<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 13, 1998
File No. 2-89729
File No. 811-3980
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 47 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 50 [x]
MAS FUNDS
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(Exact Name of Registrant)
c/o Miller Anderson & Sherrerd, LLP
One Tower Bridge
P.O. Box 868
West Conshohocken, PA 19428-0868
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (610) 940-5065
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Ms. Lorraine Truten
One Tower Bridge
West Conshohocken, PA 19428-0868
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(Name and Address of Agent for Service)
Copies to:
John H. Grady, Jr. Esquire
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
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Title of Securities Being Registered . . . Units of Beneficial Interest
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It is proposed that this filing will become effective (check appropriate box)
Immediately upon filing pursuant to paragraph (b), or
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On [date] pursuant to paragraph (b), or
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60 days after filing pursuant to paragraph (a), or
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On [date] pursuant to paragraph (a) of Rule 485, or
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X 75 days after filing pursuant to paragraph (a) of Rule 485.
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MAS FUNDS
POST-EFFECTIVE AMENDMENT NO. 47
CROSS REFERENCE SHEET
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Na ITEM NO. LOCATION
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PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Prospectus Summary
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Investment Limitations; Portfolio
Summary; Prospectus Glossary:
Strategies and Investments; Risk
Factors; Fund Expenses; General
Shareholder Information; Other
Information
Item 5. Management of the Fund Investment Adviser; Administrative
Services; Shareholder Services;
General Distribution Agent; Portfolio
Management; Trustees and Officers;
Other Information
Item 6. Capital Stock and Other Securities Dividends, Capital Gains,
Distributions and Taxes; Valuation of
Shares; Portfolio Transactions; Other
Information
Item 7. Purchase of Securities Being Offered Purchase of Shares; Redemption of
Shares
Item 8. Redemption or Repurchase Purchase of Shares; Redemption of
Shares
Item 9. Pending Legal Proceedings
Litigation
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Business History
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Na ITEM NO. LOCATION
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Item 13. Investment Objectives and Policies Investment Objectives and Policies;
Investment Limitations; Appendix:
Description of Securities and Ratings
Item 14. Management of the Registrant Management of the Fund
Item 15. Control Persons and Principal
Holders of Securities Management of the Fund
Item 16. Investment Advisory and Other
Services Investment Adviser; Shareholder
Services; Distributor For Fund;
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Securities General Information - Description of
Shares and Voting Rights
Item 19. Purchase, Redemption, and Pricing
of Securities Being Offered Purchase of Shares; Redemption of
Shares
Item 20. Tax Status Tax Considerations
Item 21. Underwriters Distributor for Funds
Item 22. Calculation of Yield Quotations Computation of Yield and Calculation
of Total Return; Performance
Information
Item 23. Financial Statements Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
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<PAGE>
MAS Prospectus
MAS FUNDS
______________, 1998
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Client Services: 1-800-354-8185 Prices and Investment Results: 1-800-522-1525
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MAS FUNDS (the Fund) is a no-load mutual fund consisting of twenty-eight
Portfolios, one of which is described in this Prospectus. This Prospectus offers
the Institutional Class Shares of the Value II Portfolio (the "portfolio").
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PORTFOLIO PAGE REFERENCE
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HOW TO USE THIS PROSPECTUS: 3
PORTFOLIO SUMMARY:
Value II 8
PROSPECTUS GLOSSARY:
Strategies 9
Investments 9
GENERAL SHAREHOLDER
INFORMATION: 14
TABLE OF CONTENTS: Back Cover
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This Prospectus, which should be retained for future reference, sets forth
concisely information that you should know before you invest. A Statement of
Additional Information containing additional information about the Fund has been
filed with the Securities and Exchange Commission. Such Statement is dated
__________, 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 - INSTITUTIONAL 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 None
Shareholder Servicing Fee None
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INVESTMENT TOTAL
ADVISORY OTHER OPERATING
PORTFOLIO FEES EXPENSES* EXPENSES
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Value II 0.500% 0.120% 0.620%
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* "Other Expenses" are based on estimated amounts for the current year.
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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. Because the portfolio has
less than 10 months of operations, only the 1 and 3 year examples are shown,
which are based on estimated expenses.
PORTFOLIO 1 YEAR 3 YEAR
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Value II $6 $20
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HOW TO USE THIS PROSPECTUS
A PROSPECTUS SUMMARY begins on page 4;
A description of YIELD AND TOTAL RETURN begins on page 6;
GENERAL INFORMATION including INVESTMENT LIMITATIONS pertinent to the portfolio
begins on page 6;
A SUMMARY PAGE for the portfolio's Objective, Policies and Strategy begin on
page 8;
The PROSPECTUS GLOSSARY which defines specific Allowable Investments,
Policies and Strategy printed in bold type throughout this Prospectus begins
on page 9; and
GENERAL SHAREHOLDER INFORMATION begins on page 14.
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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.
OBJECTIVE: The portfolio seeks to achieve its investment objective relative to
the universe of securities in which it is authorized to invest and, accordingly,
the total return or current income achieved by a 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 portfolio 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
FORWARDS, 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 certain types of 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, 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.
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MAS Fund - 4 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
HOW TO INVEST: Institutional Class Shares of the portfolio are available to
clients of the Adviser with combined investments of $5,000,000 and Shareholder
Organizations who have a contractual arrangement with the Fund or the Fund's
Distributor, including institutions such as trusts, foundations or
broker-dealers purchasing for the accounts of others. Shares are offered
directly to investors without a sales commission at the net asset value of the
portfolio next determined after receipt of the order. Share purchases may be
made by sending investments directly to the Fund, subject to acceptance by the
Fund.
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.
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Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 5
<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 a 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 stated in the advertisement by the closing price per
share on the last day of the period. For the purpose of determining net
investment income, the calculation includes as expenses of the portfolio all
recurring fees and any non recurring charges for the period stated.
The 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.
GENERAL INFORMATION
SUITABILITY: The portfolio is designed for long-term investors who can accept
the risks entailed in investing in the stock market, 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.
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 annual turnover rate is not
expected to exceed 100%.
High rates of annual turnover necessarily result in correspondingly heavier
brokerage and portfolio trading costs which are paid by the 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.
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MAS Fund - 6 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
CASH EQUIVALENTS/TEMPORARY DEFENSIVE INVESTING: Although the portfolio intends
to remain substantially fully invested, a small percentage of the portfolio's
assets are generally held in the form of CASH EQUIVALENTS in order to meet
redemption requests and otherwise manage the daily affairs of the portfolio. 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 the
portfolio's total assets in the securities of issuers operating in any one
industry. Except as provided in the portfolio's specific investment policies, or
as detailed in Investment Limitations, the portfolio will not concentrate
investments in any one industry.
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 above 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 portfolio's assets will not be considered a violation of the
restriction, and the sale of securities will not be required.
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Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 7
<PAGE>
VALUE II PORTFOLIO
Objective: To achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk,
by investing in common stocks which are deemed by the
Adviser to be relatively undervalued, based on various
measures such as price/earnings ratios and price/book
ratios.
Approach: The Adviser selects common stocks which are deemed to be
undervalued relative to the stock market in general based
on value measures such as price/earnings ratios and
price/book ratios, as well as fundamental research.
Policies: Generally at least 65% invested in Equity Securities,
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 greater than $300 million
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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-Issed Securities
Convertibles Forwards Rights Zero-Coupons
</TABLE>
Comparative Index: Russell 1000 Value Index
Strategy: VALUE STOCK INVESTING
Portfolio
Management Team: Richard M. Behler, James J. Jolinger, Brian Kramp and
Robert J. Marcin,
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MAS Fund - 8 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
PROSPECTUS GLOSSARY
CHARACTERISTICS AND RISKS OF STRATEGY 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 its quality and 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, foreign branches of U.S.
banks (Eurodollars), and U.S. branches of foreign banks (Yankee dollars). Euro
and Yankee dollar investments will involve some of the same risks of investing
in international securities that are discussed in the FOREIGN INVESTING section
of this Prospectus.
The portfolio will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion, or the equivalent in other
currencies, or, in the case of domestic banks which do not have total assets of
at least $1 billion, the aggregate investment made in any one such bank is
limited to $100,000 and the principal amount of such investment is insured in
full by the Federal Deposit Insurance Corporation, (ii) in the case of U.S.
banks, it is a member of the Federal Deposit Insurance Corporation, and (iii) in
the case of foreign branches of U.S. banks, the security is deemed by the
Adviser to be of an investment quality comparable with other debt securities
which may be purchased by the portfolio.
(2) The portfolio may invest in commercial paper rated at time of purchase by
one or more Nationally Recognized Statistical Rating Organizations ("NRSRO") in
one of their two highest categories, (e.g., A-l or A-2 by Standard & Poor's or
Prime 1 or Prime 2 by Moody's), or, if not rated, issued by a corporation having
an outstanding unsecured debt issue rated high-grade by a NRSRO (e.g. A or
better by Moody's, Standard & Poor's or Fitch).
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Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 9
<PAGE>
(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--Cororate 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.
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 STOCKS,
PERFERRED STOCK, ADRS, RIGHTS, WARRANTS, CONVERTIBLES, AND FOREIGN EQUITIES.
See each individual portfolio listing of Allowable Investments to determine
which of the above the portfolio can hold. PERFERRED STOCK is contained in
both the definition of Equity Securities and FIXED-INCOME SECURITIES since it
exhibits characteristics commonly associated with each type.
FIXED-INCOME SECURITES: Commonly include but are not limited to U.S.
GOVERNMENTS, ZERO COUPONS, AGENCIES, CORPORATES, CONVERTIBLES, CASH EQUIVALENTS,
REPURCHASE AGREEMENTS, PREFERRED STOCK, and FOREIGN BONDS. See the portfolio
listing of Allowable Investments to determine which of these the 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.
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MAS Fund - 10 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
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: The portfolio invests in foreign securities and 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 (see FOREIGN INVESTING).
FORWARDS--Forward Foreign Currency Exchange Contracts: are DERIVATIVES which are
used to protect against uncertainty in the level of future foreign exchange
rates. A forward foreign currency exchange contract is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. Such contracts do not eliminate fluctuations caused by
changes in the local currency prices of the securities, but rather, they
establish an exchange rate at a future date. Also, although such contracts can
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time they limit any potential gain that might be realized.
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
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Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 11
<PAGE>
amount of the underlying security or futures contract at a fixed or determinable
price upon the exercise of the option. A call option conveys the right to buy
and a put option conveys the right to sell a specified quantity of the
underlying security.
The portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts in
combination with its outstanding obligations with respect to options
transactions would exceed 50% of its total assets. It will maintain assets
sufficient to meet its obligations under such contracts in a segregated account
with the custodian bank or will otherwise comply with the 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 portfolio will incur lower transaction costs and potentially
obtain higher rates of interest on such REPURCHASE AGREEMENTS. Each portfolio's
participation in the income from jointly purchased repurchase agreements will be
based on that portfolio's percentage share in the total REPURCHASE AGREEMENT.
RIGHTS: represent a preemptive right of stockholders to purchase additional
shares of a stock at the time of a new issuance, before the stock is offered to
the general public, allowing the stockholder to retain the same ownership
percentage after the new stock offering.
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
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MAS Fund - 12 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
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, interest rates, and currency exchange rates, the investment performance
of the portfolios would be less favorable than it would have been if this
investment technique were not used.
U.S. GOVERNMENTS--U.S. Treasury securities: are FIXED-INCOME SECURITIES which
are backed by the full faith and credit of the U.S. Government as to the payment
of both principal and interest.
WARRANTS: are options issued by a corporation which give the holder the option
to purchase stock.
WHEN-ISSUED SECURITIES: are securities purchased at a certain price even though
the securities may not be delivered for up to 90 days. No payment or delivery is
made by 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 obligations may offer investors the opportunity to earn higher
yields than those available on ordinary interest-paying obligations of similar
credit quality and maturity. However, zero coupon obligation prices may also
exhibit greater price volatility than ordinary FIXE D-INCOME SECURITIES because
of the manner in which their principal and interest are returned to the
investor.
