<PAGE>
[GRAPHIC OMITTED]
INSTITUTIONAL CLASS
March 20, 1998
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-seven
portfolios, three of which are described in this Prospectus. This
Prospectus offers the Institutional Class Shares of the Cash Reserves,
Fixed Income and Intermediate Duration Portfolios (the "portfolios").
Shares of the Cash Reserves Portfolio are neither insured nor guaranteed
by the U.S. Government. The portfolio seeks to maintain, but there can be
no assurance that it will be able to maintain, a constant net asset value
of $1.00 per share.
The Fixed Income Portfolio may invest to a certain extent 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 this portfolio may not be suitable for all
investors. See High Yield Investing in the Glossary of Strategies for
additional information regarding certain risks associated with investment
in such securities.
----------------------------------------------------------------------
PORTFOLIO PAGE REFERENCE
How to Use This Prospectus: 3 Prospectus Glossary:
Strategies 15
Portfolio Summaries: Investments 19
Cash Reserves 12 General Shareholder
Fixed Income 13 Information: 33
Intermediate Duration 14 Table of Contents: Back Cover
This Prospectus, which should be retained for future reference, sets forth
concisely information that you should know before you invest. A Statement
of Additional Information containing additional information about the Fund
has been filed with the Securities and Exchange Commission. Such Statement
is dated January 31, 1998 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 NOR HAS THE SECURITIES AND EXCHANGE 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
<PAGE>
EXPENSE SUMMARY - INSTITUTIONAL CLASS SHARES
The following tables illustrate the various expenses and fees that a
shareholder in a portfolio will incur either directly or indirectly. 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 None
Shareholder Servicing Fee None
Investment Total
Advisory Other Operating
Portfolio Fees Expenses Expenses
- ----------------------- ------------ ---------- ----------
Cash Reserves 0.204%* 0.116% 0.320%
Fixed Income 0.375 0.105 0.480
Intermediate Duration 0.375 0.125 0.500
The Total Operating Expense ratios reflected in the table above may be 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. Amounts in the above table have been restated to reflect
current fees and expenses.
* Until further notice, the Adviser has voluntarily agreed to waive its
advisory fees and/or reimburse certain expenses to the extent necessary to
keep Total Operating Expenses actually deducted from portfolio assets for
the Cash Reserves Portfolio from exceeding 0.32%. Absent such waivers and/or
reimbursements by the Adviser, Total Operating Expenses would be 0.366% for
the Cash Reserves 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.
Portfolio 1 year 3 year 5 year 10 year
- ----------------------- -------- -------- -------- --------
Cash Reserves $3 $10 $18 $41
Fixed Income 5 15 27 60
Intermediate Duration 5 16 28 63
HOW TO USE THIS PROSPECTUS
A PROSPECTUS SUMMARY begins on page 4;
FINANCIAL HIGHLIGHTS and a description of YIELD AND TOTAL RETURN begin on page
6;
GENERAL INFORMATION including INVESTMENT LIMITATIONS pertinent to all
portfolios begins on page 9;
SUMMARY PAGES for each portfolio's Objective, Policies and Strategies begin on
page 12;
The PROSPECTUS GLOSSARY which defines specific Allowable Investments, Policies
and Strategies printed in bold type throughout this Prospectus begins on page
15; and
GENERAL SHAREHOLDER INFORMATION begins on page 33.
- --------------------------------------------------------------------------------
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Funds - 3
<PAGE>
SUMMARY 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.
RISK FACTORS: Prospective investors in the Fund should consider the following
factors as they apply to each portfolio's allowable investments and policies.
See the Prospectus Glossary for more information on terms printed in bold type:
o Each portfolio may invest in Repurchase Agreements, which entail a risk
of loss should the seller default in its obligation to repurchase the
security which is the subject of the transaction;
o Each portfolio may participate in a Securities Lending program which
entails a risk of loss should a borrower fail financially;
o Fixed-Income Securities will be affected by general changes in interest
rates resulting in increases or decreases in the value of the
obligations held by a portfolio. The value of Fixed-Income Securities
can be expected to vary inversely to changes in prevailing interest
rates, i.e., as interest rates decline, market value tends to increase
and vice versa. Certain Fixed-Income Securities may be highly sensitive
to interest rate changes, and highly sensitive to the rate of principal
payments (including prepayments on underlying mortgage assets).
Investments in securities rated below investment grade, generally
referred to as High Yield, high risk or junk bonds, carry a high degree
of credit risk and are considered speculative by the major rating
agencies;
o 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 Investments in foreign securities involve certain special considerations
which are not typically associated with investing in U.S. companies.
Portfolios investing in foreign securities may also engage in foreign
currency exchange transactions. See Forwards, Futures & Options, and
Swaps;
- --------------------------------------------------------------------------------
MAS Funds - 4 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
o Securities purchased on a When-Issued basis may decline or appreciate in
market value prior to their actual delivery to the portfolio;
o Each portfolio except the Cash Reserves Portfolio may invest a portion
of its assets in Derivatives including Futures & Options. Futures
contracts, options and options on futures contracts entail certain costs
and risks, including imperfect correlation between the value of the
securities held by the portfolio and the value of the particular
derivative instrument, and the risk that a portfolio could not close out
a futures or options position when it would be most advantageous to do
so; and
o Each portfolio, except the Cash Reserves Portfolio may invest in certain
instruments such as Forwards, certain types of Futures & Options,
certain types of Mortgage Securities and When-Issued Securities which
require the portfolio to segregate some or all of its cash or liquid
securities to cover its obligations pursuant to such instruments. As
asset segregation reaches certain levels, a portfolio may lose
flexibility in managing its investments properly, responding to
shareholder redemption requests, or meeting other obligations and may be
forced to sell other securities that it wanted to retain or to realize
unintended gains or losses.
HOW TO INVEST AND REDEEM: This Prospectus is intended solely to provide
information to persons investing in the Morgan Stanley Stable Value Fund.
THE FUND'S INVESTMENT ADVISER: 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 and 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 December 31, 1997 had
in excess of $59.4 billion in assets under management.
THE FUND'S DISTRIBUTOR: MAS Fund Distribution, Inc. (the "Distributor")
provides distribution services to the Fund.
- --------------------------------------------------------------------------------
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Funds - 5
<PAGE>
Financial Highlights -- Fiscal Years Ended September 30
Selected per share data and ratios for a share outstanding
throughout each period
The following information should be read in conjunction with the Fund's
financial statements which are included in the Annual Report to Shareholders
incorporated by reference in the Statement of Additional Information. The
Fund's financial statements for the year ended September 30, 1997 have been
examined by Price Waterhouse LLP whose opinion thereon (which was unqualified)
is also incorporated by reference in the Statement of Additional Information.
(Data is adjusted to reflect a 2.5 for 1 share split as of August 13, 1993 for
all portfolios in operation as of that date.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Gains Dividend
Net Asset or Losses Distributions Capital Gain
Value- Net on Securities Total from (net Distributions
Beginning Investment (realized and Investment investment (realized net Other
of Period Income unrealized) Activities income) capital gains) Distributions
----------- ------------ --------------- ------------ --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Reserves Portfolio (Commencement of Institutional Class Operations 8/29/90)
1997 $ 1.000 $ .052 -- $ .052 ($.052) -- --
1996 1.000 .052 -- .052 (.052) -- --
1995 1.000 .055 -- .055 (.055) -- --
1994 1.000 .034 -- .034 (.034) -- --
1993 1.000 .028 -- .028 (.028) -- --
1992 1.000 .038 -- .038 (.038) -- --
1991 1.000 .064 -- .064 (.064) -- --
1990 1.000 .007 -- .007 (.007) -- --
Fixed Income Portfolio (Commencement of Institutional Class Operations 11/14/84)
1997+++ $ 11.83 $ 0.80 $ 0.50 $ 1.30 ($0.78) ($0.13) --
1996 11.82 0.78 0.08 0.86 (0.79) (0.06) --
1995 10.93 0.80 0.69 1.49 (0.60) -- --
1994 12.86 0.77 (1.28) (0.51) (0.82) (0.47) ($0.13)#
1993 12.67 0.88 0.75 1.63 (0.83) (0.61) --
1992 12.20 0.90 0.74 1.64 (1.02) (0.15) --
1991 10.94 0.94 1.25 2.19 (0.93) -- --
1990 11.64 0.92 (0.49) 0.43 (1.03) (0.10) --
1989 11.40 0.90 0.11 1.01 (0.76) (0.01) --
1988 10.86 0.97 0.43 1.40 (0.86) -- --
Intermediate Duration Portfolio (Commencement of Institutional Class Operations 10/3/94)
1997+++ $ 10.28 $ 0.61 $ 0.27 $ 0.88 ($0.53) ($0.15) --
1996 10.68 0.60 0.03 0.63 (0.65) (0.38) --
1995 10.00 0.69 0.42 1.11 (0.43) -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio Average
Total End of Total Period to Average to Average Turnover Commission
Distributions Period Return** (thousands) Net Assets+ Net Assets Rate Rate
--------------- ----------- ---------- ------------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash Reserves Portfolio (Commencement of
Institutional Class Operations 8/29/90)
1997 ($.052) $ 1.000 5.32% $ 98,464 0.33%++ 5.20% N/A --
1996 (.052) 1.000 5.35 78,497 0.33++ 5.19 N/A --
1995 (.055) 1.000 5.57 44,624 0.33++ 5.45 N/A --
1994 (.034) 1.000 3.40 37,933 0.32++ 3.70 N/A --
1993 (.028) 1.000 2.81 10,717 0.32++ 2.78 N/A --
1992 (.038) 1.000 3.89 12,935 0.32++ 3.95 N/A --
1991 (.064) 1.000 6.63 24,163 0.32++ 6.57 N/A --
1990 (.007) 1.000 0.74 23,285 0.48* 8.31* N/A --
Fixed Income Portfolio (Commencement of
Institutional Class Operations 11/14/84)
1997+++ ($0.91) $ 12.22 11.47% $3,219,987 0.49% 6.73% 179% --
1996 (0.85) 11.83 7.63 1,790,146 0.48 6.77 162 --
1995 (0.60) 11.82 14.19 1,487,409 0.49 7.28 140 --
1994 (1.42) 10.93 (4.43) 1,194,957 0.49 6.79 100 --
1993 (1.44) 12.86 14.26 909,738 0.47 7.06 144 --
1992 (1.17) 12.67 14.35 859,712 0.47 7.50 137 --
1991 (0.93) 12.20 21.12 831,547 0.47 8.25 143 --
1990 (1.13) 10.94 3.79 666,736 0.46 8.43 209 --
1989 (0.77) 11.64 9.25 559,995 0.47 8.36 100 --
1988 (0.86) 11.40 13.43 405,385 0.49 8.91 168 --
Intermediate Duration Portfolio (Commencement of
Institutional Class Operations 10/3/94)
1997+++ ($0.68) $ 10.48 8.93% $ 72,119 0.55%++ 5.93% 204% --
1996 (1.03) 10.28 6.27 12,017 0.56++ 6.17 251 --
1995 (0.43) 10.68 11.39 19,237 0.52*++ 6.56* 168 --
</TABLE>
- --------------------------------------------------------------------------------
MAS Funds - 6 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
Notes to the Financial Highlights
* Annualized
** Total return figures for partial years are not annualized.
# Represents distributions in excess of realized net gains.
+ For the respective periods ended September 30, the Ratio of Expenses to
Average Net Assets for the portfolios excludes the effect of expense
offests. If expense offsets were included, the Ratio of Expenses to
Average Net Assets would be as follows for the respective periods.
Portfolio 1995 1996 1997
- ----------------------- ---------- ---------- ----------
Cash Reserves 0.32% 0.32% 0.32%
Fixed Income 0.48 0.48 0.48
Intermediate Duration 0.52 0.52 0.52
++ For the periods indicated, the Adviser voluntarily agreed to waive its
advisory fees and/or reimburse certain expenses to the extent necessary in
order to keep Total Operating Expenses actually deducted from portfolio
assets for the respective portfolio from exceeding voluntary expense
limitations. For the respective periods ended September 30, the voluntarily
waived and/or reimbursed expenses totaled the below listed amounts.
<TABLE>
<CAPTION>
Portfolio 1992 1993 1994 1995 1996 1997
- ----------------------- ------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash Reserves -- 0.24% 0.14% 0.11% 0.09% 0.07%
Intermediate Duration -- -- -- 0.08* 0.13 0.05
</TABLE>
+++ Per share amounts for the year ended September 30, 1997, are based on
average shares outstanding.
- --------------------------------------------------------------------------------
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Funds - 7
<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).
The yield of a portfolio (other than the Cash Reserves Portfolio) is computed
by dividing the net investment income per share (using the average number of
shares entitled to receive dividends) earned during a 30-day period 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.
