------------------------------------------------------------------
MILLER
ANDERSON
& SHERRERD, LLP ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428 o 800-354-8185
- -------------------------------------------------------------------------------
SIDE ONE OF TWO
<PAGE>
- --------------------------------------------------------------------------------
MAS
- ---------
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
This application is separate from the prospectus.
-----------------------------------------------------------------------
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>
January 31, 1997
As Revised June 6, 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
----
Fund Expenses ........................... 2
Prospectus Summary ..................... 4
Financial Highlights .................. 7
Yield and Total Return .................. 10
Investment Suitability .................. 11
Investment Limitations .................. 12
Portfolio Summaries ..................... 14
Equity Investments ..................... 14
Fixed-Income Investments ............... 16
Prospectus Glossary:
Strategies ........................... 20
Investments ........................... 24
Page
----
General Shareholder Information ......... 36
Purchase of Shares .................. 36
Redemption of Shares ............... 37
Shareholder Services ............... 38
Valuation of Shares .................. 39
Dividends, Capital Gains Distributions
and Taxes ........................... 40
Investment Adviser ..................... 42
Portfolio Management .................. 43
Administrative Services ............... 44
Distribution Plan ........................ 44
General Distribution Agent ............ 44
Portfolio Transactions .................. 44
Other Information ........................ 45
Trustees and Officers .................. 46
- --------------------------------------------------------------------------------
MAS Funds - 51
<PAGE>
- ---------------------------------------MAS--------------------------------------
---------
MAS FUNDS
------------------------
ADVISER CLASS PROSPECTUS
------------------------
MILLER
ANDERSON
& SHERRERD, LLP
__________________ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428 o 800-354-8185