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Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 13
<PAGE>
GENERAL SHAREHOLDER INFORMATION
PURCHASE OF SHARES
Institutional Class Shares are available to clients of the Adviser with combined
investments of $5,000,000 and Shareholder Organizations who have a contractual
arrangement with the Fund or the Fund's Distributor, including institutions such
as trusts, foundations or broker-dealers purchasing for the accounts of others.
Institutional Class Shares of 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 for
business. See Other Information-Closed Holidays and General Shareholder
Information--Valuation of Shares.
INITIAL PURCHASE BY MAIL: Subject to acceptance by the Fund, an account may be
opened by completing and signing an Account Registration Form (provided at the
end of the prospectus) and mailing it to MAS Funds c/o Miller Anderson &
Sherrerd, LLP, One Tower Bridge, West Conshohocken, Pennsylvania 19428-0868
together with a check 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, Institutional 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.
Institutional Class Shares will be purchased at the net asset value per share
next determined after receipt of the purchase order. (Prior notification must
also be received from investors with existing accounts.) Instruct your bank to
send a Federal Funds Wire in a specified amount to the Fund's Custodian Bank
using the following wiring instructions:
The Chase Manhattan Bank
1 Chase Manhattan Plaza
New York, NY 10081
ABA #021000021
DDA #910-2-734143
Attn: MAS Funds Subscription Account
Ref: (Value II Portfolio, Account Number, Account Name)
ADDITIONAL INVESTMENTS: Additional investments of Institutional 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 1-800-354-8185
prior to the determination of net asset value.
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MAS Fund - 14 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
OTHER PURCHASE INFORMATION: The Fund reserves the right, in its sole discretion,
to suspend the offering of the portfolio or to reject any purchase orders when,
in the judgement 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.
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 execpt as the
written request of the shareholder. Certificates for fractional shares, however.
will not be issued.
Institutional 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 does not pay
compensation to or receive compensation from Shareholder Organizations for the
sale of Institutional 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 Institutional Class Shares at the net asset
value next determined after the request is received in good order. Requests
should be addressed to MAS Funds, c/o Miller Anderson & Sherrerd, LLP, One Tower
Bridge, West Conshohocken, PA 19428-0868.
To be in good order, redemption requests must include the following
documentation:
(a) The share certificates, if issued;
(b) A letter of instruction, if required, or a stock assignment specifying the
number of shares or dollar amount to be redeemed, signed by all registered
owners of the shares in the exact names in which the shares are registered;
(c) Any required signature guarantees (see Signature Guarantees); and
(d) Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit sharing
plans and other organizations.
SIGNATURE GUARANTEES: To protect your account, the Fund and the Administrator
from fraud, signature guarantees are required to enable the Fund to verify the
identity of the person who has authorized a redemption from an account.
Signature guarantees are required for (1) redemptions where the proceeds are to
be sent to someone other than the registered shareholder(s) and the registered
address, and (2) share transfer requests. Please contact MAS Funds' Client
Services Group for further details.
BY TELEPHONE: Provided the Telephone Redemption Option has been authorized by
the shareholder on the Account Registration Form, a redemption of shares may be
requested by calling MAS Funds' Client Services Group and requesting that the
redemption proceeds be mailed to the primary registration address or wired per
the authorized instructions. Shares cannot be redeemed by telephone if share
certificates are held for those shares.
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Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 15
<PAGE>
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
interests of the remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay the redemption proceeds in whole or in part by
a distribution in-kind of readily marketable securities held by the portfolio in
lieu of cash in conformity with applicable rules of the SEC. Investors may incur
brokerage charges on the sale of portfolio securities received in such payments
of redemptions.
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE: The portfolio's Institutional Class Shares may be
exchanged for shares of the Fund's other portfolios offering Institutional
Class Shares based on the respective net asset values of the shares involved.
The exchange privilege is only available, however, with respect to portfolios
that are 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 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 that portfolio. Net asset value per share is
determined as of the close of the NYSE (normally 4:00 p.m. Eastern Time) on
each day the portfolio is open for business (See Other Information-Closed
Holidays). EQUITY SECURITIES listed on a U.S. securities exchange or Nasdaq
for which market quotations are available are valued at the last quoted sale
price on the day the valuation is made. Price information on listed EQUITY
SECURITIES is taken from the exchange where the security is primarily traded.
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MAS Fund - 16 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
EQUITY SECURITIES listed on a foreign exchange are valued at the latest quoted
sales price available before the time when assets are valued. For purposes of
net asset value per share, all assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at the bid price of such
currencies against U.S. dollars. Unlisted EQUITY SECURITIES and listed U.S.
Equity Securities not traded on the valuation date for which market quotations
are readily available are valued at the mean of the most recent quoted bid and
asked price. The value of other assets and securities for which no quotations
are readily available (including restricted securities) are determined in good
faith at fair value using methods approved by the Trustees.
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.
Bonds and other FIXED-INCOME SECURITIES may be valued on the basis of prices
provided by a pricing service when such prices are believed to reflect the fair
market value of such securities. The prices provided by a pricing service are
determined without regard to bid or last sale prices but take into account
institutional size trading in similar groups of securities and any developments
related to specific securities. Bonds and other FIXED-INCOME SECURITIES not
priced in this manner are valued at the most recent quoted bid price, or when
stock exchange valuations are used, at the latest quoted sale price on the day
of valuation. If there is no such reported sale, the latest quoted bid price
will be used. Securities purchased with remaining maturities of 60 days or less
are valued at amortized cost when the Board of Trustees determines that
amortized cost reflects fair value. In the event that amortized cost does not
approximate market, market prices as determined above will be used. Other assets
and securities, for which no quotations are readily available (including
restricted securities), will be valued in good faith at fair value using methods
approved by the Board of Trustees.
DIVIDENDS, DISTRIBUTIONS AND TAXES:
* The Value II Portfolio normally distributes substantially all of its net
investment income to shareholders on a quarterly 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.
If any net capital 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 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 affects 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
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Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 17
<PAGE>
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. In the case of the Value II
Portfolio, corporate shareholders may be entitled to a dividends-received
deduction for the portion of dividends they receive which are attributable to
dividends received by such portfolio from U.S. corporations. Capital gains
distributions will be 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 a portfolio in October, November
or December of the previous year will be 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.
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 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.
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MAS Fund - 18 Terms in BOLD TYPE are defined in the Prospectus Glossary
<PAGE>
Under the Agreement with the Fund, the Adviser, subject to the control and
supervision of the Fund's Board of Trustees and in conformance with the stated
investment objectives and policies of the portfolio, manages the investment and
reinvestment of the assets of the portfolio. In this regard, it is the
responsibility of the Adviser to make investment decisions for the portfolio and
to place the portfolio's purchase and sales orders. As compensation for the
services rendered by the Adviser under the Agreement, the portfolio pays the
Adviser an advisory fee calculated by applying a quarterly rate, based on an
annual rate of 0.500% of the portfolio's average daily net assets from the
quarter.
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:
Richard M. Behler, Principal, Morgan Stanley, joined MAS in 1995. He served as a
Portfolio Manager from 1992 through 1995 for Moore Capital Management. He
assumed responsibility for the Value II Portfolio in 1998.
James J. Jolinger, Vice President, Morgan Stanley, joined MAS in 1994. He served
as Equity Analyst for Oppenheimer Capital from 1987-1994. He assumed
responsibility for the Value II Portfolio in 1998.
Brian Kramp, Vice President, Morgan Stanley, joined MASin 1997. He served as
Analyst/Portfolio Manager for Meridian Asset Management and its successor
Corestates Investment Advisors from 1985-1997. He assumed responsibility for the
Value IIPortfolio in 1998.
Robert J. Marcin, Managing Director, Morgan Stanley, joined MAS in 1988. He
assumed responsibility for the Value II Portfolio in 1998.
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 portfolio. In doing so, the 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.
- --------------------------------------------------------------------------------
Terms in BOLD TYPE are defined in the Prospectus Glossary MAS Fund - 19
<PAGE>
Some securities considered for investment by the portfolio may also be
appropriate for other clients served by the Adviser (including other portfolios
of the Fund). 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 judgment,
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-eight portfolios.
The shares of the 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 the 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.
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 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.
- --------------------------------------------------------------------------------
MAS Fund - 20 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; Vice President and Treasurer, The J. Paul Getty
Trust; Director, Electro Rent Corporation; Trustee, Southern California Edison
Nuclear Decommissioning Trust; Director, The Ford Family Foundation.
VINCENT R. MCLEAN, Trustee; Director, 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 - 21
<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:
/ / Value II 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 340(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
340(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 if no box is checked below.
THE INSTRUCTIONS PROVIDED BELOW MAY ONLY BE CHANGED BY WRITTEN NOTIFICATION.
/ / Income dividends and capital gains to be paid in cash.
/ / Income dividends to be paid in cash and capital gains distribution in
additional shares.
/ / Income dividends and capital gains to be reinvested in additional shares.
IF CASH OPTION IS CHOSEN, please indicate instructions below:
/ / Mail distribution check to the name and address in which account is
registered.
/ / Wire distribution to the same commercial bank indicated in Section 6
above.
===============================================================================
8 WIRING INSTRUCTIONS
FOR PURCHASING SHARES BY WIRE, PLEASE SEND A FEDWIRE PAYMENT TO:
THE CHASE MANHATTAN BANK
1 Chase Manhattan Plaza
New York, NY 10081
ABA# 021000021
DDA# 910-2-734143
Attn: MAS Funds Subscription Account
Ref. (Portfolio name, your Account number, your Account name)
<PAGE>
===============================================================================
SIGNATURE(S) OF ALL HOLDERS AND TAXPAYER CERTIFICATION
The undersigned certify that I/we have full authority and legal capacity to
purchase shares of the Fund and affirm that I/we have received a current MAS
Funds Prospectus and agree to be bound by its terms. UNDER PENALTIES OF
PERJURY I/WE CERTIFY THAT THE INFORMATION PROVIDED IN SECTION 4 ABOVE IS TRUE,
CORRECT AND COMPLETE. THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR
CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS
REQUIRED TO AVOID BACKUP WITHHOLDING.
(X)
------------------------------------------------------------------
SIGNATURE DATE
(X)
------------------------------------------------------------------
SIGNATURE DATE
(X)
------------------------------------------------------------------
SIGNATURE DATE
(X)
------------------------------------------------------------------
SIGNATURE DATE
THIS APPLICATION IS SEPARATE FROM THE PROSPECTUS.
-----------------------------------------------------------------------
FOR INTERNAL USE ONLY
(X)
----------------------------------------------------------------
Signature Date
----------------------------------------------------------------
O / / F / / OR / / S / /
------------------------------------------------------------------------
MILLER
ANDERSON
& SHERRERD, LLP ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428 o 800-354-8185
- -------------------------------------------------------------------------------
SIDE TWO OF TWO
<PAGE>
PROSPECTUS
MAS
- ---------
MAS FUNDS
_____________, 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
Page Page
Fund Expenses 2 General Shareholder Information 14
Prospectus Summary 4 Purchase of Shares 14
Yield and Total Return 6 Redemption of Shares 15
Investment Suitability 6 Shareholder Services 16
Investment Limitations 7 Valuation of Shares 16
Portfolio Summary 8 Dividends, Distributions and Taxes 17
Prospectus Glossary: Investment Adviser 18
Strategy 9 Portfolio Management 19
Investments 9 Administrative Services 19
General Distribution Agent 19
Portfolio Transactions 19
Other Information 20
Trustees and Officers 21
MILLER
ANDERSON
& SHERRERD, LLP ONE TOWER BRIDGE * WEST CONSHOHOCKEN, PA 19428 * 800-354-8185
<PAGE>
MAS FUNDS - VALUE II PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
_______________, 1998
MAS Funds (the "Fund") is a no load mutual fund consisting of twenty-eight
portfolios offering a variety of investment alternatives. This Statement of
Additional Information sets forth information about the portfolio (the
"portfolio"). The portfolio had not commenced operations as of September 30,
1997.
This Statement is not a prospectus but should be read in conjunction with the
Fund's prospectus dated __________ 31, 1998, as revised from time to time. To
obtain the prospectus, please call the Client Services Group.