From time to time the Cash Reserves Portfolio may advertise or quote its yield
and effective yield. The yield of the Cash Reserves Portfolio refers to the
income generated by an investment in the portfolio over a stated seven day
period. This income is then annualized. That is, the amount of income generated
by the investment during that week is assumed to be generated each week over a
52-week period and is shown as a percentage of the investment. The effective
yield is calculated similarly, but the income earned over the seven day period
by an investment in the portfolio is assumed to be reinvested when the return
is annualized. The "effective yield" will be higher than the yield because of
the compounding effect of this assumed reinvestment.
The performance of a portfolio may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported
in financial and industry publications, returns of other investment advisers
and mutual funds, and various indices as further described in the Statement of
Additional Information.
The performance of Institutional Class Shares, Investment Class Shares and
Adviser Class Shares differs 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
- --------------------------------------------------------------------------------
MAS Funds - 8 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
comparisons with appropriate indices. The Annual Report is available without
charge upon request by writing to the Fund or calling the Client Services Group
at the telephone number shown on the front cover of this Prospectus.
GENERAL INFORMATION
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 the portfolios will not be
influenced by the different tax treatment of 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 (except the Cash Reserves Portfolio, which may
invest up to 10% of its net assets) in securities that are illiquid by virtue
of the absence of a readily available market, or because of legal or
contractual restrictions on resale. This policy does not limit the acquisition
of (i) restricted securities eligible for resale to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933 or (ii)
commercial paper issued pursuant to Section 4(2) under the Securities Act of
1933, that are determined to be liquid in accordance with guidelines
established by the Fund's Board of Trustees.
Turnover: The Adviser manages the portfolios generally without regard to
restrictions on annual turnover. 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 and Intermediate Duration Portfolios, the
annual turnover rate will ordinarily exceed 100% due to changes in portfolio
duration, yield curve strategy or commitments with respect to forward delivery
mortgage-backed securities. These high rates of annual turnover necessarily
result in correspondingly heavier brokerage and portfolio trading costs
- --------------------------------------------------------------------------------
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Funds - 9
<PAGE>
which are paid by a portfolio. Trading in Fixed-Income Securities does not
generally involve the payment of brokerage commissions, but does involve
indirect transaction costs. In addition to portfolio trading costs, higher
rates of annual 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.
The annual turnover rate for each portfolio is shown in the Financial
Highlights under "Portfolio Turnover Rate."
Cash Equivalents/Temporary Defensive Investing: Although each portfolio intends
to remain substantially fully invested, a small percentage of a portfolio's
assets is generally held in the form of Cash Equivalents in order to meet
redemption requests and otherwise manage the daily affairs of each portfolio.
In addition, any portfolio may, when the Adviser deems that market conditions
are such that a temporary defensive approach is desirable, invest in Cash
Equivalents or the Fixed-Income Securities listed for that portfolio without
limit. In addition, the Adviser may, for temporary defensive purposes, increase
or decrease the average weighted maturity or duration of any fixed-income
portfolio without regard to that portfolio's usual average weighted maturity.
Concentration: Concentration is defined as investment of 25% or more of a
portfolio's total assets in the securities of issuers operating in any one
industry. Except as provided in a portfolio's specific investment policies, or
as detailed in Investment Limitations, a portfolio will not concentrate
investments in any one industry.
Investment Limitations: Each portfolio is subject to certain limitations
designed to reduce its exposure to specific situations. Some of these
limitations are:
(a) with respect to 75% of its assets, a portfolio will not purchase securities
of any issuer if, as a result, more than 5% of the portfolio's total assets
taken at market value would be invested in the securities of any single issuer
except that this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities.
(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.
Limitations (a) and (b) and certain other limitations described in the
Statement of Additional Information are fundamental and may be changed only
with the approval of the holders of a majority of the shares of the portfolios.
Other investment limitations described here and in the Statement of Additional
Information are not fundamental policies; meaning that the Board of
- --------------------------------------------------------------------------------
MAS Funds - 10 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
Trustees may change them without shareholder approval. If a percentage
limitation on investment or utilization of assets as set forth in this
prospectus or the Statement of Additional Information 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 portfolios' 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 - 11
<PAGE>
- --------------------------------------------------------------------------------
Cash Reserves Portfolio
Objective: To realize maximum current income, consistent with the
preservation of capital and liquidity, by investing in money
market instruments and other short-term securities having
expected maturities of thirteen months or less. The
portfolio's average weighted maturity will not exceed 90
days. The securities in which the portfolio will invest may
not yield as high a level of current income as securities of
lower quality or longer maturities which generally have less
liquidity, greater market risk and more price fluctuation.
The portfolio is designed to provide maximum principal
stability for investors seeking to invest funds for the short
term, or, for investors seeking to combine a long-term
investment program in other portfolios of the Fund with an
investment in money market instruments. The portfolio seeks
to maintain, but there can be no assurance that it will be
able to maintain, a constant net asset value of $1.00 per
share.
Approach: The Adviser selects a diversified portfolio of money market
securities of government and corporate issuers, any of which
may be variable or floating rate, and which have remaining
maturities of thirteen months or less from the date of
purchase. For the purpose of determining remaining maturity
on Floaters, demand features and interest reset dates will be
taken into consideration.
Policies: The Portfolio seeks to maintain, but there can be no
assurance that it will be able to maintain, a constant net
asset value of $1.00 per share.
Quality
Specifications: 100% of Commercial Paper Rated in Top Tier
Maturity and Dollar weighted average maturity less than 90 days
Duration: Individual maturities 13 months or less
Allowable Agencies Corporates U.S. Governments
Investments: Asset-Backeds Floaters Yankees
Cash Equivalents Investment Companies Zero Coupons
Commercial Paper Repurchase Agreements
Comparative
Index: Lipper Money Market Index
Strategy: Money Market Investing
Portfolio
Management
Team: Abigail Jones Feder and Ellen D. Harvey
- --------------------------------------------------------------------------------
MAS Funds - 12 Terms in BOLD TYPE are defined in the Prospectus Glossary
<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 80% Investment Grade Securities
Specifications: Up to 20% High Yield
Maturity and
Duration: Average weighted maturity generally greater than 5 years
Allowable Agencies Foreign Currency Preferred Stock
Investments: Asset-Backeds Forwards Repurchase Agreements
Brady Bonds Futures & Options SMBS
Cash Equivalents High Yield Structured Notes
CMOs Inverse Floaters Swaps
Convertibles Investment Companies U.S. Governments
Corporates Loan Particpations When Issued Securities
Floaters Mortgage Securities Yankees
Foreign Bonds Municipals Zero Coupons
Comparative Salomon Broad Investment Grade
Index: Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Investing
Foreign Fixed Income Investing
Portfolio
Management
Team: Thomas L. Bennett, Kenneth B. Dunn and Richard B. Worley
- --------------------------------------------------------------------------------
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Funds - 13
<PAGE>
- --------------------------------------------------------------------------------
Intermediate Duration Portfolio
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in a diversified portfolio of U.S. Government
securities and investment grade corporate, foreign and other
investment grade fixed-income securities. The portfolio will
maintain an average duration of between two and five years.
Approach: The Adviser constructs a portfolio with a duration between
two and five years by actively managing the maturity and
duration structure of the portfolio in anticipation of long-
term trends in interest rates and inflation. Investments are
diversified among a wide variety of investment grade
Fixed-Income Securities in all market sectors.
Policies: Generally at least 65% invested in Fixed-Income Securities
Derivatives may be used to pursue portfolio strategy
May invest greater than 50% in Mortgage Securities
Quality
Specifications: 100% Investment Grade Securities
Maturity and
Duration: Average duration between 2 and 5 years
Allowable Agencies Foreign Bonds Preferred Stock
Investments: Asset-Backeds Foreign Currency Repurchase Agreements
Brady Bonds Forwards SMBS
Cash Equivalents Futures & Options Structured Notes
CMOs Inverse Floaters Swaps
Convertibles Investment Companies U.S. Governments
Corporates Mortgage Securities When Issued Securities
Floaters Municipals Yankees
Zero Coupons
Comparative Lehman Brothers Intermediate Government/Corporate Index
Index:
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Investing
Foreign Fixed Income Investing
Portfolio
Management
Team: Ellen D. Harvey, Scott F. Richard and Christian G. Roth
- --------------------------------------------------------------------------------
MAS Funds - 14 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
PROSPECTUS GLOSSARY
CHARACTERISTICS AND RISKS OF STRATEGIES
AND INVESTMENTS
STRATEGIES
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
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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.
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 Coupons pay interest only at maturity and payment-in-kind
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bonds pay interest in the form of additional securities. Payment in the form of
additional securities, or interest income recognized through discount
accretion, will, however, be treated as ordinary income which will be
distributed to shareholders even though the portfolio does not receive periodic
cash flow from these investments.
Maturity and Duration Management: One of two primary components of the
Adviser's fixed-income investment strategy is maturity and duration management.
The maturity and duration structure of a portfolio investing in Fixed-Income
Securities is actively managed in anticipation of cyclical interest rate
changes. Adjustments are not made in an effort to capture short-term,
day-to-day movements in the market, but instead are implemented in anticipation
of longer term shifts in the levels of interest rates. Adjustments made to
shorten portfolio maturity and duration are made to limit capital losses during
periods when interest rates are expected to rise. Conversely, adjustments made
to lengthen maturity are intended to produce capital appreciation in periods
when interest rates are expected to fall. The foundation for maturity and
duration strategy lies in analysis of the U.S. and global economies, focusing
on levels of real interest rates, monetary and fiscal policy actions, and
cyclical indicators. See Value Investing for a description of the second
primary component of the Adviser's fixed-income strategy.
About Maturity and Duration: Most debt obligations provide interest (coupon)
payments in addition to a final (par) payment at maturity. Some obligations
also have call provisions. Depending on the relative magnitude of these
payments and the nature of the call provisions, the market values of debt
obligations may respond differently to changes in the level and structure of
interest rates. Traditionally, a debt security's term-to-maturity has been used
as a proxy for the sensitivity of the security's price to changes in interest
rates (which is the interest rate risk or volatility of the security). However,
term-to-maturity measures only the time until a debt security provides its
final payment, taking no account of the pattern of the security's payments
prior to maturity.
Duration is a measure of the expected life of a Fixed-Income Security that was
developed as a more precise alternative to the concept of term-to-maturity.
Duration incorporates a bond's yield, coupon interest payments, final maturity
and call features into one measure. Duration is one of the fundamental tools
used by the Adviser in the selection of Fixed-Income Securities. Duration is a
measure of the expected life of a Fixed-Income Security on a present value
basis. Duration takes the length of the time intervals between the present time
and the time that the interest and principal payments are scheduled or, in the
case of a callable bond, expected to be received, and weights them by the
present values of the cash to be received at each future point in time. For any
Fixed-Income Security with interest
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payments occurring prior to the payment of principal, duration is always less
than maturity. In general, all other factors being the same, the lower the
stated or coupon rate of interest of a fixed-income security, the longer the
duration of the security; conversely, the higher the stated or coupon rate of
interest of a Fixed-Income Security, the shorter the duration of the security.
There are some situations where even the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or
more years; however, their interest rate exposure corresponds to the frequency
of the coupon reset. Another example where the interest rate exposure is not
properly captured by duration is the case of mortgage pass-through securities.
The stated final maturity of such securities is generally 30 years, but current
prepayment rates are more critical in determining the securities' interest rate
exposure. In these and other similar situations, the Adviser will use
sophisticated analytical techniques that incorporate the economic life of a
security into the determination of its interest rate exposure.
Mortgage Investing: At times it is anticipated that greater than 50% of a
fixed-income portfolio's assets may be invested in mortgage-related securities.
These include Mortgage 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 in Mortgage Securities issued by the various
government-related organizations. However, a portfolio may invest, without
limit, in Mortgage 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.
Money Market Investing: A money market fund like the Cash Reserves Portfolio
invests in securities which present minimal credit risk and may not yield as
high a level of current income as securities of lower quality or longer
maturities which generally have less liquidity, greater market risk and more
price fluctuation. A money market portfolio is designed to provide maximum
principal stability for investors seeking to invest funds for the short-term,
or, for investors seeking to combine a long-term investment program in other
portfolios of the Fund with an investment in money market instruments. However,
because the Cash Reserves Portfolio invests in the money market obligations of
private financial and non-financial corporations in addition to those of the
U.S. Government or its agencies and instrumentalities, it offers
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higher credit risk and yield potential relative to money market funds which
invest exclusively in U.S. Government securities. The Cash Reserves Portfolio
seeks to maintain, but does not guarantee, a constant net asset value of $1.00
per share.
Value Investing: One of two primary components of the Adviser's fixed-income
strategy is value investing, whereby the Adviser 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 the Adviser's fixed-income investment strategy.