Client Services Group: 1-800-354-8185
Prices and Investment Results: 1-800-522-1525
TABLE OF CONTENTS
Page
----
Business History 3
Strategies and Investments 3
Repurchase Agreements 3
Securities Lending 3
Foreign Investments 4
Futures Contracts 5
Restrictions on the Use of Futures Contracts 6
Risk Factors in Futures Transactions 6
Options 7
Options on Foreign Currencies 7
Combined Transactions 8
Risks of Options on Futures Contracts, Forward Contracts and Options
on Foreign Currencies 9
Swap Contracts 10
Foreign Currency Exchange-Related Securities 11
U.S. Government Securities 12
Zero Coupon Bonds 12
Eurodollar and Yankee Obligations 13
Tax Considerations 13
Purchase of Shares 16
Redemption of Shares 16
Transactions with Broker/Dealers 16
Shareholder Services 16
Investment Limitations 17
Management of the Fund 19
Investment Adviser 21
Administration 22
Distributor for Fund 23
Custodians 23
Portfolio Transactions 23
1
<PAGE>
General Information 24
Performance Information 26
Comparative Index 28
Financial Statements 34
Appendix-Description of Securities and Ratings 34
2
<PAGE>
BUSINESS HISTORY
MAS Funds (formerly MAS Pooled Trust Fund) is an open end management investment
company established under Pennsylvania law as a Pennsylvania business trust
under an Amended and Restated Agreement and Declaration of Trust dated November
18, 1993. The Fund was originally established as The MAS Pooled Trust Fund, a
Pennsylvania business trust, in February, 1984.
STRATEGIES AND INVESTMENTS
The following information supplements the characteristics and risks of
strategies and investments set forth in the portfolio's prospectus:
REPURCHASE AGREEMENTS
The portfolio may invest in repurchase agreements collateralized by U.S.
Government securities, certificates of deposit and certain bankers' acceptances.
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. In these
transactions, the securities purchased by the portfolio have a total value in
excess of the value of the repurchase agreement and are held by the portfolio's
custodian bank until repurchased. Such agreements permit the portfolio to keep
all its assets at work while retaining "overnight" flexibility in pursuit of
investments of a longer-term nature. The Adviser and the Fund's Administrator
will continually monitor the value of the underlying securities to ensure that
their value always equals or exceeds the repurchase price.
The use of repurchase agreements involves certain risks. For example, if the
seller of the agreements defaults on its obligation to repurchase the underlying
securities at a time when the value of these securities has declined, the
portfolio may incur a loss upon disposition of them. If the seller of the
agreement becomes insolvent and subject to liquidation or reorganization under
the Bankruptcy Code or other laws, a bankruptcy court may determine that the
underlying securities are collateral not within the control of the portfolio and
therefore subject to sale by the trustee in bankruptcy. Finally, it is possible
that the portfolio may not be able to substantiate its interest in the
underlying securities. While the Fund's management acknowledges these risks, it
is expected that they can be controlled through stringent security selection
criteria and careful monitoring procedures.
SECURITIES LENDING
The portfolio may lend its investment securities to qualified institutional
investors who need to borrow securities in order to complete certain
transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its investment
securities, the portfolio attempts to increase its income through the receipt of
interest on the loan. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account of
the portfolio. The portfolio may lend its investment securities to qualified
brokers, dealers, domestic and foreign banks or other financial institutions, so
long as the terms, the structure and the aggregate amount of such loans are not
inconsistent with the Investment Company Act of 1940 ( the "1940 Act") or the
rules and regulations or interpretations of the Securities and Exchange
Commission (the "SEC") thereunder, which currently require that (a) the borrower
pledge and maintain with the portfolio collateral consisting of cash, an
irrevocable letter of credit issued by a domestic U.S. bank, or securities
issued or guaranteed by the U.S. Government having a value at all times not less
than 100% of the value of the securities loaned, (b) the borrower add to such
3
<PAGE>
collateral whenever the price of the securities loaned rises (i.e., the borrower
"marks to the market" on a daily basis), (c) the loan be made subject to
termination by the portfolio at any time, and (d) the portfolio receive
reasonable interest on the loan (which may include the portfolio investing any
cash collateral in interest bearing short-term investments), any distribution on
the loaned securities and any increase in their market value. All relevant facts
and circumstances, including the creditworthiness of the broker, dealer or
institution, will be considered in making decisions with respect to the lending
of securities, subject to review by the Trustees.
At the present time, the staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities, so
long as such fees are set forth in a written contract and approved by the
investment company's Trustees. In addition, voting rights may pass with the
loaned securities, but if a material event were to occur affecting an investment
on loan, the loan must be called and the securities voted.
FOREIGN INVESTMENTS
Investors should recognize that investing in foreign securities involves certain
special considerations which are not typically associated with investing in
domestic securities. Since the securities of foreign issuers are frequently
denominated in foreign currencies, and since the portfolio may temporarily hold
uninvested reserves in bank deposits in foreign currencies, the portfolio will
be affected favorably or unfavorably by changes in currency rates and in
exchange control regulations, and may incur costs in connection with conversions
between various currencies. The investment policies of the portfolio permit it
to enter into forward foreign currency exchange contracts in order to hedge its
respective holdings and commitments against changes in the level of future
currency rates. Such contracts involve an obligation to purchase or sell a
specific currency at a future date at a price set at the time of the contract.
As non-U.S. companies are not generally subject to uniform accounting, auditing
and financial reporting standards and practices comparable to those applicable
to domestic issuers, there may be less publicly available information about
certain foreign securities than about domestic securities. Securities of some
foreign issuers are generally less liquid and more volatile than securities of
comparable domestic companies. There is generally less government supervision
and regulation of stock exchanges, brokers and listed issuers than in the U.S.
In addition, with respect to certain foreign countries, there is the possibility
of expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect U.S.
investments in those countries.
Although the portfolio will endeavor to achieve most favorable execution costs
in its portfolio transactions, fixed commissions on many foreign stock exchanges
are generally higher than negotiated commissions on U.S. exchanges. In addition,
it is expected that the expenses for custodian arrangements of the portfolio's
foreign securities will be somewhat greater than the expenses for the custodian
arrangements for handling the U.S.
securities of equal value.
Certain foreign governments levy withholding taxes against dividend and interest
income. Although in some countries a portion of these taxes are recoverable, the
non-recovered portion of foreign withholding taxes will reduce the income
received from investments in such countries.
The portfolio may invest in Global Depositary Receipts ("GDRs") and European
Depositary Receipts ("EDRs") to the extent that they come available. GDRs and
EDRs are typically issued by foreign depositaries, and evidence ownership
interests in a security or pool of securities issued by either a foreign or a
U.S. corporation.
Holders of unsponsored GDRs and EDRs generally bear all the costs associated
with establishing the unsponsored GDRs and EDRs. The depositary of unsponsored
GDRs and EDRs is under no obligation to
4
<PAGE>
distribute shareholder communications received from the underlying issuer or to
pass through to the holders of the unsponsored GDRs and EDRs voting rights with
respect to the deposited securities or pool of securities. GDRs and EDRs are not
necessarily denominated in the same currency as the underlying securities to
which they may be connected. Generally, GDRs or EDRs in registered form are
designed for use in the U.S. securities market and GDRs or EDRs in bearer form
are designed for use in securities markets outside the U.S. The Funds may invest
in sponsored and unsponsored GDRs and EDRs. For purposes of the Funds'
investment policies, a Funds' investments in GDRs or EDRs will be deemed to be
investments in the underlying securities.
FUTURES CONTRACTS
The portfolio may enter into futures contracts, options, and options on futures
contracts. Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a specific security at a
specified future time and at a specified price. Futures contracts which are
standardized as to maturity date and underlying financial instrument are traded
on national futures exchanges. Futures exchanges and trading are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC"),
a U.S. Government agency.
Although futures contracts by their terms call for actual delivery or acceptance
of the underlying securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery. Closing out an
open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold" or "selling" a contract previously
"purchased") in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
acceptable securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying securities)
if it is not terminated prior to the specified delivery date. Minimum initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold on the basis of
margin deposits that may range upward from less than 5% of the value of the
contract being traded. A portfolio's margin deposits will be placed in a
segregated account maintained by the Fund's Custodian or with a futures
commission merchant as approved by the Fund's Board of Trustees.
After a futures contract position is opened, the value of the contract is marked
to market daily. If the futures contract price changes to the extent that the
margin on deposit does not satisfy margin requirements, payment of additional
"variation" margin will be required. Conversely, a change in the contract value
may reduce the required margin, resulting in a repayment of excess margin to the
contract holder. Variation margin payments are made to and from the futures
broker for as long as the contract remains open. The Fund expects to earn
interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers" or
"speculators." Hedgers use the futures markets primarily to offset unfavorable
changes in the value of securities otherwise held for investment purposes or
expected to be acquired by them. Speculators are less inclined to own the
securities underlying the futures contracts which they trade, and use futures
contracts with the expectation of realizing profits from fluctuations in the
value of the underlying securities. Regulations of the CFTC applicable to the
Fund require that the aggregate initial margins and premiums required to
establish non-hedging positions not exceed 5% of the liquidation value of the
portfolio.
5
<PAGE>
Although techniques other than the sale and purchase of futures contracts could
be used to control the portfolio's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
the portfolio will incur commission expenses in both opening and closing out
futures positions, these costs are lower than transaction costs incurred in the
purchase and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS
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, and will maintain assets
sufficient to meet its obligations under such contracts in a segregated account
with the custodian bank or will otherwise comply with the SEC's position on
asset coverage.
RISK FACTORS IN FUTURES TRANSACTIONS
Positions in futures contracts may be closed out only on an exchange which
provides a secondary market for such futures. However, there can be no assurance
that a liquid secondary market will exist for any particular futures contract at
any specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, the portfolio would continue to be
required to make daily cash payments to maintain its required margin. In such
situations, if the portfolio has insufficient cash, it may have to sell
portfolio securities to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, the portfolio may be required to make
delivery of the instruments underlying interest rate futures contracts it holds.
The inability to close options and futures positions also could have an adverse
impact on the portfolio's ability to effectively hedge. The portfolio will
minimize the risk that it will be unable to close out a futures contract by only
entering into futures which are traded on national futures exchanges and for
which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss (as well as gain) to the investor. For example, if at the time of purchase,
10% of the value of the futures contract is deposited as margin, a subsequent
10% decrease in the value of the futures contract would result in a total loss
of the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the contract. The portfolio would presumably have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying financial instrument and sold it after the decline.
Utilization of futures transactions by the portfolio does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. It is also
possible that the portfolio could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by the portfolio of margin deposits in the event of bankruptcy of a
broker with whom the portfolio has an open position in a futures contract or
related option. Most futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices
6
<PAGE>
have occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of futures
positions and subjecting some futures traders to substantial losses.
OPTIONS
Investments in options involve some of the same considerations that are involved
in connection with investments in futures contracts (e.g., the existence of a
liquid secondary market). In addition, the purchase of an option also entails
the risk that changes in the value of the underlying security or contract will
not be fully reflected in the value of the option purchased. Depending on the
pricing of the option compared to either the futures contract or securities, an
option may or may not be less risky than ownership of the futures contract or
actual securities. In general, the market prices of options can be expected to
be more volatile than the market prices on the underlying futures contract or
securities.
OTC Options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC Option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
portfolio expects generally to enter into OTC Options that have cash settlement
provisions, although it is not require to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC Option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
Option it has entered into with the portfolio or fails to make a cash settlement
payment due in accordance with the terms of that option, the portfolio will lose
any premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor of credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC Option will be
satisfied. The staff of the SEC currently takes the position that OTC Options
purchased by the portfolio or sold by it (the cost of the sell-back plus the
in-the-money amount, if any) are illiquid, and are subject to the portfolio's
limitation on investing in illiquid securities.
The portfolio may also write covered-call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to protect against a decline in the U.S. dollar value
of a currency due to the changes of exchange rates vis a vis the U.S. dollar and
the option is written for a currency other than the currency in which the
security is denominated. In such circumstances, the portfolio will follow the
coverage requirements as described in the preceding paragraph.