INVESTMENTS
Each portfolio may invest in the securities defined below in accordance with
their listing of Allowable Investments and any quality or policy constraints.
Agencies: are securities which are not guaranteed by the U.S. Government, but
which are issued, sponsored or guaranteed by a federal agency or federally
sponsored agency such as the Student Loan Marketing Association 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.
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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 fairly 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).
Each portfolio may invest in obligations of U.S. banks, and in foreign branches
of U.S. banks (Eurodollars) and U.S. branches of foreign banks (Yankee
dollars). Euro and Yankee dollar investments will involve some of the same
risks of investing in international securities that are discussed in the
Foreign Investing section of this Prospectus.
The portfolios will not invest in any security issued by a commercial bank
unless (i) the bank has total assets of at least $1 billion, or the equivalent
in other currencies, or, in the case of domestic banks which do not have total
assets of at least $1 billion, the aggregate investment made in any one such
bank is limited to $100,000 and the principal amount of such investment is
insured in full by the Federal Deposit Insurance Corporation, (ii) in the case
of U.S. banks, it is a member of the Federal Deposit Insurance Corporation, and
(iii) in the case of foreign branches of U.S. banks, the security is deemed by
the Adviser to be of an investment quality comparable with other debt
securities which may be purchased by the portfolio;
(2) Each portfolio (except the Cash Reserves 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
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by Moody's), or, if not rated, issued by a corporation having an outstanding
unsecured debt issue rated high-grade by a NRSRO (e.g. A or better by Moody's,
Standard & Poor's or Fitch). The Cash Reserves Portfolio invests only in
Commercial Paper rated in the highest category;
(3) Short-term corporate obligations rated high-grade at the time of purchase
by a NRSRO (e.g. A or better by Moody's, Standard & Poor's or Fitch);
(4) U.S. Government obligations including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of the
U.S. Government and differ mainly in interest rates, maturities and dates of
issue;
(5) Government Agency securities issued or guaranteed by U.S. Government
sponsored instrumentalities and Federal agencies. These include securities
issued by the Federal Home Loan Banks, Federal Land Bank, Farmers Home
Administration, Farm Credit Banks, Federal Intermediate Credit Bank, Fannie
Mae, Federal Financing Bank, the Tennessee Valley Authority, and others;
(6) Repurchase Agreements collateralized by securities listed above; and
(7) Investments by the Cash Reserves Portfolio in Cash Equivalents are limited
by the quality, maturity and diversification requirements adopted under Rule
2a-7 of the 1940 Act.
CMOs--Collateralized Mortgage Obligations: are Derivatives which are
collateralized by mortgage pass-through securities. Cash flows from the
mortgage pass-through securities are allocated to various tranches (a "tranche"
is essentially a separate security) in a predetermined, specified order. Each
tranche has a stated maturity - the latest date by which the tranche can be
completely repaid, assuming no prepayments - and has an average life - the
average of the time to receipt of a principal payment weighted by the size of
the principal payment. The average life is typically used as a proxy for
maturity because the debt is amortized (repaid a portion at a time), rather
than being paid off entirely at maturity, as would be the case in a straight
debt instrument.
Possible Risks: Due to the possibility that prepayments (on home mortgages and
other collateral) will alter the cash flow on CMOs, it is not possible to
determine in advance the actual final maturity date or average life. Faster
prepayment will shorten the average life and slower prepayments will lengthen
it. However, it is possible to determine what the range of that movement could
be and to calculate the effect that it will have on the price of the security.
In selecting these securities, the Adviser will look for those securities that
offer a higher yield to compensate for any variation in average maturity.
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Like bonds in general, Mortgage Securities will generally decline in price when
interest rates rise. Rising interest rates also tend to discourage refinancings
of home mortgages with the result that the average life of Mortgage Securities
held by a portfolio may be lengthened. This extension of average life causes
the market price of the securities to decrease further than if their average
lives were fixed. In part to compensate for these risks, mortgages will
generally offer higher yields than comparable bonds. However, when interest
rates fall, mortgages may not enjoy as large a gain in market value due to
prepayment risk because additional mortgage prepayments must be reinvested at
lower interest rates.
Commercial Paper: is a term used to describe short-term obligations with
maturities ranging from 2 to 270 days. These obligations are primarily issued
by corporations needing to finance large amounts of receivables, but may be
issued by banks and other borrowers. Commercial Paper is issued either directly
or through broker-dealers, and may be discounted or interest-bearing.
Commercial Paper is unsecured, but is almost always backed by bank lines of
credit. Virtually all Commercial Paper is ranked by Moody's or Standard &
Poor's.
Convertibles: are convertible bonds or shares of convertible Preferred Stock
which may be exchanged for a fixed number of shares of Common Stock at the
purchaser's option.
Corporates--Corporate bonds: are debt instruments issued by private
corporations. Bondholders, as creditors, have a prior legal claim over common
and preferred stockholders of the corporation as to both income and assets for
the principal and interest due to the bondholder. A portfolio will buy
Corporates subject to any quality constraints. If a security held by a
portfolio is down-graded, the portfolio may retain the security if the Adviser
deems retention of the security to be in the best interests of the portfolio.
Derivatives: A financial instrument whose value and performance are based on
the value and performance of another security or financial instrument. The
Adviser will use derivatives only in circumstances where they offer the most
economic means of improving the risk/reward profile of the portfolio. The
Adviser will not use derivatives to increase portfolio risk above the level
that could be achieved in the portfolio using only traditional investment
securities. In addition, the Adviser will not use derivatives to acquire
exposure to changes in the value of assets or indexes of assets that are not
listed in the applicable Allowable Investments for the portfolio. Any
applicable limitations are described under each investment definition. The
portfolios may enter into over-the-counter Derivatives transactions with
counterparties approved by the Adviser in accordance with guidelines
established by the Board of Trustees. These guidelines provide for a minimum
credit rating for
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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 a portfolio may hold.
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's listing of Allowable Investments
to determine which of these 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 mortgages 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).
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
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fixed number of days from the date of the contract agreed upon by the parties,
at a price set at the time of the contract. Such contracts do not eliminate
fluctuations caused by changes in the local currency prices of the securities,
but rather, they establish an exchange rate at a future date. Also, although
such contracts can minimize the risk of loss due to a decline in the value of
the hedged currency, at the same time they limit any potential gain that might
be realized.
A portfolio may use currency exchange contracts in the normal course of
business to lock in an exchange rate in connection with purchases and sales of
securities denominated in foreign currencies (transaction hedge) or to lock in
the U.S. dollar value of portfolio positions (position hedge). In addition, the
portfolios may cross hedge currencies by entering into a transaction to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which a portfolio has or expects to have
portfolio exposure. Portfolios may also engage in proxy hedging which is
defined as entering into positions in one currency to hedge investments
denominated in another currency, where the two currencies are economically
linked. A portfolio's entry into forward contracts, as well as any use of cross
or proxy hedging techniques will generally require the portfolio to hold liquid
securities or cash equal to the portfolio's obligations in a segregated account
throughout the duration of the contract.
A portfolio may also combine forward contracts with investments in securities
denominated in other currencies in order to achieve desired credit and currency
exposures. Such combinations are generally referred to as synthetic securities.
For example, in lieu of purchasing a foreign bond, a portfolio may purchase a
U.S. dollar-denominated security and at the same time enter into a forward
contract to exchange U.S. dollars for the contract's underlying currency at a
future date. By matching the amount of U.S. dollars to be exchanged with the
anticipated value of the U.S. dollar-denominated security, a portfolio may be
able to lock in the foreign currency value of the security and adopt a
synthetic investment position reflecting the credit quality of the U.S.
dollar-denominated security.
There is a risk in adopting a transaction hedge or position hedge to the extent
that the value of a security denominated in foreign currency is not exactly
matched with a portfolio's obligation under the forward contract. On the date
of maturity, a portfolio may be exposed to some risk of loss from fluctuations
in that currency. Although the Adviser will attempt to hold such mismatching to
a minimum, there can be no assurance that the Adviser will be able to do so.
For proxy hedges, cross hedges or a synthetic position, there is an additional
risk in that these transactions create residual foreign currency exposure. When
a portfolio enters into a forward contract for purposes of
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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 Securities and
Exchange Commission's ("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 Corporates,
Preferred Stocks, and Convertibles rated Ba through C by Moody's or BB through
D by Standard & Poor's, and unrated securities considered to be of equivalent
quality. Securities rated less than Baa by Moody's or BBB by Standard & Poor's
are classified as non-investment grade securities and are commonly referred to
as junk bonds or high yield, high risk securities. Such
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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." The rating C
is reserved for income bonds on which "no interest is being paid." 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
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designated floating rate, such as LIBOR (London Inter-Bank Offered Rate). Any
rise in the reference rate of an Inverse Floater (as a consequence of an
increase in interest rates) causes a drop in the coupon rate while any drop in
the reference rate of an Inverse Floater causes an increase in the coupon rate.
Inverse Floaters may exhibit substantially greater price volatility than fixed
rate obligations having similar credit quality, redemption provisions and
maturity, and Inverse Floater CMOs exhibit greater price volatility than the
majority of mortgage pass-through securities or CMOs. In addition, some Inverse
Floater CMOs exhibit extreme sensitivity to changes in prepayments. As a
result, the yield to maturity of an Inverse Floater CMO is sensitive not only
to changes in interest rates but also to changes in prepayment rates on the
related underlying mortgage assets.
Investment Companies: The portfolios are permitted to invest in shares of other
open-end or closed-end investment companies. The 1940 Act generally prohibits
the portfolios from acquiring more than 3% of the outstanding voting shares of
an investment company and limits such investments to no more than 5% of the
portfolio's total assets in any one investment company and no more than 10% in
any combination of investment companies. The 1940 Act also prohibits the
portfolios from acquiring in the aggregate more than 10% of the outstanding
voting shares of any registered closed-end investment company.
To the extent a portfolio invests a portion of its assets in Investment
Companies, those assets will be subject to the expenses of the investment
company as well as to the expenses of the portfolio itself. The portfolios may
not purchase shares of any affiliated investment company except as permitted by
SEC rule or order.
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.
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
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Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Funds - 27
<PAGE>
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 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 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 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 U.S. Treasuries), 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 is sue 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
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MAS Funds - 28 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
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. Municipals include both municipal bonds (those securities
with maturities of five years or more) and municipal notes (those with
maturities of less than five years). Municipal bonds are issued for a wide
variety of reasons: to construct public facilities, such as airports, highways,
bridges, schools, hospitals, mass transportation, streets, water and sewer
works; to obtain funds for operating expenses; to refund outstanding municipal
obligations; and to loan funds to various public institutions and facilities.
Certain industrial development bonds are also considered municipal bonds if
their interest is exempt from federal income tax. Industrial development bonds
are issued by or on behalf of public authorities to obtain funds for various
privately-operated manufacturing facilities, housing, sports arenas, convention
centers, airports, mass transportation systems and water, gas or sewage works.
Industrial development bonds are ordinarily dependent on the credit quality of
a private user, not the public issuer.
General obligation municipal bonds are secured by the issuer's pledge of full
faith, credit and taxing power. Revenue or special tax bonds are payable from
the revenues derived from a particular facility or, in some cases, from a
special excise or other tax, but not from general tax revenue.
Municipal notes are issued to meet the short-term funding requirements of
local, regional and state governments. Municipal notes include bond
anticipation notes, revenue anticipation notes and tax and revenue anticipation
notes. These are short-term debt obligations issued by state and local
governments to aid cash flows while waiting for taxes or revenue to be
collected, at which time the debt is retired. Other types of municipal notes in
which the portfolio may invest are construction loan notes, short-term discount
notes, tax-exempt commercial paper, demand notes, and similar instruments.
Demand notes permit an investor (such as the portfolio) to demand from the
issuer payment of principal plus accrued interest upon a specified number of
days' notice. The portfolios eligible to purchase municipal bonds may also
purchase AMT bonds. AMT bonds are tax-exempt private activity bonds
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Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Funds - 29
<PAGE>
issued after August 7, 1986, the proceeds of which are directed, at least in
part, to private, for-profit organizations. While the income from AMT bonds is
exempt from regular federal income tax, it is a tax preference item in the
calculation of the alternative minimum tax. The alternative minimum tax is a
special separate tax that applies to a limited number of taxpayers who have
certain adjustments to income or tax preference items.
Preferred Stock: are non-voting ownership shares in a corporation which pay a
fixed or variable stream of dividends.