OPTIONS ON FOREIGN CURRENCIES
The portfolio may purchase and write options on foreign currencies in a manner
similar to that in which futures contracts on foreign currencies, or forward
contracts, will be utilized. For example, a decline in the dollar value of a
foreign currency in which portfolio securities are denominated will reduce the
dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminution in the value of
portfolio securities, the portfolio may purchase put options on the foreign
currency. If the value of the currency does decline, the portfolio will have the
right to sell such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on its portfolio which otherwise
would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, the portfolio may purchase call options thereon. The purchase of
such options could offset, at least partially, the effects of the adverse
movements in exchange rates.
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As in the case of other types of options, however, the benefit to the portfolio
derived from purchases of foreign currency options will be reduced by the amount
of the premium and related transaction costs. In addition, where currency
exchange rates do not move in the direction or to the extent anticipated, the
portfolio could sustain losses on transactions in foreign currency options which
would require them to forego a portion or all of the benefits of advantageous
changes in such rates.
The portfolio may write options on foreign currencies for the same purposes. For
example, where the portfolio anticipates a decline in the dollar value of
foreign currency denominated securities due to adverse fluctuations in exchange
rates it could, instead of purchasing a put option, write a call option on the
relevant currency. If the anticipated decline occurs, the option will most
likely not be exercised, and the diminution in value of portfolio securities
will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the portfolio could
write a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the portfolio to hedge such
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
portfolio would be required to purchase or sell the underlying currency at a
loss which may not be offset by the amount of the premium. Through the writing
of options on foreign currencies, the portfolio also may be required to forego
all or a portion of the benefits which might otherwise have been obtained from
favorable movements in exchange rates.
The portfolio may only write covered call options on foreign currencies. A call
option written on a foreign currency by the portfolio is "covered" if the
portfolio owns the underlying foreign currency covered by the call, an absolute
and immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by the Custodian) or upon conversion or exchange of other foreign currency held
in its portfolio. A written call option is also covered if the portfolio has a
call on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the portfolio in cash or
liquid securities in a segregated account with the Custodian, or (c) maintains
in a segregated account cash or liquid securities in an amount not less than the
value of the underlying foreign currency in U.S. dollars, marked-to-market
daily.
The portfolio may also write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to provide a hedge against a decline in the U.S.
dollar value of a security which the portfolio owns or has the right to acquire
due to an adverse change in the exchange rate and which is denominated in the
currency underlying the option. In such circumstances, the portfolio will either
"cover" the transaction as described above or collateralize the option by
maintaining in a segregated account with the Custodian, cash or liquid
securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked-to-market daily.
COMBINED TRANSACTIONS
The portfolio may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple foreign currency
transactions (including forward foreign currency exchange contracts) and any
combination of futures, options and foreign currency transactions, instead of a
single transaction, as part of a single hedging strategy when, in the opinion of
the Adviser, it is in the best interest of the portfolio to do so. A combined
transaction, while part of a single strategy, may contain elements of risk that
are present
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in each of its component transactions and will be structured in accordance with
applicable SEC regulations and SEC staff guidelines.
RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS ON
FOREIGN CURRENCIES
Options on foreign currencies and forward contracts are not traded on contract
markets regulated by the CFTC or (with the exception of certain foreign currency
options) by the SEC. To the contrary, such instruments are traded through
financial institutions acting as market-makers, although foreign currency
options are also traded on certain national securities exchanges, such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. Similarly, options on currencies may be traded over-the-counter.
In an over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchase of an option
cannot lose more than the amount of the premium plus related transaction costs,
this entire amount could be lost. Moreover, the option writer and a trader of
forward contracts could lose amounts substantially in excess of their initial
investments, due to the margin and collateral requirements associated with such
positions.
Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation ("OCC"), thereby
reducing the risk of counterparty default. Furthermore, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting the
portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effect of other political and
economic events. In addition, exchange-traded options of foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the OCC
or its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions, on exercise.
In addition, futures contracts, options on futures contracts, forward contracts
and options on foreign currencies may be traded on foreign exchanges. Such
transactions are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the U.S. of
data on which to make trading decisions, (iii) delays in the portfolio's ability
to act upon economic events occurring in foreign markets during non business
hours in the U.S., (iv) the imposition of different exercise and settlement
terms and procedures and margin requirements than in the U.S., and (v) lesser
trading volume.
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SWAP CONTRACTS
The portfolio may enter into Swap Contracts. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The payment streams are calculated by reference to a specified index
and agreed upon notional amount. The term "specified index" includes currencies,
fixed interest rates, prices, total return on interest rate indices, fixed
income indices, stock indices and commodity indices (as well as amounts derived
from arithmetic operations on these indices). For example, 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 national amount.
The swaps in which the portfolio may engage also include rate caps, floors and
collars under which one party pays a single or periodic fixed amount(s) (or
premium), and the other party pays periodic amounts based on the movement of a
specified index. Swaps do not involve the delivery of securities, other
underlying assets, or principal. Accordingly, the risk of loss with respect to
swaps is limited to the net amount of payments that the portfolio is
contractually obligated to make. If the other party to a swap defaults, the
portfolio's risk of loss consists of the net amount of payments that the
portfolio is contractually entitled to receive. Currency swaps usually involve
the delivery of the entire principal value of one designated currency in
exchange for the other designated currency. Therefore, the entire principal
value of a currency swap is subject to the risk that the other party to the swap
will default on its contractual delivery obligations. If there is a default by
the Counterparty, the 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. 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 portfolio will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the portfolio receiving or paying, as the case
may be, only the net amount of the two payments. 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 to avoid any potential leveraging of the
portfolio. To the extent that these swaps, caps, floors, and collars are entered
into for hedging purposes, the Adviser believes such obligations do not
constitute "senior securities" under the 1940 Act and, accordingly, will not
treat them as being subject to the portfolio's borrowing restrictions. The
portfolio may enter into OTC Derivatives transactions (swaps, caps, floors,
puts, etc., but excluding foreign exchange contracts) with Counterparties that
are approved by the Adviser in accordance with guidelines established by the
Board of Trustees. These guidelines provide for a minimum credit rating for each
Counterparty and various credit enhancement techniques (for example,
collateralization of amounts due from Counterparties) to limit exposure to
Counterparties with ratings below AA.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the portfolio would be less favorable than it would have been if this
investment technique were not used.
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FOREIGN CURRENCY EXCHANGE-RELATED SECURITIES
Foreign currency warrants--Foreign currency warrants are warrants which entitle
the holder to receive from the issuer an amount of cash (generally, for warrants
issued in the U.S., in U.S. dollars) which is calculated pursuant to a
predetermined formula and based on the exchange rate between a specified foreign
currency and the U.S. dollar as of the exercise date of the warrant. Foreign
currency warrants generally are exercisable upon their issuance and expire as of
a specified date and time. Foreign currency warrants have been issued in
connection with U.S. dollar-denominated debt offerings by major corporate
issuers in an attempt to reduce the foreign currency exchange risk which, from
the point of view of prospective purchasers of the securities, is inherent in
the international fixed-income marketplace. Foreign currency warrants may
attempt to reduce the foreign exchange risk assumed by purchasers of a security
by, for example, providing for a supplemental payment in the event that the U.S.
dollar depreciates against the value of a major foreign currency such as the
Japanese Yen or German Deutschmark. The formula used to determine the amount
payable upon exercise of a foreign currency warrant may make the warrant
worthless unless the applicable foreign currency exchange rate moves in a
particular direction (e.g., unless the U.S. dollar appreciates or depreciates
against the particular foreign currency to which the warrant is linked or
indexed). Foreign currency warrants are severable from the debt obligations with
which they may be offered, and may be listed on exchanges. Foreign currency
warrants may be exercisable only in certain minimum amounts, and an investor
wishing to exercise warrants who possesses less than the minimum number required
for exercise may be required either to sell the warrants or to purchase
additional warrants, thereby incurring additional transaction costs. In the case
of any exercise of warrants, there may be a time delay between the time a holder
of warrants gives instructions to exercise and the time the exchange rate
relating to exercise is determined, during which time the exchange rate could
change significantly, thereby affecting both the market and cash settlement
values of the warrants being exercised. The expiration date of the warrants may
be accelerated if the warrants should be delisted from an exchange or if their
trading should be suspended permanently, which would result in the loss of any
remaining "time value" of the warrants (i.e., the difference between the current
market value and the exercise value of the warrants), and, in the case where the
warrants were "out-of-the-money," in a total loss of the purchase price of the
warrants. Warrants are generally unsecured obligations of their issuers and are
not standardized foreign currency options issued by the OCC. Unlike foreign
currency options issued by the OCC, the terms of foreign exchange warrants
generally will not be amended in the event of governmental or regulatory actions
affecting exchange rates or in the event of the imposition of other regulatory
controls affecting the international currency markets. The initial public
offering price of foreign currency warrants is generally considerably in excess
of the price that a commercial user of foreign currencies might pay in the
interbank market for a comparable option involving significantly larger amounts
of foreign currencies. Foreign currency warrants are subject to complex
political or economic factors.
Principal exchange rate linked securities--Principal exchange rate linked
securities are debt obligations the principal on which is payable at maturity in
an amount that may vary based on the exchange rate between the U.S. dollar and a
particular foreign currency at or about that time. The return on "standard"
principal exchange rate linked securities is enhanced if the foreign currency to
which the security is linked appreciates against the U.S. dollar, and is
adversely affected by increases in the foreign exchange value of the U.S.
dollar; "reverse" principal exchange rate linked securities are like the
"standard" securities, except that their return is enhanced by increases in the
value of the U.S. dollar and adversely impacted by increases in the value of
foreign currency. Interest payments on the securities are generally made in U.S.
dollars at rates that reflect the degree of foreign currency risk assumed or
given up by the purchaser of the notes (i.e., at relatively higher interest
rates if the purchaser has assumed some of the foreign exchange risk, or
relatively lower interest rates if the issuer has assumed some of the foreign
exchange risk, based of the expectations of the current market). Principal
exchange rate linked securities may in limited cases be subject to acceleration
of maturity (generally, not without the consent of the holders of the
securities), which may have an adverse impact on the value of the principal
payment to be made at maturity.
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Performance indexed paper--Performance indexed paper is U.S. dollar-denominated
commercial paper the yield of which is linked to certain foreign exchange rate
movements. The yield to the investor on performance indexed paper is between the
U.S. dollar and a designated currency as of or about that time (generally, the
index maturity two days prior to maturity). The yield to the investor will be
within a range stipulated at the time of purchase of the obligation, generally
with a guaranteed minimum rate of return that is below, and a potential maximum
rate of return that is above, market yields on U.S. dollar-denominated
commercial paper, with both the minimum and maximum rates of return on the
investment corresponding to the minimum and maximum values of the spot exchange
rate two business days prior to maturity.
U.S. GOVERNMENT SECURITIES
The term "U.S. Government securities" refers to a variety of securities which
are issued or guaranteed by the U.S. Government, and by various
instrumentalities which have been established or sponsored by the U.S.
Government. U.S. Treasury securities are backed by the "full faith and credit"
of the U.S..
Agency Securities: Securities issued or guaranteed by federal agencies and U.S.
Government sponsored instrumentalities may or may not be backed by the full
faith and credit of the U.S.. In the case of securities not backed by the full
faith and credit of the U.S., the investor must look principally to the agency
or instrumentality issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim against the U.S. itself in the
event the agency or instrumentality does not meet its commitment. Agencies which
are backed by the full faith and credit of the U.S. include the Export Import
Bank, Farmers Home Administration, Federal Financing Bank, and others. Certain
debt issued by Resolution Funding Corporation has both its principal and
interest backed by the full faith and credit of the U.S. Treasury in that its
principal is defeased by U.S. Treasury zero coupon issues, while the U.S.
Treasury is explicitly required to advance funds sufficient to pay interest on
it, if needed. Certain agencies and instrumentalities, such as the Government
National Mortgage Association, are, in effect, backed by the full faith and
credit of the U.S. through provisions in their charters that they may make
"indefinite and unlimited" drawings on the Treasury, if needed to service its
debt. Debt from certain other agencies and instrumentalities, including the
Federal Home Loan Bank and Fannie Mae, are not guaranteed by the U.S., but those
institutions are protected by the discretionary authority of the U.S. Treasury
to purchase certain amounts of their securities to assist the institution in
meeting its debt obligations. Finally, other agencies and instrumentalities,
such as the Farm Credit System and the Federal Home Loan Mortgage Corporation,
are federally chartered institutions under Government supervision, but their
debt securities are backed only by the credit worthiness of those institutions,
not the U.S. Government.