Repurchase Agreements: are transactions by which a portfolio purchases a
security and simultaneously commits to resell that security to the seller (a
bank or securities dealer) at an agreed upon price on an agreed upon date
(usually within seven days of purchase). The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or date of maturity of the purchased security. Such agreements
permit the portfolio to keep all its assets at work while retaining overnight
flexibility in pursuit of investments of a longer term nature. The Adviser will
continually monitor the value of the underlying collateral to ensure that its
value, including accrued interest, always equals or exceeds the repurchase
price.
Pursuant to an order issued by the SEC, the Fund's portfolios may pool their
daily uninvested cash balances in order to invest in Repurchase Agreements on a
joint basis. By entering into Repurchase Agreements on a joint basis, it is
expected that the portfolios will incur lower transaction costs and potentially
obtain higher rates of interest on such Repurchase Agreements. Each portfolio's
participation in the income from jointly purchased Repurchase Agreements will
be based on that portfolio's percentage share in the total Repurchase
Agreement.
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
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MAS Funds - 30 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
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.
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
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Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Funds - 31
<PAGE>
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 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.
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
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MAS Funds - 32 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
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.
Yankees: are U.S. dollar-denominated Fixed-Income Securities issued by a
foreign government or corporation and sold in the U.S.
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 Coupons may offer investors the opportunity to earn higher
yields than those available on ordinary interest-paying obligations of similar
credit quality and maturity. However, zero coupon obligation prices may also
exhibit greater price volatility than ordinary Fixed-Income Securities because
of the manner in which their principal and interest are returned to the
investor.
GENERAL SHAREHOLDER INFORMATION
This Prospectus is intended solely to provide information to persons investing
in the Morgan Stanley Stable Value Fund.
VALUATION OF SHARES
Fixed Income and Intermediate 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.
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Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Funds - 33
<PAGE>
However, bonds and other Fixed-Income Securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. The prices provided by a pricing
service are determined without regard to bid or last sale prices but take into
account institutional size trading in similar groups of securities and any
developments related to specific securities. Bonds and other Fixed-Income
Securities not priced in this manner are valued at the most recent quoted bid
price, or when stock exchange valuations are used, at the latest quoted sale
price on the day of valuation. If there is no such reported sale, the latest
quoted bid price will be used. Securities purchased with remaining maturities
of 60 days or less are valued at amortized cost when the Board of Trustees
determines that amortized cost reflects fair value. In the event that amortized
cost does not approximate market, market prices as determined above will be
used. Other assets and securities, for which no quotations are readily
available (including restricted securities), and, to the extent permitted by
the SEC, securities for which the value has been materially affected by events
occurring after the close of the market on which they principally trade, will
be valued in good faith at fair value using methods approved by the Board of
Trustees.
Cash Reserves Portfolio: The net asset value per share of the Cash Reserves
Portfolio is calculated daily as of 12:00 noon (Eastern Time) on each day that
the portfolio is open for business (See Other Information-Closed Holidays). The
portfolio determines its net asset value per share by subtracting the
portfolio's liabilities (including accrued expenses and dividends payable) from
the total value of the portfolio's investments and other assets and dividing
the result by the total outstanding shares of the portfolio.
For the purpose of calculating the portfolio's net asset value per share,
securities are valued by the amortized cost method of valuation, which does not
take into account unrealized gains or losses. This involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method
provides certainty in valuation, it may result in periods during which value
based on amortized cost is higher or lower than the price the portfolio would
receive if it sold the instrument.
The use of amortized cost and the maintenance of the portfolio's per share net
asset value at $1.00 is based on its election to operate under the provisions
of Rule 2a-7 under the 1940 Act. As conditions of operating under Rule 2a-7,
the portfolio must maintain a dollar-weighted average portfolio maturity of 90
days or less, purchase only instruments having remaining maturities of thirteen
months or less and invest only in U.S. dollar-denominated
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MAS Funds - 34 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
securities which are determined by the Trustees to present minimal credit risks
and which are of eligible quality as determined under the rule.
The Board of Trustees has also agreed to establish procedures reasonably
designed, taking into account current market conditions and the portfolio's
investment objective, to stabilize the net asset value per share as computed
for the purposes of sales and redemptions at $1.00. These procedures include
periodic review, as the Trustees deem appropriate and at such intervals as are
reasonable in light of current market conditions, of the relationship between
the amortized cost value per share and a net asset value per share based upon
available indications of market value. In such a review, investments for which
market quotations are readily available are valued at the most recent bid price
or quoted yield equivalent for such securities or for securities of comparable
maturity, quality and type as obtained from one or more of the major market
makers for the securities to be valued. Other investments and assets are valued
at fair value, as determined in good faith by the Board of Trustees.
In the event of a deviation of over 1/2 of 1% between a portfolio's net
asset value based upon available market quotations or market equivalents and
$1.00 per share based on amortized cost, the Trustees will promptly consider
what action, if any, should be taken. The Board of Trustees will also take such
action as they deem appropriate to eliminate or to reduce to the extent
reasonably practicable any material dilution or other unfair results which
might arise from differences between the two. Such action may include redeeming
shares in kind, selling instruments prior to maturity to realize capital gains
or losses or to shorten average maturity, withholding dividends, paying
distributions from capital or capital gains, or utilizing a net asset value per
share not equal to $1.00 based upon available market quotations.
Net asset value per share for Investment Class Shares, Institutional Class
Shares and Adviser Class Shares may differ due to 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.
DIVIDENDS, DISTRIBUTIONS AND TAXES: Dividends and Distributions: The Fund
maintains different dividend and capital gain distribution policies for each
portfolio. These are:
o The Fixed Income and Intermediate Duration Portfolios normally distribute
substantially all of their net investment income to shareholders on a
quarterly basis.
o The Cash Reserves Portfolio declares distributions daily and normally
distributes substantially all of its investment income on a monthly basis.
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Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Funds - 35
<PAGE>
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 gains are realized from the sale of underlying securities, the
portfolios normally distribute such gains with the last distribution for the
calendar year.
All dividends and capital gains distributions are automatically paid in
additional shares of the portfolio unless the shareholder elects otherwise.
Such election must be made in writing to the Fund and may be made on the
Account Registration Form.
In all portfolios except the Cash Reserves Portfolio, undistributed net
investment income is included in the portfolio's net assets for the purpose of
calculating net asset value per share. Therefore, on the ex-dividend date, the
net asset value per share excludes the dividend (i.e., is reduced by the per
share amount of the dividend). Dividends paid shortly after the purchase of
shares by an investor, although in effect a return of capital, are taxable as
ordinary income.
Certain Mortgage Securities may provide for periodic or unscheduled payments of
principal and interest as the mortgages underlying the securities are paid or
prepaid. However, such principal payments (not otherwise characterized as
ordinary discount income or bond premium expense) will not normally be
considered as income to the portfolio and therefore will not be distributed as
dividends. Rather, these payments on mortgage-backed securities will be
reinvested on behalf of the shareholders by the portfolio in accordance with
its investment objectives and policies.
Special Considerations for the Cash Reserves Portfolio: Net investment income
is computed and dividends declared as of 12:00 noon (Eastern Time), on each
day. Such dividends are payable to Cash Reserves Portfolio shareholders of
record as of 12:00 noon (Eastern Time) on that day, if the portfolio is open
for business. Shareholders who redeem prior to 12:00 noon (Eastern Time) are
not entitled to dividends for that day. Dividends declared for Saturdays,
Sundays and holidays are payable to shareholders of record as of 12:00 noon
(Eastern Time) on the preceding business day on which the portfolio was open
for business. Net realized short-term capital gains, if any, of the Cash
Reserves Portfolio will be distributed whenever the Trustees determine that
such distributions would be in the best interest of shareholders, but at least
once a year. The portfolio does not expect to realize any long-term capital
gains. Should any such gains be realized, they will be distributed annually.
TAXES: The following is a summary of some important tax issues that affect the
portfolios of the Fund and their shareholders. The summary is
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MAS Funds - 36 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
based on current tax laws and regulations, which may be changed by legislative,
judicial or administrative action. No attempt has been made to present a
detailed explanation of the tax treatment of each portfolio or its
shareholders. More information about taxes is in the Statement of Additional
Information. Shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
Federal Taxes: Each portfolio of the Fund is treated as a separate entity for
federal income tax purposes and intends to qualify for the special tax
treatment afforded regulated investment companies. As such, each portfolio will
not be subject to federal income tax to the extent it distributes net
investment company taxable income and net capital gains to shareholders. The
Fund will notify shareholders annually as to the tax classification of all
distributions.
Income dividends received by shareholders will be taxable as ordinary income,
whether received in cash or in additional shares. Capital gains distributions
are taxable to shareholders at capital gains rates. Each portfolio will
designate capital gains distributions to individual shareholders as either
subject to the federal capital gains rate imposed on property held for more
than 18 months or on property held for more than 1 year but not more than 18
months.
Distributions paid in January but declared by a portfolio in October, November
or December of the previous year are taxable to shareholders in the previous
year.
Each portfolio intends to declare and pay dividends and distributions so as to
avoid imposition of the federal excise tax applicable to regulated investment
companies. Further discussion is included in the Statement of Additional
Information.
The Fund is required by federal law to withhold 31% of reportable payments
(which may include dividends and capital gains distributions) paid to
shareholders. In order to avoid this withholding requirement, shareholders must
certify on their Account Registration Forms that their Social Security Number
or Taxpayer Identification Number is correct, and that they are not subject to
backup withholding. Exchanges and redemptions of shares in a portfolio are
taxable events.
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.
State and Local Income Taxes: The Fund is formed as a Pennsylvania Business
Trust and is not liable for any corporate income or franchise tax in the
Commonwealth of Pennsylvania. Shareholders should consult their tax advisors
for the state and local income tax consequences of distributions from the
portfolios.
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Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Funds - 37
<PAGE>
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
December 31, 1997 had in excess of $59.4 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. The following table shows the Adviser's contractual
rate (annualized) along with the Adviser's actual rate of compensation for the
Fund's 1997 fiscal year.
FY 1997
Contractual Actual
Rate Compensation Rate
------------- ------------------
Cash Reserves Portfolio .250% .180%
Fixed Income Portfolio .375 .375
Intermediate Duration Portfolio .375 .325
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MAS Funds - 38 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
Until further notice, the Adviser has voluntarily agreed to waive its advisory
fees and/or reimburse certain expenses to the extent necessary to keep Total
Operating Expenses actually deducted from portfolio assets for the
Institutional Class of the Cash Reserves Portfolio from exceeding 0.32%.
PORTFOLIO MANAGEMENT
A description of the business experience during the past five years for each of
the investment professionals who are primarily responsible for the day-to-day
management of the Fund's portfolios is as follows:
Thomas L. Bennett, Managing Director, Morgan Stanley, joined MAS in 1984. He
assumed responsibility for the Fixed Income Portfolio in 1984, the Domestic
Fixed Income Portfolio 1987, the High Yield Portfolio in 1985, the Fixed Income
Portfolio II in 1990, the Special Purpose Fixed Income and Balanced Portfolio
in 1992, the Multi-Asset-Class Portfolio in 1994, the Balanced Plus Portfolio
in 1996 and the Multi-Market Fixed Income Portfolio in 1997.
Kenneth B. Dunn, Managing Director, Morgan Stanley, joined MAS in 1987. He
assumed responsibility for the Fixed Income and the Domestic Fixed Income
Portfolios in 1987, the Fixed Income II Portfolio in 1990, the Mortgage-Backed
Securities and Special Purpose Fixed Income Portfolios in 1992, the Municipal
and PA Municipal Portfolios in 1994 and the Multi-Market Fixed Income Portfolio
in 1997.
Abigail Jones Feder, Principal, Morgan Stanley, joined Morgan Stanley in 1985.
She assumed responsibility for the Cash Reserves Portfolio in 1996.
Ellen D. Harvey, Principal, Morgan Stanley, joined MAS in 1984. She assumed
responsibility for the Cash Reserves Portfolio in 1990, the Limited Duration
Portfolio in 1992 and the Intermediate Duration Portfolio in 1994.
Scott F. Richard, Managing Director, Morgan Stanley, joined MAS in 1992. He
assumed responsibility for the Mortgage-Backed Securities Portfolio in 1992,
the Limited Duration, Intermediate Duration, Municipal and PA Municipal
Portfolios in 1994 and the Advisory Mortgage Portfolio in 1995.
Christian G. Roth, Principal, Morgan Stanley, joined MAS in 1991. He assumed
responsibility for the Limited Duration and Intermediate Duration Portfolios in
1994.
Richard B. Worley, Managing Director, Morgan Stanley, joined MAS in 1978. He
assumed responsibility for the Fixed Income Portfolio in 1984, the Domestic
Fixed Income Portfolio in 1987, the Fixed Income Portfolio II in 1990, the
Balanced and Special Purpose Fixed Income Portfolios in 1992, the
- --------------------------------------------------------------------------------
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Funds - 39
<PAGE>
Global Fixed Income and International Fixed Income Portfolios in 1993, the
Multi-Asset-Class Portfolio in 1994, the Balanced Plus Portfolio in 1996 and
the Multi-Market Fixed Income Portfolio in 1997.