Some of the U.S. Government agencies that issue or guarantee securities include
the Export-Import Bank of the U.S., Farmers Home Administration, Federal Housing
Administration, Maritime Administration, Small Business Administration and The
Tennessee Valley Authority.
An instrumentality of the U.S. Government is a Government agency organized under
federal charter with Government supervision. Instrumentalities issuing or
guaranteeing securities include, among others, Federal Home Loan Banks, the
Federal Land Banks, Central Bank for Cooperatives, Federal Intermediate Credit
Banks and Fannie Mae.
ZERO COUPON BONDS
Zero Coupon Bonds is a term used to describe notes and bonds which have been
stripped of their unmatured interest coupons, or the coupons themselves, and
also receipts or certificates representing interest in such stripped debt
obligations and coupons. The timely payment of coupon interest and principal on
these instruments remains guaranteed by the issuer.
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A Zero Coupon Bond does not pay interest. Instead, it is issued at a substantial
discount to its "face value"-what it will be worth at maturity. The difference
between a security's issue or purchase price and its face value represents the
imputed interest an investor will earn if the security is held until maturity.
For tax purposes, a portion of this imputed interest is deemed as income
received by zero coupon bondholders each year. The Fund, which expects to
qualify as a regulated investment company, intends to pass along such interest
as a component of the portfolio's distributions of net investment income.
Zero Coupon Bonds may offer investors the opportunity to earn higher yields than
those available on other bonds of similar maturity. However, zero coupon bond
prices may also exhibit greater price volatility than ordinary debt securities
because of the manner in which their principal and interest is returned to the
investor.
Zero Coupon Treasury Bonds are sold under a variety of different names, such as:
Certificate of Accrual on Treasury Securities (CATS), Treasury Receipts (TRS),
Separate Trading of Registered Interest and Principal of Securities (STRIPS) and
Treasury Investment Growth Receipts (TIGERS).
EURODOLLAR AND YANKEE OBLIGATIONS
The portfolio can invest in Eurodollar and Yankee obligations. Eurodollar bank
obligations are dollar-denominated certificates of deposit and time deposits
issued outside the U.S. capital markets by foreign branches of U.S. banks and by
foreign banks. Yankee bank obligations are dollar-denominated obligations
issued in the U.S. capital markets by foreign banks.
Eurodollar and Yankee obligations are subject to the same risks that pertain to
domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a limited extent, Yankee) obligations are
subject to certain sovereign risks. One such risk is the possibility that a
sovereign country might prevent capital, in the form of dollars, from flowing
across their borders. Other risks include: adverse political and economic
developments; the extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes, and the
expropriation or nationalization of foreign issuers.
TAX CONSIDERATIONS
In order for a portfolio to continue to qualify for federal income tax treatment
as a regulated investment company, at least 90% of its gross income for a
taxable year must be derived from qualifying income; i.e., dividends, interest,
income derived from loans of securities, and gains from the sale of securities
or foreign currencies, or other income derived with respect to its business of
investing in such securities or currencies. It is anticipated that any net gain
realized from the closing out of futures contracts will be considered gain from
the sale of securities and therefore be qualifying income for purposes of the
90% requirement. In addition, (i) a portfolio must distribute annually to its
shareholders at least the sum of 90% of its net interest income excludable from
gross income plus 90% of its investment company taxable income; (ii) at the
close of each quarter of a portfolio's taxable year, at least 50% of its total
assets must be represented by cash and cash items, vs. government securities,
securities of other regulated investment companies and such other securities
with limitations; and (iii) at the close of each quarter of a portfolio's
taxable year, not more than 25% of the value of its assets may be invested in
securities of any one issuer, or of two or more issuers engaged in same or
similar businesses if the portfolio owns at least 20% of the voting power of
such issuers.
The portfolio will distribute to shareholders annually any net capital gains
which have been recognized for federal income tax purposes including unrealized
gains at the end of the portfolio's fiscal year on futures transactions. Such
distributions will be combined with distributions of capital gains realized on
the portfolio's other investments and shareholders will be advised of the nature
of the payments.
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The Taxpayer Relief Act of 1997 provides various capital gains rates which
pertain to shareholders who are individuals. The portfolio will, therefore,
designate distributions derived from capital gains of the portfolio (whether
such distributions are paid in cash or additional shares) as a "20% rate gain
distribution" or a "28% rate gain distribution" in accordance with guidance
issued by the Internal Revenue Service. The Fund will notify shareholders
annually as to the federal tax classification of dividends and distributions
paid by a portfolio including, but not limited to notifying individuals as to
the amount of capital gain distributions subject to the 20% and 28% federal
capital gain tax rates. Distributions of dividends or capital gains may also be
subject to state and local taxes.
Some of the options, futures contracts, forward contracts, and swap contracts
entered into by the portfolio may be "Section 1256 contracts." Section 1256
contracts held by the portfolio at the end of its taxable year (and, for
purposes of the 4% excise tax, on certain other dates as prescribed under the
Code) are "marked to market" with unrealized gains or losses treated as though
they were realized. Any gains or losses, including "marked to market" gains or
losses, on Section 1256 contracts other than forward contracts are generally 60%
long-term and 40% short-term capital gains or losses ("60/40") although all
foreign currency gains and losses from such contracts may be treated as ordinary
in character absent a special election.
Generally, hedging transactions and certain other transactions in options,
futures, forward contracts and swap contracts undertaken by the portfolio, may
result in "straddles" for U.S. federal income tax purposes. The straddle rules
may affect the character of gain or loss realized by the portfolio. In addition,
losses realized by the portfolio on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options, futures,
forward contracts, and swap agreements to the portfolio are not entirely clear.
The transactions may increase the amount of short-term capital gain realized by
the portfolio. Short-term capital gain is taxed as ordinary income when
distributed to shareholders.
The portfolio may make one or more of the elections available under the Code
which are applicable to straddles. If the portfolio makes any of the elections,
the amount, character, and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the elections made. The rules applicable under certain of the elections
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to the portfolio that did not engage in such hedging transactions.
The Taxpayer Relief Act of 1997 provides constructive sales treatment for
appreciated financial positions such as stock which has increased in value in
the hands of the portfolio. Under this constructive sales treatment, the
portfolio may be treated as having sold such stock and be required to recognize
gain if it enters into a short sale, an offsetting notional principal contract,
a futures or forward contract, or a similar transaction with respect to such
stock or substantially identical property.
The portfolio intends to declare and pay dividends and capital gain
distributions so as to avoid imposition of the federal excise tax. To do so, the
portfolio expects to distribute an amount at least equal to (i) 98% of its
calendar year ordinary income, (ii) 98% of its capital gains net income for the
one-year period ending October 31st, and (iii) 100% of any undistributed
ordinary and capital gain net income from the prior year.
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Although, income received on direct U.S. Government obligations is taxable at
the Federal level, such income is exempt from tax at the state level when
received directly, and may be exempt, depending on the state, when received by a
shareholder. The portfolio will inform shareholders annually of the percentage
of income and distributions derived from direct U.S. Government obligations.
Shareholders should consult their tax advisers to determine whether any portion
of dividends received from the portfolio is considered tax exempt in their
particular states.
Any gain or loss recognized on a sale or redemption of shares of a portfolio by
a shareholder who is not a dealer in securities will generally be treated as
long-term capital gain or loss if the shares have been held for more than
eighteen months, mid-term if the shares have been held for over one year but not
for over eighteen months, and short-term if for a year or less. Long-term
capital gains are currently taxed at a maximum rate of 20%; mid-term capital
gains are currently taxed at a maximum rate of 28%; and short-term gains are
currently taxed at ordinary income tax rates. If shares held for six months or
less are sold or redeemed for a loss, two special rules apply: First, if shares
on which a net capital gain distribution has been received are subsequently sold
or redeemed, and such shares have been held for six months or less, any loss
recognized will be treated as long-term capital loss to the extent of the
long-term capital gain distributions. Second, any loss recognized by a
shareholder upon the sale or redemption of shares of a municipal portfolio fund
held for six months or less will be disallowed to the extent of any
exempt-interest dividends received by the Shareholder with respect to such
shares.
Foreign Income Taxes: Investment income received by the portfolio from sources
within foreign countries may be subject to foreign income taxes withheld at the
source. The U.S. has entered into Tax Treaties with many foreign countries which
would entitle the portfolio to a reduced rate of tax or exemption from tax on
such income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of the portfolio's assets to be invested within various
countries is not known. The portfolio intends to operate so as to qualify for
treaty-reduced rates of tax where applicable.
If more than 50% of the portfolio's assets are represented by foreign
securities, then the portfolio may file an election with the Internal Revenue
Service to pass through to shareholders the amount of foreign income taxes paid
by the portfolio. The portfolio will make such an election only if it is deemed
to be in the best interests of such shareholders.
If the portfolio makes the above-described election, the portfolio will not be
allowed a deduction or a credit for foreign taxes it paid and the amount of such
taxes will be treated as a dividend paid by the portfolio. The shareholders of
the portfolio will be required to: (i) include in gross income, even though not
actually received, their respective pro rata share of foreign taxes paid by the
portfolio; (ii) treat their pro rata share of foreign taxes as paid by them;
(iii) treat as gross income from sources within the respective foreign
countries, for purposes of the foreign tax credit, their pro rata share of such
foreign taxes and their pro rate share of any dividend paid by the portfolio
which represents income from sources within foreign countries; and (iv) either
deduct their pro rata share of foreign taxes in computing their taxable income
or use it within the limitations set forth in the Internal Revenue Code (the
"Code") as a foreign tax credit against U.S. income taxes (but not both). In no
event shall a shareholder be allowed a foreign tax credit if the shareholder
holds shares in the portfolio for 15 days or less during the 30-day period
beginning on the date which is 15 days before the date on which such shares
become ex-dividend with respect to such dividends.
Each shareholder of the portfolio will be notified within 60 days after the
close of each taxable (fiscal) year of the Fund if the Foreign taxes paid by the
portfolio will pass through for that year, and, if so, the amount of each
shareholder's pro rata share (by country) of (i) the foreign taxes paid, and
(ii) the portfolio's gross income from foreign sources. The notice from the
portfolio to the shareholders will also include the amount of foreign taxes paid
by the portfolio which are not allowable as a foreign tax credit because the
portfolio did not hold
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<PAGE>
the foreign securities for more than 15 days during the 30-day period beginning
on the date which is 15 days before the date on which the security becomes
ex-dividend with respect to the foreign source dividend or because and to the
extent that the recipient of the dividend is under an obligation to make related
payments with respect to positions in substantially similar or related property.
Shareholders who are not liable for federal income taxes, such as retirement
plans qualified under Section 401 of the Code, will not be affected by any such
"pass-through" of foreign tax credits.
PURCHASE OF SHARES
The portfolio reserves the right in its sole discretion (i) to suspend the
offering of its shares (ii) to reject purchase orders, and (iii) to reduce or
waive the minimum for initial and subsequent investments. The officers of the
Fund may from time to time waive the minimum initial and subsequent investment
requirements in connection with investments in the Fund by employees of the
Adviser and its affiliates.
REDEMPTION OF SHARES
The portfolio may suspend redemption privileges or postpone the date of payment
(i) during any period that the New York Stock Exchange ("NYSE") is closed, or
trading on the NYSE is restricted as determined by the SEC, (ii) during any
period when an emergency exists as defined by the rules of the SEC as a result
of which it is not reasonably practicable for the portfolio to dispose of
securities owned by it, or fairly to determine the value of its assets, and
(iii) for such other periods as the SEC may permit.
The Fund has made an election with the SEC pursuant to Rule 18f-1 under the 1940
Act to pay in cash all redemptions requested by any shareholder of record
limited in amount during any 90-day period to the lesser of $250,000 or 1% of
the net assets of the portfolio at the beginning of such period. Such commitment
is irrevocable without the prior approval of the SEC. Redemptions in excess of
the above limits may be paid in whole or in part in investment securities or in
cash, as the Trustees may deem advisable; however, payment will be made wholly
in cash unless the Trustees believe that economic or market conditions exist
which would make such a practice detrimental to the best interests of the Fund.
If redemptions are paid in investment securities, such securities will be valued
as set forth in the Fund's prospectus under "Valuation of Shares" and a
redeeming shareholder would normally incur brokerage expenses in converting
these securities to cash.
No charge is made by the portfolio for redemptions. Redemption proceeds may be
more or less than the shareholder's cost depending on the market value of the
securities held by the portfolio.
TRANSACTIONS WITH BROKER/DEALERS
The Fund has authorized one or more brokers to accept on its behalf purchase and
redemption orders. These brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
For purposes of determining the purchase price of shares, the Fund will be
deemed to have received a purchase or redemption order when an authorized
broker, or if applicable, a broker's authorized designee, accepts the order. In
other words, orders will be priced at the net asset value net computed after
such orders are accepted by an authorized broker or the broker's authorized
designee.
SHAREHOLDER SERVICES
Exchange Privilege
The exchange privilege is only available with respect to a portfolio that is
qualified for sale in a shareholder's state. Exchange requests should be sent to
MAS Funds, c/o Miller Anderson & Sherrerd,
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LLP, One Tower Bridge, West Conshohocken, PA 19428-0868. Any such exchange will
be based on the respective net asset values of the shares involved. Before
making an exchange, a shareholder should consider the investment objectives of
the portfolio to be purchased. Exchange requests may be made either by mail or
telephone. Telephone exchanges (referred to as "expedited exchanges") will be
accepted only if the certificates for the shares to be exchanged are held by the
Fund for the account of the shareholder and the registration of the two accounts
are identical. Requests for expedited exchanges received prior to the time at
which the portfolio determines its net asset value, as described in the
prospectus will be processed as of the close of business on the same day.
Requests received after these times will be processed on the next business day.
Expedited exchanges may also be subject to limitations as to amounts or
frequency, and to other restrictions established by the Board of Trustees to
assure that such exchanges do not disadvantage the Fund and its shareholders.
The officers of the Fund reserve the right not to accept any request for an
exchange when, in their opinion, the exchange privilege is being used as a tool
for market timing.
For federal income tax purposes, an exchange between portfolios of the Fund is a
taxable event, and, accordingly, a capital gain or loss may be realized. It is
likely, therefore, that a capital gain or loss would be realized on an exchange
between portfolios; you may want to consult your tax adviser for further
information in this regard. The exchange privilege may be modified or terminated
at any time.
Transfer of Shares
Shareholders may transfer shares of the portfolio to another person by written
request to the Client Services Group at the address noted above. The request
should clearly identify the account and number of shares to be transferred and
include the signature of all registered owners and all share certificates, if
any, which are subject to the transfer. The signature on the letter of request,
the share certificate or any stock power must be guaranteed in the same manner
as described under "Redemption of Shares." As in the case of redemptions, the
written request must be received in good order before any transfer can be made.
INVESTMENT LIMITATIONS
The portfolio of the Fund is subject to the following restrictions which are
fundamental policies and may not be changed without the approval of the lesser
of: (1) at least 67% of the voting securities of the portfolio present at a
meeting if the holders of more than 50% of the outstanding voting securities of
the portfolio are present or represented by proxy, or (2) more than 50% of the
outstanding voting securities of the portfolio.
As a matter of fundamental policy, the portfolio will not:
(1) invest in physical commodities or contracts on physical commodities;
(2) purchase or sell real estate, although it may purchase and sell securities
of companies which deal in real estate, other than real estate limited
partnerships, and may purchase and sell marketable securities which are secured
by interests in real estate;
(3) make loans except: (i) by purchasing debt securities in accordance with its
investment objectives and policies, or entering into repurchase agreements,
subject to the limitations described in non-fundamental limitation (7), below,
(ii) by lending its portfolio securities, and (iii) by lending portfolio assets
to other portfolios of the Fund, so long as such loans are not inconsistent with
the 1940 Act, or the rules and regulations, or interpretations or orders of the
SEC thereunder;
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<PAGE>
(4) with respect to 75% of its assets, purchase a security if, as a result, it
would hold more than 10% (taken at the time of such investment) of the
outstanding voting securities of any issuer;
(5) with respect to 75% of its assets, purchase securities of any issuer if, as
a result, more than 5% of the portfolio's total assets, taken at market value at
the time of such investment, would be invested in the securities of such issuer
except that this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities;
(6) borrow money, except (i) as a temporary measure for extraordinary or
emergency purposes, and (ii) in connection with reverse repurchase agreements,
provided that (i) and (ii) in combination do not exceed 33 1/3% of the
portfolio's total assets (including the amount borrowed) less liabilities
(exclusive of borrowings);
(7) underwrite the securities of other issuers (except to the extent that the
fund may be deemed to be an underwriter within the meaning of the Securities Act
of 1933 in connection with the disposition of restricted securities); and
(8) acquire any securities of companies within one industry, if, as a result of
such acquisition, more than 25% of the value of the portfolio's total assets
would be invested in securities of companies within such industry; provided,
however that (i) there shall be no limitation on the purchase of obligation
issued or guaranteed by the U.S. Government, its agencies or instrumentalities;
(ii) utility companies will be divided according to their services, for example,
gas, gas transmission, electric and telephone will each be considered a separate
industry; (iii) financial service companies will be classified according to the
end users of their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry; and (v)
asset-backed securities will be classified according to the underlying assets
securing such securities.
The portfolio is also subject to the following restrictions which may be changed
by the Board of Trustees without shareholder approval.
As a matter of non-fundamental policy, the portfolio will not:
(1) enter into futures contracts to the extent that the portfolio's outstanding
obligations to purchase securities under these contracts in combination with its
outstanding obligations with respect to options transactions would exceed 50% of
the portfolio's total assets, and will maintain assets sufficient to meet its
obligations under such contracts in a segregated account with the custodian bank
or will otherwise comply with the SEC's position on asset coverage;
(2) write put or call options except to the extent described above in (1);
(3) purchase on margin, except for use of short-term credit as may be necessary
for the clearance of purchases and sales of securities, provided that the
portfolio may make margin deposits in connection with transactions in options,
futures, and options on futures;
(4) sell short unless, the portfolio (i) by virtue of its ownership of other
securities, has the right to obtain securities equivalent in kind and amount to
the securities sold and, if the right is conditional, the sale is made upon the
same conditions, or (ii) maintains in a segregated account on the books of the
Fund's custodian an amount that, when combined with the amount of collateral
deposited with the broker in connection with the short sale, equals the current
market value of the security sold short or such other
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<PAGE>
amount as the SEC or its staff may permit by rule, regulation, order or
interpretation (transactions in futures contracts and options, however, are not
deemed to constitute selling securities short);
(5) borrow money other than from banks or other portfolios of MAS Funds,
provided that the portfolio may borrow from banks or other portfolios of MAS
Funds so long as such borrowing is not inconsistent with the 1940 Act or the
rules, regulations, interpretations or orders of the SEC and its staff
thereunder; or purchase additional securities when borrowings exceed 5% of total
(gross) assets;
(6) pledge, mortgage or hypothecate assets in an amount greater than 50% of its
total assets, provided that the portfolio may segregate assets without limit in
order to comply with the requirements of Section 18(f) of the 1940 Act and
applicable rules, regulations or interpretations of the SEC and its staff;
(7) invest more than an aggregate of 15% of the net assets of the portfolio,
determined at the time of investment, in illiquid securities provided that this
limitation shall not apply to any investment in securities that are not
registered under the 1933 Act but that can be sold to qualified institutional
investors in accordance with Rule 144A under the 1933 Act and are determined to
be liquid securities under guidelines or procedures adopted by the Board of
Trustees;
(8) invest for the purpose of exercising control over management of any company;
and
(9) invest its assets in securities of any investment company, except as
permitted by the 1940 Act or the rules, regulations, interpretations or orders
of the SEC and its staff thereunder.
Unless otherwise indicated, if a percentage limitation on investment or
utilization of assets as set forth above is adhered to at the time an investment
is made, a later change in percentage resulting from changes in the value or
total cost of the portfolio's assets will not be considered a violation of the
restriction, and the sale of securities will not be required.
MANAGEMENT OF THE FUND
Trustees and Officers
The Fund's officers, under the supervision of the Board of Trustees, manage the
day-to-day operations of the Fund. The Trustees set broad policies for the Fund
and choose its officers. The following is a list of the Trustees and officers of
the Fund and a brief statement of their present positions and principal
occupations during the past 5 years:
Thomas L. Bennett,* Chairman of the Board of Trustees; 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 Corp.; 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.
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<PAGE>
Joseph J. Kearns, Trustee; Vice President and Treasurer, The J. Paul Getty
Trust; Director, Electro Rent Corporation; Trustee, Southern California Edison
Nuclear Decommissioning Trust; Director, The Ford Family Foundation.
Vincent R. McLean, Trustee; Director, 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 1940 Act.
- ------------------------------------------------------------------------------
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.
Remuneration of Trustees and Officers
The Fund pays each Trustee, who is not also an officer or interested person, a
fee for each Board of Trustees Meeting attended plus travel and other expenses
incurred in attending such meetings. Trustees who are also officers or
interested persons receive no remuneration for their service as Trustees. The
Fund's officers and employees are paid by the Adviser or Sub-Administrator.
The Fund maintains an unfunded Deferred Compensation Plan ("Plan") which allows
each independent Trustee to defer payment of his or her retainer and fees to a
later date. The Fund's policy is for each Trustee to defer at least twenty-five
percent (25%) of his or her retainer and fees received annually from the Fund.
To that end, the Plan requires that each Eligible Trustee (defined by the Plan
as a member of the Board of Trustees who is not an "interested person" of the
Fund, as such term is defined under Section 2(a)(19) of the 1940 Act) defer his
or her entire retainer, which is deemed a deferral of twenty-five percent (25%)
of the Trustee's retainer and fees received from the Fund for the year. The Plan
also permits the Eligible Trustee to defer all, or a portion, of the fees
received for attending meetings of the Board of Trustees throughout the year.
Amounts deferred by each Eligible Trustee are credited with a return equal to
what those amounts would have received if they had been invested in portfolios
of the Fund selected by that Trustee. Any deferred amounts will not be available
to Eligible Trustees for a period of three (3) or more years and distributions
may not be deferred beyond the Eligible Trustee's membership on the Board of
Trustees. Distributions to an Eligible Trustee are either in the form of a lump
sum or equal annual installments over a period of five (5) years and commence
within ninety (90) days after the last date
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<PAGE>
during the deferral period on which the Fund makes a valuation of the Eligible
Trustee's deferred compensation. The Fund intends that the Plan shall be
maintained at all times on an unfunded basis for federal income tax purposes
under the Internal Revenue Code of 1986. The rights of an Eligible Trustee and
the beneficiaries to the amounts held under the Plan are unsecured and such
amounts are subject to the claims of the creditors of the Fund. The Plan became
effective May 23, 1996. There were no payments under the Plan during the fiscal
year ended September 30, 1997.
The aggregate compensation paid by the Fund to each of the Trustees during its
fiscal year ended September 30, 1997 is set forth below.
<TABLE>
<CAPTION>
Aggregate Pension or Benefits
Compensation from Accrued as Part of Total Compensation
Name of Trustee the Fund# Fund Expenses from the Fund
- --------------- --------- ------------- -------------
<S> <C> <C> <C>
Thomas L. Bennett* -0- -0- -0-
Thomas P. Gerrity $57,000## $64,942 $57,000
Joseph P. Healey $57,000## $30,173 $57,000
Joseph J. Kearns $57,000## $60,102 $57,000
C. Oscar Morong, Jr. $57,000## $89,534 $57,000
Vincent R. McLean $57,000## $96,238 $57,000
</TABLE>
*Trustee Bennett is deemed to be an "interested person" of the Fund as that term
is defined in the 1940 Act.
# Includes amounts deferred from quarterly meeting fees at the election of
Trustees under the Deferred Compensation Plan.