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.
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 or markups on principal transactions 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 or
dealer effecting the transaction.
It is not the Fund's practice to allocate brokerage or principal business on
the basis of sales of shares which may be made through intermediary brokers or
dealers. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Fund's Portfolios or who act as agents in the
purchase of shares of the portfolios for their clients.
Some securities considered for investment by each of the Fund's portfolios may
also be appropriate for other clients served by the Adviser. The Adviser may
place a combined order for two or more accounts or portfolios for the purchase
or sale of the same security if, in its judgement, joint execution is in the
best interest of each participant and will result in best price and execution.
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
- --------------------------------------------------------------------------------
MAS Funds - 40 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
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. The Adviser 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-seven 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 1940 Act
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 5, 1998, Northern Trust Company (Chicago, IL) owned a controlling
interest (as that term is defined by the 1940 Act) of the Cash Reserves
Portfolio and Southwest National Bank of Pennsylvania (Greensburg, PA) owned a
controlling interest of the Intermediate Duration Portfolio.
Custodians: The Chase Manhattan Bank, New York, NY and Morgan Stanley Trust
Company (NY), Brooklyn, NY serve as custodians for the Fund. The custodians
hold cash, securities and other assets as required by the 1940 Act.
Transfer and Dividend Disbursing Agent: Chase Global Funds Services Company, a
subsidiary of The Chase Manhattan Bank, 73 Tremont Street, Boston, MA
02108-3913, serves as the Funds' Transfer Agent and dividend disbursing agent.
- --------------------------------------------------------------------------------
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Funds - 41
<PAGE>
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, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. In addition, the Cash Reserves Portfolio will be closed on
Columbus Day and Veteran's Day.
- --------------------------------------------------------------------------------
MAS Funds - 42 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
TRUSTEES AND OFFICERS
The following is a list of the Trustees and the principal executive officers of
the Fund and a brief statement of their present positions and principal
occupations during the past five years:
Thomas L. Bennett,* Chairman of the Board of Trustees; Managing Director,
Morgan Stanley; Portfolio Manager and member of the Executive Committee, Miller
Anderson & Sherrerd, LLP; Director, MAS Fund Distribution, Inc.; formerly
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,
Fannie Mae; Director, Reliance Group Holdings; Director, CVS Corporation;
Director, Union Carbide Corporation.
Joseph P. Healey, Trustee; Headmaster, Haverford School; formerly Dean, Hobart
College; Associate Dean, William & Mary College.
Joseph J. Kearns, Trustee; investment consultant; Chief Investment Officer, 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, 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.
John H. Grady, Jr., Secretary, MAS Funds; Partner, Morgan, Lewis & Bockius LLP;
formerly Attorney, Ropes & Gray.
- --------------------------------------------------------------------------------
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Funds - 43
<PAGE>
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- --------------------------------------------------------------------------------
MAS Funds - 44 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 - 45
<PAGE>
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- --------------------------------------------------------------------------------
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>
[GRAPHIC OMITTED]
- ---- ----------------------
----
PROSPECTUS
March 20, 1998
Investment Adviser Transfer Agent:
and Administrator:
Miller Anderson & Sherrerd, LLP Chase Global Funds Services Company
One Tower Bridge 73 Tremont Street
West Conshohocken, Boston, Massachusetts
Pennsylvania 19428-2899 02108-0913
General Distribution Agent:
MAS Fund Distribution, Inc.
One Tower Bridge
P.O. Box 868
West Conshohocken,
Pennsylvania 19428-0868
-------------------------------------------------------------------------
Table of Contents
Page Page
Fund Expenses 2 General Shareholder Information 33
Prospectus Summary 4 Valuation of Shares 33
Financial Highlights 6 Dividends, Distributions and Taxes 35
Yield and Total Return 8 Investment Adviser 38
Investment Suitability 9 Portfolio Management 39
Investment Limitations 10 Administrative Services 40
Portfolio Summaries 12 General Distribution Agent 40
Prospectus Glossary: Portfolio Transactions 40
Strategies 15 Other Information 41
Investments 19 Trustees and Officers 43
MILLER
ANDERSON
& SHERRERD, LLP -- ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428
<PAGE>
ADVISER CLASS PROSPECTUS
SMALL CAP VALUE PORTFOLIO
MARCH 23, 1998
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-seven
portfolios, one of which is described in this Prospectus. This Prospectus
offers the Adviser Class Shares of the Small Cap Value Portfolio (the
"portfolio").
PORTFOLIO PAGE REFERENCE
HOW TO USE THIS PROSPECTUS: 3
PORTFOLIO SUMMARY: 10
PROSPECTUS GLOSSARY:
Strategy 11
Investments 11
GENERAL SHAREHOLDER
INFORMATION: 17
TABLE OF CONTENTS: Back Cover
This Prospectus, which should be retained for future reference, sets forth
concisely information that you should know before you
invest. A Statement of Additional Information containing additional
information about the Fund has been filed with the Securities and Exchange
Commission. Such Statement is dated January 31, 1998 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 NOR HAS THE SECURITIES AND EXCHANGE 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 * WEST CONSHOHOCKEN, PA 19428 * 800-354-8185
<PAGE>
EXPENSE SUMMARY - ADVISER CLASS SHARES
The following tables illustrate the various expenses and fees that a
shareholder in the portfolio will incur either directly or indirectly. The
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%
Shareholder Servicing Fee None
<TABLE>
<CAPTION>
INVESTMENT TOTAL
ADVISORY OTHER OPERATING
PORTFOLIO FEES EXPENSES EXPENSES
<S> <C> <C> <C>
Small Cap Value 0.750% 0.100% 1.100%
</TABLE>
The Total Operating Expense ratios reflected in the table above may be 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
amounts in the above table have been restated to reflect current fees and
expenses.
MAS Fund - 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 the portfolio will bear directly or indirectly. The
following example illustrates the expenses that an investor would pay on a
$1,000 investment over various time periods assuming (1) a 5% annual rate of
return, and (2) redemption at the end of each time period. The example should
not be considered a representation of past or future expenses and actual
expenses may be greater or less than those shown.
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C> <C>
Small Cap Value $11 $35 $61 $134
</TABLE>
HOW TO USE THIS PROSPECTUS
A PROSPECTUS SUMMARY begins on page 4;
FINANCIAL HIGHLIGHTS and a description of YIELD AND TOTAL RETURN begin on
page 6;
GENERAL INFORMATION including INVESTMENT LIMITATIONS begins on page 7;
A SUMMARY PAGE for the portfolio's Objective, Policies and Strategies is
located on page 10;
The PROSPECTUS GLOSSARY which defines specific Allowable Investments,
Policies and Strategies printed in bold type throughout this Prospectus
begins on page 11; and
GENERAL SHAREHOLDER INFORMATION begins on page 17.
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 3
<PAGE>
SUMMARY INFORMATION:
The following information should be read in conjunction with the specific
information about the portfolio.
OBJECTIVES: The portfolio seeks to achieve its investment objective relative
to the universe of securities in which it is authorized to invest and,
accordingly, the total return or current income achieved by the portfolio may
not be as great as that achieved by another portfolio that can invest in a
broader range of securities. The objective of the portfolio is fundamental
and may only be changed with approval of holders of a majority of the shares
of the portfolio. The achievement of the portfolio's objective cannot be
assured.
RISK FACTORS: Prospective investors in the Fund should consider the following
factors as they apply to the portfolio's allowable investments and policies.
See the Prospectus Glossary for more information on terms printed in BOLD
TYPE:
* The portfolio may invest in REPURCHASE AGREEMENTS, which entail a risk of
loss should the seller default in its obligation to repurchase the
security which is the subject of the transaction;
* The portfolio may participate in a SECURITIES LENDING program which
entails a risk of loss should a borrower fail financially;
* 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 the portfolio's net asset value;
* Investments in foreign securities involve certain special considerations
which are not typically associated with investing in U.S. companies. The
portfolio may also engage in foreign currency exchange transactions. See
FO RWARDS, FUTURES & OPTIONS, and SWAPS;
* Securities purchased on a when-issued basis may decline or appreciate in
market value prior to their actual delivery to the portfolio;
* The portfolio may invest a portion of its assets in DERIVATIVES including
FUTURES & OPTIONS. Futures contracts, options and options on futures
contracts entail certain costs and risks, including imperfect correlation
between the value of the securities held by the portfolio and the value
of the particular derivative instrument, and the risk that the portfolio
could not close out a futures or options position when it would be most
advantageous to do so; and
* The portfolio may invest in certain instruments such as FORWARDS, certain
types of FUTURES & OPTIONS and WHEN-ISSUED SECURITIES which require the
portfolio to segregate some or all of its cash or liquid securities to
MAS Fund - 4 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
cover its obligations pursuant to such instruments. As asset segregation
reaches certain levels, the 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.
HOW TO INVEST: Adviser Class Shares of the 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 the portfolio may be redeemed at any time at the net
asset value of the portfolio next determined after receipt of the redemption
request. The redemption price may be more or less than the purchase price.
See Redemption of Shares and Shareholder Services.
THE FUND'S INVESTMENT ADVISER: Miller Anderson & Sherrerd, LLP (the
"Adviser") is a Pennsylvania limited liability partnership founded in 1969,
wholly owned by indirect subsidiaries of Morgan Stanley, Dean Witter,
Discover and 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 December 31, 1997 had in excess of $59.4 billion in assets under
management.
THE FUND'S DISTRIBUTOR: MAS Fund Distribution, Inc. (the "Distributor")
provides distribution services to the Fund.
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 5
<PAGE>
FINANCIAL HIGHLIGHTS - FISCAL YEARS ENDED SEPTEMBER 30
Selected per share data and ratios for a share outstanding throughout each
period
The following should be read in conjunction with the Fund's financial
statements which are included in the Annual Report to Shareholders
incorporated by reference to the Statement of Additional Information. The
Fund's financial statements for the year ended September 30, 1997 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 Small Cap Value Portfolio had not commenced
operations as of September 30, 1997, therefore Institutional Class share
financial information is provided to investors for informational purposes
only and should be referred to as a historical guide to the portfolio's
operations and expenses. Past performance does not indicate future results.
(Data is adjusted to reflect a 2.5 for 1 share split as of August 13, 1993.)
<TABLE>
<CAPTION>
NET GAINS DIVIDEND
NET ASSET OR LOSSES DISTRIBUTIONS CAPITAL GAIN NET ASSET
VALUE- NET ON SECURITIES TOTAL FROM (NET DISTRIBUTIONS VALUE-
BEGINNING INVESTMENT (REALIZED AND INVESTMENT INVESTMENT (REALIZED NET OTHER TOTAL END OF
OF PERIOD INCOME UNREALIZED) ACTIVITIES INCOME) CAPITAL GAINS) DISTRIBUTIONS DISTRIBUTIONS PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
SMALL CAP VALUE PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 7/01/86)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 $19.64 $0.15 $8.39 $8.54 ($0.11) ($3.10) -- ($3.21) $24.97
1996 18.28 0.18 3.62 3.80 (0.20) (2.24) -- (2.44) 19.64
1995 17.67 0.19 2.49 2.68 (0.14) (1.93) -- (2.07) 18.28
1994 17.55 0.16 1.14 1.30 (0.24) (0.94) -- (1.18) 17.67
1993 12.84 0.18 4.64 4.82 (0.11) -- -- (0.11) 17.55
1992 11.45 0.10 1.48 1.58 (0.19) -- -- (0.19) 12.84
1991 7.20 0.23 4.21 4.44 (0.19) -- -- (0.19) 11.45
1990 10.42 0.28 (3.05) (2.77) (0.45) -- -- (0.45) 7.20
1989 8.54 0.34 1.74 2.08 (0.20) -- -- (0.20) 10.42
1988 10.24 0.18 (1.42) (1.24) (0.14) (0.32) -- (0.46) 8.54
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
NET ASSETS- RATIO OF RATIO OF
END OF EXPENSES NET INCOME PORTFOLIO AVERAGE
TOTAL PERIOD TO AVERAGE TO AVERAGE TURNOVER COMMISSION
RETURN* (THOUSANDS) NET ASSETS NET ASSETS RATE RATE**
- --------------------------------------------------------------------------------------
SMALL CAP VALUE PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 7/01/86)
<S> <C> <C> <C> <C> <C> <C>
1997 49.81% $897,396 0.86% 0.70% 107% $0.0480
1996 24.00 585,457 0.86 0.99 145 0.0498
1995 18.39 430,368 0.87 1.20 119 --
1994 8.04 308,156 0.88 0.91 162 --
1993 37.72 175,029 0.88 1.33 93 --
1992 14.12 105,886 0.86 1.06 50 --
1991 63.07 52,182 0.88 1.70 53 --
1990 (27.63) 100,848 0.85 1.77 59 --
1989 24.85 189,223 0.85 3.48 36 --
1988 (11.50) 202,500 0.86 2.32 41 --
</TABLE>
NOTES TO THE FINANCIAL HIGHLIGHTS
*Total return figures for partial years are not annualized.