## In addition, each Trustee has deferred his retainer of $12,000 under the
Deferred Compensation Plan.
INVESTMENT ADVISER
Under an Investment Advisory Agreement ("Agreement") with the Fund, the Adviser,
subject to the control and supervision of the Fund's Board of Trustees and in
conformance with the stated investment objectives and policies of the portfolio,
manages the investment and reinvestment of the assets of the portfolio. In this
regard, it is the responsibility of the Adviser to make investment decisions for
the portfolio and to place the portfolio's purchase and sales orders for
investment securities.
As compensation for the services rendered by the Adviser under the Agreement and
the assumption by the Adviser of the expenses related thereto (other than the
cost of securities purchased for the portfolio and the taxes and brokerage
commissions, if any, payable in connection with the purchase and/or sale of such
securities), the portfolio pays the Adviser an advisory fee calculated by
applying a
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<PAGE>
quarterly rate, based on the following annual percentage rate, to the
portfolio's average daily net assets for the quarter:
Rate
----
Value II 0.500%
In cases where a shareholder of any of the portfolio has an investment
counseling relationship with the Adviser, the Adviser may, at its discretion,
reduce the shareholder's investment counseling fees by an amount equal to the
pro-rata advisory fees paid by the Fund. This procedure will be utilized with
clients having contractual relationships based on total assets managed by Miller
Anderson & Sherrerd, LLP to avoid situations where excess advisory fees might be
paid to the Adviser. In no event will a client pay higher total advisory fees as
a result of the client's investment in the Fund.
The Agreement continues for successive one year periods, only if each renewal is
specifically approved by a vote of the Fund's Board of Trustees, including the
affirmative votes of a majority of the Trustees who are not parties to the
agreement or "interested persons" (as defined in the 1940 Act) of any such party
in person at a meeting called for the purpose of considering such approval. In
addition, the question of continuance of the Agreement may be presented to the
shareholders of the Fund; in such event, continuance shall be effected only if
approved by the affirmative vote of a majority of the outstanding voting
securities of each portfolio of the Fund. If the holders of any portfolio fail
to approve the Agreement, the Adviser may continue to serve as investment
adviser to each portfolio which approved the Agreement, and to any portfolio
which did not approve the Agreement until new arrangements have been made. The
Agreement is automatically terminated if assigned, and may be terminated by any
portfolio without penalty, at any time, (1) by vote of the Board of Trustees or
by vote of the outstanding voting securities of the portfolio or (2) on sixty
(60) days' written notice to the Adviser, or (3) by the Adviser upon ninety (90)
days' written notice to the Fund.
The Fund bears all of its own costs and expenses, including but not limited to:
services of its independent accountants, its administrator and dividend
disbursing and transfer agent, legal counsel, taxes, insurance premiums, costs
incidental to meetings of its shareholders and Trustees, the cost of filing its
registration statements under federal and state securities laws, reports to
shareholders, and custodian fees. These Fund expenses are, in turn, allocated to
each portfolio, based on their relative net assets. The portfolio bears its own
advisory fees and brokerage commissions and transfer taxes in connection with
the acquisition and disposition of its investment securities.
ADMINISTRATION
MAS also serves as Administrator to the Fund pursuant to an Administration
Agreement dated as of November 18, 1993. Chase Global Funds Services Company
(formerly Mutual Fund Services Company, or MFSC), an affiliate of The Chase
Manhattan Bank, serves as transfer agent and provides fund accounting and other
services pursuant to a sub-administration agreement.
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<PAGE>
DISTRIBUTOR FOR FUND
MAS Fund Distribution, Inc. (the "Distributor"), a wholly-owned subsidiary of
the Adviser, with its principal office at One Tower Bridge, West Conshohocken,
Pennsylvania 19428, distributes the shares of the Fund. Under the Distribution
Agreement, the Distributor, as agent of the Fund, agrees to use its best efforts
as sole distributor of the Fund's shares. The Distribution Agreement continues
in effect so long as such continuance is approved at least annually by the
Fund's Board of Trustees, including a majority of those Trustees who are not
parties to such Distribution Agreement nor interested persons of any such party.
The Distribution Agreement provides that the Fund will bear the costs of the
registration of its shares with the SEC and various states and the printing of
its prospectuses, statements of additional information and reports to
shareholders.
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 of the Fund as required by the 1940 Act. Morgan
Stanley Trust Company is an affiliated person, as defined in the 1940 Act, of
the Adviser and is compensated for its services as custodian on a per account
basis plus out of pocket expenses.
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement authorizes the Adviser to select the brokers
or dealers that will execute the purchases and sales of investment securities
for the portfolio and directs the Adviser to use its best efforts to obtain the
best execution with respect to all transactions for the portfolio. In so doing,
the Adviser will consider all matters it deems relevant, including the
following: the Adviser's knowledge of negotiated commission rates and spreads
currently available; the nature of the security or instrument being traded; the
size and type of the transaction; the nature and character of the markets for
the security or instrument to be purchased or sold; the desired timing of the
transaction; the activity existing and expected in the market for the particular
security or instrument; confidentiality; the execution, clearance, and
settlement capabilities of the broker or dealer selected and other brokers or
dealers considered; the reputation and perceived soundness of the broker or
dealer selected and other brokers or dealers considered; the Adviser's knowledge
of any actual or apparent operational problems of a broker or dealer; and the
reasonableness of the commission or its equivalent for the specific transaction.
Although the Adviser generally seeks competitive commission rates and dealer
spreads, the portfolio will not necessarily pay the lowest available commission
on brokerage transactions or markups on principal transactions. Transactions may
involve specialized services on the part of the broker or dealer involved, and
thereby justify higher commissions or markups than would be the case with other
transactions requiring more routine services. In addition, the portfolio may pay
higher commission rates or markups than the lowest available when the Adviser
believes it is reasonable to do so in light of the value of the research,
statistical, pricing, and execution services provided by the broker or dealer
effecting the transaction. The Adviser does not attempt to put a specific dollar
value on the research services rendered or to allocate the relative costs or
benefits of those services among its clients, believing that the research it
receives will help the Adviser to fulfill its overall duty to its clients. The
Adviser uses research services obtained in this manner for the benefit of all of
its clients, though each particular research service may not be used to service
each client. As a result, the Fund may pay brokerage commissions or markups that
are used, in part, to purchase research services that are not used to benefit
the Fund.
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<PAGE>
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 portfolio or who act as agents in the purchase
of shares of the portfolio for their clients. During the fiscal years ended
September 30, 1995, 1996 and 1997, the Fund paid brokerage commissions of
$13,457,075, $18,252,335 and $19,134,219, respectively.
Some securities considered for investment by the portfolio may also be
appropriate for other clients serviced 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 judgment, joint execution is in the best
interest of each participant and will result in best price execution.
Transactions involving commingled orders are allocated in a manner deemed to be
equitable to each account or portfolio. Although it is recognized that, in some
cases, joint execution of orders could adversely affect the price or volume of
the security that a particular account or fund may obtain, it is the opinion of
the Adviser and the Fund's Board of Trustees that combining such orders
generally will be more advantageous to the Fund than effecting such transactions
separately.
If purchases or sales of securities consistent with the investment policies of
the portfolio and one or more of these other clients serviced by the Adviser is
considered at or about the same time, transactions in such securities will be
allocated among the portfolio and clients in a manner deemed fair and reasonable
by the Adviser. Although there is no specified formula for allocating such
transactions, the various allocation methods used by the Adviser, and the
results of such allocations, are subject to periodic review by the Fund's
Trustees.
On 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. As an indirect subsidiary of Morgan Stanley, Dean Witter,
Discover & Co., the Adviser is affiliated with certain U.S.-registered
broker-dealers and foreign broker-dealers (collectively, the AAffiliated
Brokers@). The Adviser may, in the exercise of its discretion under its
investment management agreement, effect transactions in securities or other
instruments for the Fund through the Affiliated Brokers. The Fund paid $132,104
in brokerage commissions to affiliates for $75,128,827 of brokered transactions
for the fiscal year ended September 30, 1997.
GENERAL INFORMATION
Description of Shares and Voting Rights
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of beneficial interest, without par value, from an unlimited number of
series ("portfolios") of shares. Currently the Fund is offering shares of
twenty-eight portfolios.
The shares of the portfolio are fully paid and non-assessable, except as set
forth below, and have no preference as to conversion, exchange, dividends,
retirement or other features. The shares of the portfolio of the Fund have no
preemptive rights. The shares of the Fund have non-cumulative voting rights,
which means that the holders of more than 50% of the shares voting for the
election of Trustees can elect 100% of the Trustees if they choose to do so. A
shareholder of a class is entitled to one vote for each full class share held
(and a fractional vote for each fractional class share held) in the
shareholder's name on the books of the Fund. Shareholders of a class have
exclusive voting rights regarding any matter submitted to shareholders that
relates solely to that class of shares (such as a distribution plan or service
agreement relating to that class), and separate voting rights on any other
matter submitted to shareholders in which the interests of the shareholders of
that class differ from the interests of holders of any other class.
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<PAGE>
The Fund will continue without limitation of time, provided however that:
1) Subject to the majority vote of the holders of shares of the portfolio of the
Fund outstanding, the Trustees may sell or convert the assets of such portfolio
to another investment company in exchange for shares of such investment company,
and distribute such shares, ratably among the shareholders of such portfolio;
2) Subject to the majority vote of shares of the portfolio of the Fund
outstanding, the Trustees may sell and convert into money the assets of such
portfolio and distribute such assets ratably among the shareholders of such
portfolio; and
3) Without the approval of the shareholders of the portfolio, unless otherwise
required by law, the Trustees may combine the assets of any two or more
portfolios into a single portfolio so long as such combination will not have a
material adverse effect upon the shareholders of such portfolio.
Upon completion of the distribution of the remaining proceeds or the remaining
assets of the portfolio as provided in paragraphs 1), 2), and 3) above, that
portfolio shall terminate and the Trustees shall be discharged of any and all
further liabilities and duties hereunder and the right, title and interest of
all parties shall be canceled and discharged with regard to that portfolio.
Dividends and Distributions
The Fund's policy is to distribute substantially all of the portfolio's net
investment income, if any, together with any net realized capital gains in the
amount and at the times that will avoid both income (including capital gains)
taxes on it and the imposition of the federal excise tax on undistributed income
and capital gains (see discussion under "Dividends, Distributions and Taxes" in
the prospectus). The amounts of any income dividends or capital gains
distributions cannot be predicted.
Any dividend or distribution paid shortly after the purchase of shares of the
portfolio by an investor may have the effect of reducing the per share net asset
value of that portfolio by the per share amount of the dividend or distribution.
Furthermore, such dividends or distributions, although in effect a return of
capital, are subject to income taxes as set forth in the prospectus.
As set forth in the prospectus, unless the shareholder elects otherwise in
writing, all dividends and distributions are automatically received in
additional shares of the portfolio of the Fund at net asset value (as of the
business day following the record date). This will remain in effect until the
Fund is notified by the shareholder in writing at least three days prior to the
record date that either the Income Option (income dividends in cash and capital
gains distributions in additional shares at net asset value) or the Cash Option
(both income dividends and capital gain distributions in cash) has been elected.
An account statement is sent to shareholders whenever a dividend or distribution
is paid.
The portfolio is treated as a separate entity (and hence, as a separate
"regulated investment company") for federal tax purposes. Any net capital gains
recognized by the portfolio are distributed to its investors without need to
offset (for federal income tax purposes) such gains against any net capital
losses of another portfolio.
Shareholder and Trustee Liability
Under Pennsylvania law, shareholders of a trust such as the Fund may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. The Fund's Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund and requires that
notice of
25
<PAGE>
such disclaimer be given in each agreement, obligation, or instrument entered
into or executed by the Fund or the Trustees, but this disclaimer may not be
effective in some jurisdictions or as to certain types of claims. The
Declaration of Trust further provides for indemnification out of the Fund's
property of any shareholder held personally liable for the obligations of the
Fund. The Declaration of Trust also provides that the Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the Fund and satisfy any judgment thereon. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations.