**For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose the average commission rate per share paid for security
transactions on which commissions were charged.
+For the respective periods ended September 30, the Ratio of Expenses to
Average Net Assets for the portfolio excludes the effect of expense offsets.
If expense offsets were included, the Ratio of Expenses to Average Net
Assets would be as follows for the respective periods.
PORTFOLIO 1995 1996 1997
Small Cap Value 0.87% 0.86% 0.86%
MAS Fund - 6 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
YIELD AND TOTAL RETURN:
From time to time the portfolio advertises its yield and total return. BOTH
YIELD AND TOTAL RETURN FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE. The average annual total return
reflects changes in the price of the 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).
The yield of the portfolio is computed by dividing the net investment income
per share (using the average number of shares entitled to receive dividends)
earned during a 30-day period 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 performance of the portfolio may be compared to data prepared by
independent services which monitor the performance of investment companies,
data reported in financial and industry publications, returns of other
investment advisers and mutual funds, and various indices as further
described in the Statement of Additional Information.
The performance of Institutional Class Shares, Investment Class Shares and
Adviser Class Shares differs because of any class-specific expenses paid by
each class and the shareholder servicing fees charged to Investment Class
Shares and distribution fees charged to Adviser Class Shares.
The Annual Report to Shareholders of the Fund for the Fund's most recent
fiscal year-end contains additional performance information that includes
comparisons with appropriate indices. The Annual Report is available without
charge upon request by writing to the Fund or calling the Client Services
Group at the telephone number shown on the front cover of this Prospectus.
GENERAL INFORMATION
SUITABILITY: The portfolio is designed for long-term investors who can accept
the risks entailed in investing in the stock and bond markets, and is not
meant to provide a vehicle for playing short-term swings in the market. The
portfolio is 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 the portfolio will not be
influenced by the different tax treatment of capital gains and dividend
income under the Internal Revenue Code.
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 7
<PAGE>
SECURITIES LENDING: The 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, the portfolio will
not loan its portfolio securities to the extent that greater than one-third of
its total assets, at fair market value, would be committed to loans at that
time.
ILLIQUID SECURITIES/RESTRICTED SECURITIES: The portfolio may invest up to 15%
of its net assets in securities that are illiquid by virtue of the absence of
a readily available market, or because of legal or contractual restrictions
on resale. This policy does not limit the acquisition of (i) restricted
securities eligible for resale to qualified institutional buyers pursuant to
Rule 144A under the Securities Act of 1933 or (ii) commercial paper issued
pursuant to Section 4(2) under the Securities Act of 1933, that are
determined to be liquid in accordance with guidelines established by the
Fund's Board of Trustees.
TURNOVER: The Adviser manages the portfolio generally without regard to
restrictions on annual turnover. In general, the portfolio will not trade for
short-term profits, but when circumstances warrant, investments may be sold
without regard to the length of time held.
The portfolio has an annual turnover rate of 100% or more. This high rate of
annual turnover necessarily results in correspondingly heavier brokerage and
portfolio trading costs which are paid by the portfolio. In addition to
portfolio trading costs, higher rates of annual 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. The annual turnover rate for the
portfolio is shown in the Financial Highlights under "Portfolio Turnover
Rate."
CASH EQUIVALENTS/TEMPORARY DEFENSIVE INVESTING: Although the portfolio
intends to remain substantially fully invested, a small percentage of the
portfolio's assets is generally held in the form of CASH EQUIVALENTS in order
to meet redemption requests and otherwise manage the daily affairs of the
portfolio. In addition, the portfolio may, when the Adviser deems that market
conditions are such that a temporary defensive approach is desirable, invest
in CASH EQUIVALENTS or the FIXED-INCOME SECURITIES listed for the portfolio
without limit.
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. The portfolio will not concentrate investments in any one industry.
MAS Fund - 8 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
INVESTMENT LIMITATIONS: The portfolio is subject to certain limitations
designed to reduce its exposure to specific situations. Some of these
limitations are:
(a) with respect to 75% of its assets, the portfolio will not purchase
securities of any issuer if, as a result, more than 5% of the portfolio's
total assets taken at market value would be invested in the securities of any
single issuer except that this restriction does not apply to securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities; and
(b) with respect to 75% of its assets, the portfolio will not purchase a
security if, as a result, the portfolio would hold more than 10% of the
outstanding voting securities of any issuer.
Limitations (a) and (b), and certain other limitations described in the
Statement of Additional Information are fundamental and may be changed only
with the approval of the holders of a majority of the shares of the
portfolio. 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 in
this prospectus or Statement of Additional Information 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 Fund - 9
<PAGE>
SMALL CAP VALUE PORTFOLIO (NOT CURRENTLY BEING OFFERED TO NEW INVESTORS)
Objective: To achieve above-average total return over a
market cycle of three to five years, consistent
with reasonable risk, by investing in common
stocks with equity capitalizations in the range of
the companies represented in the Russell 2000
Small Stock Index which are deemed by the Adviser
to be relatively undervalued based on certain
proprietary measures of value. The portfolio will
typically exhibit lower price/earnings and
price/book value ratios than the Russell 2000.
Dividend income will typica lly be lower than for
the Equity and Value Portfolios.
Approach: The Adviser selects common stocks which are deemed
to be undervalued at the time of purchase, based
on proprietary measures of value. The portfolio
will be structured taking into account the
economic sector weights of the Russell 2000 Index,
with the portfolio's sector weights normally being
within 5% of the sector weights for the Index.
Policies: Generally at least 65% invested in EQUITY
SECURITIES of small-cap companies, which are
deemed to be undervalued
Up to 5% invested in FOREIGN EQUITIES (excluding
ADRs)
DERIVATIVES may be used to pursue portfolio
strategy
Capitalization Range: Generally matching the Russell 2000 size
distribution (currently $50 million to $1 billion)
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: ADRS CORPORATES FUTURES & OPTIONS SWAPS
AGENCIES FOREIGN BONDS INVESTMENT COMPANIES U.S. GOVERNMENTS
CASH EQUIVALENTS FOREIGN CURRENCY PREFERRED STOCK WARRANTS
COMMON STOCKS FOREIGN EQUITIES REPURCHASE AGREEMENTS WHEN ISSUED SECURITIES
CONVERTIBLES FORWARDS RIGHTS ZERO COUPONS
</TABLE>
Comparative Index: Russell 2000 Index
Strategies: VALUE STOCK INVESTING
Portfolio
Management Team Bradley S. Daniels, William B. Gerlach, Chris
Leavy and Gary G. Schlarbaum
MAS Fund - 10 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
PROSPECTUS GLOSSARY
CHARACTERISTICS AND RISKS OF STRATEGIES AND INVESTMENTS
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
The portfolio may invest in the securities defined below in accordance with
its listing of Allowable Investments and any quality or policy constraints.
ADRS--American Depository Receipts: are dollar-denominated securities which
are listed and traded in the United States, but which represent claims to
shares of foreign stocks. ADRs may be either sponsored or unsponsored.
Unsponsored ADR facilities typically provide less information to ADR holders.
ADRs also include American Depository Shares.
AGENCIES: are securities which are not guaranteed by the U.S. Government, but
which are issued, sponsored or guaranteed by a federal agency or federally
sponsored agency such as the Student Loan Marketing Association or any of
several other agencies.
CASH EQUIVALENTS: are short-term fixed-income instruments comprising:
(1) Time deposits, certificates of deposit (including marketable variable
rate certificates of deposit) and bankers' acceptances issued by a commercial
bank or savings and loan association. Time deposits are non-negotiable
deposits maintained in a banking institution for a specified period of time
at a stated interest rate. Certificates of deposit are negotiable short-term
obligations issued by commercial banks or savings and loan associations
against funds deposited in the issuing institution. Variable rate
certificates of deposit are certificates of deposit on which the interest
rate is periodically adjusted prior to their stated maturity based upon a
specified market rate. A bankers' acceptance is a time draft drawn on a
commercial bank by a borrower usually in connection with an international
commercial transaction (to finance the import, export, transfer or storage of
goods).
The portfolio may invest in obligations of U.S. banks and in 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.
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 11
<PAGE>
The portfolio will not invest in any security issued by a commercial bank
unless (i) the bank has total assets of at least $1 billion, or the equivalent
in other currencies, or, in the case of domestic banks which do not have total
assets of at least $1 billion, the aggregate investment made in any one such
bank is limited to $100,000 and the principal amount of such investment is
insured in full by the Federal Deposit Insurance Corporation, (ii) in the case
of U.S. banks, it is a member of the Federal Dep osit Insurance Corporation,
and (iii) in the case of foreign branches of U.S. banks, the security is
deemed by the Adviser to be of an investment quality comparable with other
debt securities which may be purchased by the portfolio;
(2) The portfolio may invest in commercial paper rated at time of purchase by
one or more Nationally Recognized Statistical Rating Organizations ("NRSRO")
in one of their two highest categories, (e.g., A-l or A-2 by Standard &
Poor's or Prime 1 or Prime 2 by Moody's), or, if not rated, issued by a
corporation having an outstanding unsecured debt issue rated high-grade by a
NRSRO (e.g. A or better by Moody's, Standard & Poor's or Fitch);
(3) Short-term corporate obligations rated high-grade at the time of purchase
by a NRSRO (e.g. A or better by Moody's, Standard & Poor's or Fitch);
(4) U.S. Government obligations including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of the
U.S. Government and differ mainly in interest rates, maturities and dates of
issue;
(5) 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.
COMMON STOCKS: are EQUITY SECURITIES which represent an ownership interest in
a corporation, entitling the shareholder to voting rights and receipt of
dividends paid based on proportionate ownership.
CONVERTIBLES: are convertible bonds or shares of convertible PREFERRED STOCK
which may be exchanged for a fixed number of shares of COMMON STOCK at the
purchaser's option.
CORPORATES--Corporate bonds: are debt instruments issued by private
corporations. Bondholders, as creditors, have a prior legal claim over common
and preferred stockholders of the corporation as to both income and assets
for the principal and interest due to the bondholder. The portfolio will buy
Corporates subject to any quality constraints. If a security held by the
portfolio is down-graded, the portfolio may retain the security if the
Adviser deems retention of the security to be in the best interests of the
portfolio.
MAS Fund - 12 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
DEPOSITARY RECEIPTS: include both Global Depositary Receipts ("GDRs") and
European Depositary Receipts ("EDRs"), in addition to other similar types of
depositary shares, and are securities that can be traded in U.S. or foreign
securities markets but which represent ownership interests in a security or
pool of securities by a foreign or U.S. corporation. Depositary Receipts may
be sponsored or unsponsored. The depositary of unsponsored Depositary Receipts
may provide less information to receipt holders.
DERIVATIVES: A financial instrument whose value and performance are based on
the value and performance of another security or financial instrument. The
Adviser will use derivatives only in circumstances where they offer the most
economic means of improving the risk/reward profile of the portfolio. The
Adviser will not use derivatives to increase portfolio risk above the level
that could be achieved in the portfolio using only traditional investment
securities. In addition, the Adviser will not use derivatives to acquire
exposure to changes in the value of assets or indexes of assets that are not
listed in the applicable Allowable Investments for the portfolio. Any
applicable limitations are described under each investment definition. The
portfolio may enter into over-the-counter derivatives transactions with
counterparties approved by the Adviser in accordance with guidelines
established by the Board of Trustees. These guidelines provide for a minimum
credit rating for each counterparty and various credit enhancement techniques
(for example, collateralization of amounts due from counterparties) to limit
exposure to counterparties with ratings below AA. Derivatives include, but
are not limited to, FORWARDS, FUTURES AND OPTIONS, and SWAPS.
EQUITY SECURITIES: Commonly include but are not limited to COMMON STOCK,
PREFERRED STOCK, ADRS, RIGHTS, WARRANTS, CONVERTIBLES, AND FOREIGN EQUITIES. P
REFERRED STOCK is contained in both the definition of Equity Securities and FI
XED-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, CONVERTIBLES, CASH
EQUIVALENTS, REPURCHASE AGREEMENTS, PREFERRED STOCK, and FOREIGN BONDS. PREFER
RED 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.
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; and (3)
non-government foreign corporate debt securities.
FOREIGN CURRENCY: A portfolio investing in foreign securities will regularly
transact security purchases and sales in foreign currencies. The portfolio
may hold foreign currency or purchase or sell currencies on a forward basis
(see FORWARDS).
FOREIGN 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.
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 13
<PAGE>
FORWARDS--Forward Foreign Currency Exchange Contracts: are DERIVATIVES which
are used to protect against uncertainty in the level of future foreign
exchange rates. A forward foreign currency exchange contract is an obligation
to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract agreed upon by the parties,
at a price set at the time of the contract. Such contracts do not eliminate
fluctuations caused by changes in the local currency prices of the securities,
but rather, they establish an exchange rate at a future date. Also, although
such contracts can minimize the risk of loss due to a decline in the value of
the hedged currency, at the same time they limit any potential gain that might
be realized.
The portfolio may use currency exchange contracts in the normal course of
business to lock in an exchange rate in connection with purchases and sales
of securities denominated in foreign currencies (transaction hedge) or to
lock in the U.S. dollar value of portfolio positions (position hedge). In
addition, the portfolio may cross hedge currencies by entering into a
transaction to purchase or sell one or more currencies that are expected to
decline in value relative to other currencies to which the portfolio has or
expects to have portfolio exposure. The portfolio may also engage in proxy
hedging which is defined as entering into positions in one currency to hedge
investments denominated in another currency, where the two currencies are
economically linked. The portfolio's entry into forward contracts, as well as
any use of cross or proxy hedging techniques will generally require the
portfolio to hold liquid securities or cash equal to the portfolio's
obligations in a segregated account throughout the duration of the contract.
The portfolio may also combine forward contracts with investments in
securities denominated in other currencies in order to achieve desired credit
and currency exposures. Such combinations are generally referred to as
synthetic securities. For example, in lieu of purchasing a foreign bond, the
portfolio may purchase a U.S. dollar-denominated security and at the same
time enter into a forward contract to exchange U.S. dollars for the
contract's underlying currency at a future date. By matching the amount of
U.S. dollars to be exchanged with the anticipated value of the U.S.
dollar-denominated security, the portfolio may be able to lock in the foreign
currency value of the security and adopt a synthetic investment position
reflecting the credit quality of the U.S. dollar-denominated security.
There is a risk in adopting a transaction hedge or position hedge to the
extent that the value of a security denominated in foreign currency is not
exactly matched with the portfolio's obligation under the forward contract.
On the date of maturity, the portfolio may be exposed to some risk of loss
from fluctuations in that currency. Although the Adviser will attempt to hold
such mismatching to a minimum, there can be no assurance that the Adviser
will be able to do so. For proxy hedges, cross hedges or a synthetic
position, there is an additional risk in that these transactions create
residual foreign currency exposure. When the portfolio enters into a forward
contract for purposes of creating a position hedge, transaction hedge, cross
hedge or a synthetic security, it will generally be required to hold liquid
securities or cash in a segregated account with a daily value at least equal
to its obligation under the forward contract.
FUTURES & OPTIONS--Futures Contracts, Options on Futures Contracts and
Options: are DERIVATIVES. Futures contracts provide for the sale by one party
and purchase by another party of a specified amount of a specific security,
at a specified future time and price. An option is a legal contract that
gives the holder the right to buy or sell a specified amount of the
underlying security or futures contract at a fixed or determinable price upon
the exercise of the option. A call option conveys the right to buy and a put
option conveys the right to sell a specified quantity of the underlying
security.
MAS Fund - 14 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
The portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts in
combination with its outstanding obligations with respect to options
transactions would exceed 50% of its total assets. It will maintain assets
sufficient to meet its obligations under such contracts in a segregated
account with the custodian bank or will otherwise comply with the Securities
and Exchange Commission's ("SEC's") position on asset coverage.
Possible Risks: The primary risks associated with the use of Futures and
Options are (i) imperfect correlation between the change in market value of
the securities held by the portfolio and the prices of futures and options
relating to the stocks, bonds or futures contracts purchased or sold by the
portfolio; and (ii) possible lack of a liquid secondary market for a futures
contract and the resulting inability to close a futures position which could
have an adverse impact on the portfolio's ability to execute futures and
options strategies. Additional risks associated with options transactions are
(i) the risk that an option will expire worthless; (ii) the risk that the
issuer of an over-the-counter option will be unable to fulfill its obligation
to the portfolio due to bankruptcy or related circumstances; (iii) the risk
that options may exhibit greater short-term price volatility than the
underlying security; and (iv) the risk that the portfolio may be forced to
forego participation in the appreciation of the value of underlying
securities, futures contracts or currency due to the writing of a call
option.
INVESTMENT COMPANIES: The portfolio is permitted to invest in shares of other
open-end or closed-end investment companies. The Investment Company Act of
1940 (the "1940 Act") generally prohibits the portfolio from acquiring more
than 3% of the outstanding voting shares of an investment company and limits
such investments to no more than 5% of the portfolio's total assets in any
one investment company and no more than 10% in any combination of investment
companies. The 1940 Act also prohibits the portfolio from acquiring in the
aggregate more than 10% of the outstanding voting shares of any registered
closed-end investment company.
To the extent the portfolio invests a portion of its assets in Investment
Companies, those assets will be subject to the expenses of the investment
company as well as to the expenses of the portfolio itself. The portfolio may
not purchase shares of any affiliated investment company except as permitted
by SEC rule or order.
PREFERRED STOCK: are non-voting ownership shares in a corporation which pay a
fixed or variable stream of dividends.
REPURCHASE AGREEMENTS: are transactions by which the portfolio purchases a
security and simultaneously commits to resell that security to the seller (a
bank or securities dealer) at an agreed upon price on an agreed upon date
(usually within seven days of purchase). The resale price reflects the
purchase price plus an agreed upon market rate of interest which is unrelated
to the coupon rate or date of maturity of the purchased security. Such
agreements permit the portfolio to keep all its assets at work while
retaining overnight flexibility in pursuit of investments of a longer term
nature. The Adviser will continually monitor the value of the underlying
collateral to ensure that its value, including accrued interest, always
equals or exceeds the repurchase price.
Pursuant to an order issued by the SEC, the Fund's portfolios may pool their
daily uninvested cash balances in order to invest in Repurchase Agreements on
a joint basis. By entering into Repurchase Agreements on a joint basis, it is
expected that the portfolios will incur lower transaction costs and
potentially obtain higher rates of interest on such
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 15
<PAGE>
Repurchase Agreements. Each portfolio's participation in the income from
jointly purchased Repurchase Agreements will be based on that portfolio's
percentage share in the total Repurchase Agreement.
RIGHTS: represent a preemptive right of stockholders to purchase additional
shares of a stock at the time of a new issuance, before the stock is offered
to the general public, allowing the stockholder to retain the same ownership
percentage after the new stock offering.
SWAPS--Swap Contracts: are DERIVATIVES in the form of a contract or other
similar instrument which is an agreement to exchange the return generated by
one instrument for the return generated by another instrument. The payment
streams are calculated by reference to a specified index and agreed upon
notional amount. The term specified index includes, but is not limited to,
currencies, fixed interest rates, prices and total return on interest rate
indices, fixed-income indices, stock indices and commodity indices (as well
as amounts derived from arithmetic operations on these indices). For example,
the portfolio may agree to swap the return generated by a fixed-income index
for the return generated by a second fixed-income index. The currency Swaps
in which the portfolio may enter will generally involve an agreement to pay
interest streams in one currency based on a specified index in exchange for
receiving interest streams denominated in another currency. Such Swaps may
involve initial and final exchanges that correspond to the agreed upon notional
amount.
The portfolio will usually enter into Swaps on a net basis, i.e., the two
return streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the portfolio receiving or paying, as
the case may be, only the net amount of the two returns. The portfolio's
obligations under a swap agreement will be accrued daily (offset against any
amounts owing to the portfolio) and any accrued but unpaid net amounts owed
to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash or liquid securities. The portfolio will not enter
into any swap agreement unless the counterparty meets the rating requirements
set forth in guidelines established by the Board of Trustees.
Possible Risks: Interest rate and total rate of return Swaps do not involve
the delivery of securities, other underlying assets, or principal.
Accordingly, the risk of loss with respect to interest rate and total rate of
return Swaps is limited to the net amount of interest payments that the
portfolio is contractually obligated to make. If the other party to an
interest rate or total rate of return swap defaults, the portfolio's risk of
loss consists of the net amount of interest payments that the portfolio is
contractually entitled to receive. In contrast, currency swaps may involve
the delivery of the entire principal value of one designated currency in
exchange for the other designated currency. Therefore, the entire principal
value of a currency swap may be subject to the risk that the other party to
the swap will default on its contractual delivery obligations. If there is a
default by the counterparty, the portfolio may have contractual remedies
pursuant to the agreements related to the transaction. The swap market has
grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as 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,
MAS Fund - 16 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
interest rates, and currency exchange rates, the investment performance of the
portfolio would be less favorable than it would have been if this investment
technique were not used.
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 the portfolio in a when-issued transaction until the
portfolio receives payment or delivery from the other party to the
transaction. Although the portfolio receives no income from the above
described securities prior to delivery, the market value of such securities
is still subject to change. As a consequence, it is possible that the market
price of the securities at the time of delivery may be higher or lower than
the purchase price. The portfolio will maintain with the custodian a
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 Coupons may offer investors the opportunity to earn higher
yields than those available on ordinary interest-paying obligations of
similar credit quality and maturity. However, zero coupon obligation prices
may also exhibit greater price volatility than ordinary FIXED-INCOME
SECURITIES because of the manner in which their principal and interest are
returned to the investor.
GENERAL SHAREHOLDER INFORMATION
PURCHASE OF SHARES
Adviser Class Shares are available to clients of the Adviser 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 the portfolio may be purchased at the net asset value
per share next determined after receipt of the purchase order. The portfolio
determines net asset value as described under General Shareholder Information--
Valuation of Shares each day that the portfolio is open. See Other
Information--Closed Holidays and General Shareholder Information--Valuation
of Shares.
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 17
<PAGE>
INITIAL PURCHASE BY MAIL: Subject to acceptance by the Fund, an account may be
opened by completing and signing an Account Registration Form (provided at the
end of the prospectus) and mailing it to MAS Funds c/o Miller Anderson &
Sherrerd, LLP, One Tower Bridge, West Conshohocken, PA 19428-0868 together
with a check ($500,000 minimum) payable to MAS Funds.
The portfolio 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 payments to investors
who redeem shares purchased by check will not be made until payment of the
purchase has been collected, which may take up to eight business days after
purchase. Shareholders can avoid this delay by purchasing shares by wire.
INITIAL PURCHASE BY WIRE: Subject to acceptance by the Fund, Adviser Class
Shares of the portfolio may also be purchased by wiring Federal Funds to the
Fund's Custodian Bank, The Chase Manhattan Bank (see instructions below). A
completed Account Registration Form should be forwarded to MAS Funds' Client
Services Group in advance of the wire. 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: (Small Cap Value Portfolio, Account Number, Account Name)
ADDITIONAL INVESTMENTS: Additional investments of Adviser Class Shares at net
asset value may be made at any time (minimum additional investment $1,000) by
mailing a check (payable to MAS Funds) to MAS Funds' Client Services Group at
the address noted under Initial Purchase by Mail or by wiring Federal Funds
to the Custodian Bank as outlined above. Shares will be purchased at the net
asset value per share next determined after receipt of the purchase order.
Notification must be given to MAS Funds' Client Services Group at 1-800-354-81
85 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 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 additional
investment amounts.
MAS Fund - 18 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
Purchases of the portfolio's shares will be made in full and fractional shares
of the portfolio calculated to three decimal places. In the interest of
economy and convenience, certificates for shares will not be issued except at
the written request of the shareholder. Certificates for fractional shares,
however, will not be issued.
Adviser Class Shares of the portfolio are also sold to corporations or other
institutions such as trusts, foundations or broker-dealers purchasing for the
accounts of others (Shareholder Organizations). Investors purchasing and
redeeming shares of the portfolio through a Shareholder Organization may be
charged a transaction-based fee or other fee for the services of such
organization. Each Shareholder Organization is responsible for transmitting
to its customers a schedule of any such fees and information regarding any
additional or different conditions regarding purchases and redemptions.
Customers of Shareholder Organizations should read this Prospectus in light
of the terms governing accounts with their organization. The Fund may pay
compensation to or receive compensation from Shareholder Organizations for
the sale of Adviser Class Shares.
REDEMPTION OF SHARES
Shares of the portfolio may be redeemed by mail, or, if authorized, by
telephone. No charge is made for redemptions. The value of shares redeemed
may be more or less than the purchase price, depending on the net asset value
at the time of redemption which is based on the market value of the
investment securities held by the portfolio. See Other Information-Closed
Holidays and Valuation of Shares.
BY MAIL: The portfolio will redeem shares at the net asset value next
determined after the request is received in good order. Requests should be
addressed to MAS Funds, c/o Miller Anderson & Sherrerd, LLP, One Tower
Bridge, West Conshohocken, PA 19428-0868.
To be in good order, redemption requests must include the following
documentation:
(a) The share certificates, if issued;
(b) A letter of instruction, if required, or a stock assignment specifying
the number of shares or dollar amount to be redeemed, signed by all
registered owners of the shares in the exact names in which the shares are
registered;
(c) Any required signature guarantees (see Signature Guarantees); and
(d) Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations.
SIGNATURE GUARANTEES: To protect your account, the Fund and the Administrator
from fraud, signature guarantees are required to enable the Fund to verify
the identity of the person who has authorized a redemption from an account.
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 19
<PAGE>
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 New York Stock Exchange ("NYSE"), the custodian, or the Fund is
closed (see Other Information-Closed Holidays) or under any emergency
circumstances as determined by the SEC.
If the Board of Trustees determines that it would be detrimental to the best
interest of the remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay the redemption proceeds in whole or in part
by a distribution in-kind of readily marketable securities held by the
portfolio in lieu of cash in conformity with applicable rules of the SEC.
Investors may incur brokerage charges on the sale of portfolio securities
received in such payments of redemptions.
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE: Adviser Class Shares of the portfolio 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
qualified 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
MAS Fund - 20 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
note that an exchange between portfolios is considered a sale and purchase of
shares. The sale of shares may result in a capital gain or loss for tax
purposes.
The officers of the Fund reserve the right not to accept any request for an
exchange when, in their opinion, the exchange privilege is being used as a
tool for market timing. The Fund reserves the right to change the terms or
conditions of the exchange privilege discussed herein upon sixty days'
notice.
TRANSFER OF REGISTRATION: The registration of Fund shares may be transferred
by writing to MAS Funds, c/o Miller Anderson & Sherrerd, LLP, One Tower
Bridge, West Conshohocken, PA 19428-0868. As in the case of redemptions, the
written request must be received in good order as defined above. Unless
shares are being transferred to an existing account, requests for transfer
must be accompanied by a completed Account Registration Form for the
receiving party.
VALUATION OF SHARES
Net asset value per share is determined by dividing the total market value of
the portfolio's investments and other assets, less any liabilities, by the
total outstanding shares of the 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 values of other assets and securities
for which no quotations are readily available (including restricted
securities), and, to the extent permitted by the SEC, securities for which
the value has been materially affected by events occurring after the close of
the market on which they principally trade, are determined in good faith at
fair value using methods approved by the Trustees.
Net asset value per share for Institutional Class Shares and Adviser Class
Shares may differ due to class-specific expenses paid by each class and the
distribution fees charged to Adviser Class Shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The portfolio normally distributes substantially all of its net investment
income to shareholders on an annual basis.
If the portfolio does not have income available to distribute, as determined
in compliance with the appropriate tax laws, no distribution will be made.
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 21
<PAGE>
If any net gains are realized from the sale of underlying securities, the
portfolio normally distributes such gains with the last distribution 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.
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.
TAXES: The following is a summary of some important tax issues that affect
the portfolio and its shareholders. The summary is based on current tax laws
and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the tax treatment of the portfolio or its shareholders. More
information about taxes is in the Statement of Additional Information.
Shareholders are urged to consult their tax advisors regarding specific
questions as to federal, state and local income taxes.
FEDERAL TAXES: The portfolio is treated as a separate entity for federal
income tax purposes and intends to qualify for the special tax treatment
afforded regulated investment companies. As such, the portfolio will not be
subject to federal income tax to the extent it distributes net investment
company taxable income and net capital gains to shareholders. The Fund will
notify shareholders annually as to the tax classification of all
distributions.
Income dividends received by shareholders will be taxable as ordinary income,
whether received in cash or in additional shares. Corporate shareholders may
be entitled to a dividends-received deduction for the portion of dividends
they receive which are attributable to dividends received by the portfolio
from U.S. corporations. Capital gains distributions are taxable to
shareholders at capital gains rates. The portfolio will designate capital
gains distributions to individual shareholders as either subject to the
federal capital gains rate imposed on property held for more than 18 months
or on property held for more than 1 year but not more than 18 months.
Distributions paid in January but declared by the portfolio in October,
November or December of the previous year are taxable to shareholders in the
previous year.
The portfolio intends to declare and pay dividends and distributions so as to
avoid imposition of the federal excise tax applicable to regulated investment
companies. Further discussion is included in the Statement of Additional
Information.
MAS Fund - 22 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
The Fund is required by federal law to withhold 31% of reportable payments
(which may include dividends and capital gains distributions) paid to
shareholders. In order to avoid this withholding requirement, shareholders
must certify on their Account Registration Forms that their Social Security
Number or Taxpayer Identification Number is correct, and that they are not
subject to backup withholding. Exchanges and redemptions of shares in the
portfolio are taxable events.
FOREIGN INCOME TAXES: Investment income received by the portfolio from
sources within foreign countries may be subject to foreign income taxes
withheld at the source.
STATE AND LOCAL INCOME TAXES: The Fund is formed as a Pennsylvania Business
Trust and is not liable for any corporate income or franchise tax in the
Commonwealth of Pennsylvania. Shareholders should consult their tax advisors
for the state and local income tax consequences of distributions from the
portfolio.
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 December 31, 1997 had in excess of $59.4 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, the portfolio pays the Adviser an advisory fee
calculated by applying a quarterly rate. The Adviser's contractual rate
(annualized) for the portfolio's 1997 fiscal year was 0.750% and the
Adviser's actual rate of compensation was 0.750%.
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 23
<PAGE>
PORTFOLIO MANAGEMENT
A description of the business experience during the past five years for each
of the investment professionals who are primarily responsible for the
day-to-day management of the portfolio is as follows:
Bradley S. Daniels, Vice President, Morgan Stanley, joined MAS in 1985. He
assumed responsibility for the Small Cap Value Portfolio in 1986 and the Mid
Cap Value Portfolio in 1994.
William B. Gerlach, Principal, Morgan Stanley, joined MAS in 1991. He assumed
responsibility for the Small Cap Value and Mid Cap Value Portfolios in 1996.
Chris Leavy joined MAS in 1997. He served as a Portfolio Manager for
Capitoline Investment Services from 1995-1997: a Portfolio Manager for
Premier Trust Company from 1994 to 1995: and as a Research Analyst for Leavy
Investment Management from 1993-1994. He assumed responsibility for the Mid
Cap Value and Small Cap Value Portfolios in 1998.
Gary G. Schlarbaum, Managing Director, Morgan Stanley; Director, MASFund
Distribution, Inc; joined MAS in 1987. He assumed responsibility for the
Equity and Small Cap Value Portfolios in 1987, the Growth Portfolio in 1993,
the Balanced Portfolio in 1992 and the Multi-Asset-Class and Mid Cap Value
Portfolios in 1994.
ADMINISTRATIVE SERVICES: MAS serves as Administrator to the Fund pursuant to
an Administration Agreement dated as of November 18, 1993. Under its
Administration Agreement with the Fund, MAS receives an annual fee, accrued
daily and payable monthly, of 0.08% of the Fund's average daily net assets,
and is responsible for all fees payable under any sub-administration
agreements. Chase Global Funds Services Company, a subsidiary of The Chase
Manhattan Bank, 73 Tremont Street, Boston MA 02108-3913, serves as Transfer
Agent to the Fund pursuant to an agreement also dated as of November 18,
1993, and provides fund accounting and other services pursuant to a
sub-administration agreement with MAS as Administrator.
GENERAL DISTRIBUTION AGENT: Shares of the Fund are distributed exclusively
through MAS Fund Distribution, Inc., a wholly-owned subsidiary of the
Adviser.
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 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 the
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.
MAS Fund - 24 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
PORTFOLIO TRANSACTIONS: The investment advisory agreement authorizes the
Adviser to select the brokers or dealers that will execute the purchases and
sales of investment securities for each of the Fund's portfolios and directs
the Adviser to use its best efforts to obtain the best execution with respect
to all transactions for the portfolios. In doing so, a portfolio may pay
higher commission rates or markups on principal transactions 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 or dealer effecting the transaction.
It is not the Fund's practice to allocate brokerage or principal business on
the basis of sales of shares which may be made through intermediary brokers
or dealers. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Fund's portfolios or who act as agents in
the purchase of shares of the portfolios for their clients.
Some securities considered for investment by each of the Fund's portfolios
may also be appropriate for other clients served by the Adviser. The Adviser
may place a combined order for two or more accounts or portfolios for the
purchase or sale of the same security if, in its judgement, joint execution
is in the best interest of each participant and will result in best price and
execution. 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. The Adviser 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-seven portfolios.
The shares 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 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 1940 Act
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.
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 25
<PAGE>
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 Funds' Transfer Agent and dividend disbursing
agent.
REPORTS: Shareholders receive semi-annual and annual financial statements.
Annual financial statements are audited by Price Waterhouse LLP, independent
accountants.
LITIGATION: The Fund is not involved in any litigation.
CLOSED HOLIDAYS: Currently, the weekdays on which the portfolio is closed for
business are: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
MAS Fund - 26 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
TRUSTEES AND OFFICERS
The following is a list of the Trustees and the principal executive officers
of the Fund and a brief statement of their present positions and principal
occupations during the past five years:
THOMAS L. BENNETT,* Chairman of the Board of Trustees; Managing Director,
Morgan Stanley; Portfolio Manager and member of the Executive Committee,
Miller Anderson & Sherrerd, LLP; Director, MAS Fund Distribution, Inc.;
formerly 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, Fannie Mae; Director, Reliance Group Holdings; Director, CVS
Corporation; Director, Union Carbide Corporation.
JOSEPH P. HEALEY, Trustee; Headmaster, Haverford School; formerly Dean,
Hobart College; Associate Dean, William & Mary College.
JOSEPH J. KEARNS, Trustee; investment consultant; Chief Investment Officer,
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, 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.
JOHN H. GRADY, JR., Secretary, MAS Funds; Partner, Morgan, Lewis & Bockius
LLP; formerly Attorney, Ropes & Gray.
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 27
<PAGE>
(This page intentionally left blank)
MAS Fund - 28 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
- --------------------------------------------------------------------------------
MAS ACCOUNT REGISTRATION FORM
- ---------
MAS FUNDS MAS Fund Distribution, Inc.
General Distribution Agent
- -------------------------------------------------------------------------------
1 REGISTRATION/PRIMARY
MAILING ADDRESS
Confirmations and month-end statements will be mailed to this address.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Attention
---------------------------------------------------------------------
Street or P.O. Box
------------------------------------------------------------
City State Zip
---------------------------- --------------------- -------------
Telephone No.
-----------------------
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:
/ / Small Cap Value 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. (Small Cap Value Portfolio, 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 / /
------------------------------------------------------------------------
MILLER
ANDERSON
& SHERRERD, LLP ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428 o 800-354-8185
- -------------------------------------------------------------------------------
SIDE TWO OF TWO
<PAGE>
ADVISER CLASS PROSPECTUS
SMALL CAP VALUE PORTFOLIO
MARCH 23, 1998
INVESTMENT ADVISER AND ADMINISTRATOR: TRANSFER AGENT:
MILLER ANDERSON & SHERRERD, LLP CHASE GLOBAL FUNDS SERVICES COMPANY
ONE TOWER BRIDGE 73 TREMONT STREET
WEST CONSHOHOCKEN, BOSTON, MASSACHUSETTS 02108-0913
PENNSYLVANIA 19428-2899
GENERAL DISTRIBUTION AGENT:
MAS FUND DISTRIBUTION, INC.
ONE TOWER BRIDGE
P.O. BOX 868
WEST CONSHOHOCKEN,
PENNSYLVANIA 19428-0868
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
<S> <C> <C> <C>
Fund Expenses ............................ 2 General Shareholder Information
Prospectus Summary ....................... 4 Valuation of Shares ......................... 21
Financial Highlights ..................... 6 Dividends, Distributions and Taxes .......... 21
Yield and Total Return ................... 7 Investment Adviser ............................ 23
Investment Suitability ................... 7 Portfolio Management .......................... 24
Investment Limitations ................... 9 Administrative Services ....................... 24
Portfolio Summary ........................ 10 General Distribution Agent .................... 24
Prospectus Glossary: Portfolio Transactions ........................ 25
Strategy ............................... 11 Other Information ............................. 25
Investments ............................ 11 Trustees and Officers ......................... 27
</TABLE>
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 31
<PAGE>
ADVISER CLASS PROSPECTUS
MILLER
ANDERSON
& SHERRERD, LLP
ONE TOWER BRIDGE * WEST CONSHOHOCKEN, PA 19428 * 800-354-8185