Pursuant to the Declaration of Trust, the Trustees may also authorize the
creation of additional series of shares (the proceeds of which would be invested
in separate, independently managed portfolios with distinct investment
objectives and policies and share purchase, redemption and net asset valuation
procedures) with such preferences, privileges, limitations and voting and
dividend rights as the Trustees may determine. All consideration received by the
Fund for shares of any additional series or class, and all assets in which such
consideration is invested, would belong to that series or class (subject only to
the rights of creditors of the Fund) and would be subject to the liabilities
related thereto. Pursuant to the 1940 Act shareholders of any additional series
or class of shares would normally have to approve the adoption of any advisory
contract relating to such series or class and of any changes in the investment
policies relating thereto.
The Declaration of Trust further provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of the
office.
PERFORMANCE INFORMATION
The Fund may from time to time quote various performance figures to illustrate
the past performance of its portfolios. Performance quotations by investment
companies are subject to rules adopted by the SEC, which require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the SEC. An
explanation of the methods for computing performance follows.
Total Return
A portfolio's average annual total return is determined by finding the average
annual compounded rates of return over 1, 5, and 10 year periods (or, if
shorter, the period since inception of the portfolio) that would equate an
initial hypothetical $1,000 investment to its ending redeemable value. The
calculation assumes that all dividends and distributions are reinvested when
paid. The quotation assumes the amount was completely redeemed at the end of
each 1, 5, and 10 year period (or, if shorter, the period since inception of the
portfolio) and the deduction of all applicable Fund expenses on an annual basis.
When considering average total return figures for periods longer than one year,
it is important to note that a portfolio's annual total return for any one
period might have been greater or less than the average for the entire period.
Average annual total return is calculated according to the following formula:
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P (1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the stated period
The portfolio may also calculate total return on an aggregate basis which
reflects the cumulative percentage change in value over the measuring period.
Aggregate total returns may be shown by means of schedules, charts or graphs and
may include subtotals of the various components of total return (e.g. income
dividends or returns for specific types of securities such as industry or
country types). The formula for calculating aggregate total return can be
expressed as follows:
Aggregate Total Return = [ ( ERV ) - 1 ]
--------------------------------
P
The portfolio may also calculate a total return gross of all expenses which
reflects the cumulative percentage change in value over the measuring period
prior to the deduction of all fund expenses. The formula for calculating the
total return gross of all expenses can be expressed as follows:
Total Return Gross of all Expenses = ((ERV + E)/P) -1)
E = Fund expenses deducted from the ending redeemable value during the measuring
period.
Yield
In addition to total return, the portfolio may quote performance in terms of a
30-day yield. The yield formula provides for semiannual compounding, which
assumes that net investment income is earned and reinvested at a constant rate
and annualized at the end of a six-month period. Methods used to calculate
advertised yields are standardized for all stock and bond mutual funds. However,
these methods differ from the accounting methods used by the portfolio to
maintain its books and records, therefore the advertised 30-day yield may not
reflect the income paid to your own account or the yield reported in the
portfolio's reports to shareholders. A portfolio may also advertise or quote a
yield which is gross of expenses. The yield figures provided will be calculated
according to a formula prescribed by the SEC and can be expressed as follows:
Yield = 2 [ ( (a-b/cd) + 1) 6 - 1 ]
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
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For the purpose of determining the interest earned (variable "a" in the formula)
on debt obligations that were purchased by the portfolio at a discount or
premium, the formula generally calls for amortization of the discount or
premium; the amortization schedule will be adjusted monthly to reflect changes
in the market value of the debt obligations.
COMPARATIVE INDEX
The portfolio may from time to time use the following unmanaged index for
performance comparison purposes:
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Russell 1000 Value
The Russell 1000 Value Index measures the performance of the Russell 1000
companies with lower price-to-book ratios and lower forecasted growth values.
The Russell 1000 Index consists of the 1,000 largest of the 3,000 largest
stocks. Market capitalization is typically between $610 million and $85 billion.
The list is rebalanced each year on June 30. If a stock is taken over or goes
bankrupt, it is not replaced until rebalancing. Therefore, there can be fewer
than 1,000 stocks in the Russell 1000 Index. The index is an equity market
capitalization weighted index available from Frank Russell & Co. on a monthly
basis.
29
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FINANCIAL STATEMENTS
The Fund's Financial Statements for the fiscal year ended September 30, 1997,
including notes thereto and the report of Price Waterhouse LLP thereon are
incorporated herein by reference. A copy of the 1997 Annual Report will
accompany the delivery of this Statement of Additional Information. The Value II
Portfolio had not commenced operations as of September 30, 1997.
APPENDIX-DESCRIPTION OF SECURITIES AND RATINGS
I. Description of Bond Ratings
Excerpts from Moody's Investors Service, Inc.'s Corporate Bond Ratings:
Aaa: judged to be the best quality; carry the smallest degree of investment
risk; Aa--judged to be of high quality by all standards; A: possess many
favorable investment attributes and are to be considered as higher medium grade
obligations; Baa: considered as lower medium grade obligations, i.e., they are
neither highly protected nor poorly secured; Ba: B: protection of interest and
principal payments is questionable.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. C: Bonds which are rated C are lowest rated class of bonds
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's may apply numerical modifiers, 1,2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Excerpts from Standard & Poor's Corporation's Corporate Bond Ratings:
AAA: highest grade obligations; possess the ultimate degree of protection as to
principal and interest; AA: also qualify as high grade obligations, and in the
majority of instances differs from AAA issues only in small degree; A: regarded
as upper medium grade; have considerable investment strength but are not
entirely free from adverse effects of changes in economic and trade conditions.
Interest and principal are regarded as safe; BBB: regarded as borderline between
definitely sound obligations and those where the speculative element begins to
predominate; this group is the lowest which qualifies for commercial bank
investments.
BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI: The rating CI is reserved for income bonds on which no interest is being
paid. D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P's believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments
30
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are jeopardized.
Plus(+) or Minus(-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Excerpts from Fitch Investors Services, Inc. Corporate Bond Ratings:
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short term debt of these issuers is generally rated "-,+".
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on the these bonds, and "D"
represents the lowest potential for recovery.
Plus (+) Minus(-) Plus and minus signs are used with a rating symbol to indicate
the relative position of a credit within the rating category. Plus and minus
signs, however, are not used in the "DDD", "DD",
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or "D" categories.
Excerpts from Duff & Phelps Corporate Bond Ratings:
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time of economic conditions.
A+, A, A-: Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+,BBB, BBB-: Below average protection factors but still considered sufficient
for prudent investment. Considerable variability in risk during economic cycles.
BB+, BB, BB-: Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes.
Overall quality may move up or down frequently within this category.
B+, B, B-: Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade.
CCC: Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protections
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP: Preferred stock with dividend arrearage.
Description of Bond Ratings
Excerpts from Moody's Investors Service, Inc.'s Preferred Stock Ratings
aaa: An issue which is rated aaa is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks. aa: An issue which
is rated aa is considered a high-grade preferred stock. This rating indicates
that there is reasonable assurance that earnings and asset protection will
remain relatively well maintained in the foreseeable future. a: An issue which
is rated a is considered to be an upper medium grade preferred stock. While
risks are judged to be somewhat greater than in the aaa and aa classifications,
earnings and asset protection are, nevertheless expected to be maintained at
adequate levels. baa: An issue which is rated baa is considered to be medium
grade, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time. ba: an issue which is rated ba is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class. b: An
issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and
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maintenance of other terms of the issue over any long period of time may be
small. caa: An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payment. ca: An issue which is rated ca is speculative in a high degree an is
likely to be in arrears on dividends with little likelihood of eventual payment.
c: This is the lowest rated class of preferred of preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's may apply numerical modifiers 1,2 and 3 in each rating
classification from "aa "through "b" in its preferred stock rating system. The
modifier 1 indicated that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range raking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
Excerpts from Standard & Poor's Corporation's Preferred Stock Ratings
AAA: This is the highest rating that may be assigned by S&P's to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations. AA: A preferred stock issue rated AA also qualifies as a high
quality fixed income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated AAA. A: An
issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effect of
the changes in circumstances and economic conditions. BBB: An issue rated BBB is
regarded as backed by an adequate capacity to pay the preferred stock
obligations. Whereas it normally exhibits adequate protection parameter, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to make payments for a preferred stock in this category than
for issues in the A category. BB,B,CCC: Preferred stock rated BB, B, and CCC are
regarded, on balance, as predominantly speculative with respect to the issuer's
capacity to pay preferred stock obligations. Bb indicates the lowest degree of
speculation and CCC the highest degree of speculation. While such issues will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties of major risk exposures to adverse conditions. CC: The
rating CC is reserved for a preferred stock in arrears on dividends or sinking
fund payments but that is currently paying. C: A preferred stock rated C is a
non-paying issue. D: A preferred stock rated D is a non-paying issue with the
issuer in default on debt instruments.
Plus(+) or Minus(-): The ratings from "AA" for "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Excerpts from Fitch Investors Services, Inc. Preferred Stock Ratings:
AAA: Preferred stocks assigned this rating are the highest quality. Strong asset
protection, conservative balance sheet ratios, and positive indications of
continued protection of preferred dividend requirements are prerequisites for an
"AAA" rating.
AA: Preferred of preference issues assigned this rating are good quality. Asset
protection and coverages of preferred dividends are considered adequate and are
expected to be maintained.
A: Preferred of preference issues assigned this rating are good quality. Asset
protection and coverages of preferred dividends are considered adequate and are
expected to be maintained.
BBB: Preferred or preference issues assigned this rating are reasonably safe but
lack the protections of the "A" to "AAA" categories. Current results should be
watched for possible of deterioration.
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BB: Preferred or preference issues assigned this rating are considered
speculative. The margin of protection is slim or subject to wide fluctuations.
The loner-term financial capacities of the enterprises cannot be predicted with
assurance.
B: Issues assigned this rating are considered highly speculative. While earnings
should normally cover dividends, directors may reduce or omit payment due to
unfavorable developments, inability to finance, or wide fluctuations in
earnings.
CCC: Issues assigned this rating are extremely speculative and should be
assessed on their prospects in a possible reorganization. Dividend payments may
be in arrears with the status of the current dividend uncertain.
CC: Dividends are not currently being paid and may be in arrears. The outlook
for future payments cannot be assured.
C: Dividends are not currently being paid and may be in arrears. Prospects for
future payments are remote.
D: Issuer is in default on its debt obligations and has filed for reorganization
or liquidation under the bankruptcy law.
Plus (+) Minus (-) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA", "CCC", "CC", "C", and "D"
categories.
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MAS FUNDS
PART C: OTHER INFORMATION
Post-Effective Amendment No. 47
Item 24. Financial Statements and Exhibits:
(a) Part A - Not Applicable
Part B - Not Applicable
(b) Additional Exhibits
<TABLE>
<S> <C> <C>
(1) Amended and Restated Declaration of Trust as filed as Exhibit 1 of the
initial Registration Statement, as filed on March 1, 1984.
(1)(a) Amendment No. 1 to Amended and Restated Declaration of Trust, dated
May 20, 1992 as filed as Exhibit 2 of Post-Effective Amendment No. 25,
as filed on January 28, 1993.
(1)(b) Amended and Restated Declaration of Trust, dated November
18, 1993 as filed as Exhibit 1 of Post-Effective
Amendment No. 29, as filed on December 27, 1993.
(1)(c) Amended and Restated Agreement and Declaration of Trust
dated November 18, 1993, is incorporated by reference to
Exhibit 1 of Post- Effective Amendment No. 42, as filed
on July 15, 1996.
(2) By-Laws as filed as Exhibit 2 of the initial Registration Statement, as
filed on March 1, 1984.
(2)(a) By-Laws as filed as to Exhibit 2 of Post-Effective Amendment No. 29, as
filed on December 27, 1993.
(2)(b) Amended and Restated By-Laws dated November 21, 1996 are
incorporated by reference to Exhibit (2)(b) of
Post-Effective Amendment No. 43, as filed on January 29,
1997.
(3) Not Applicable.
(4) Specimen of Security for the Global Fixed Income
Portfolio and the Balanced Portfolio as filed as Exhibit
4 of Post-Effective Amendment No.
24 filed on October 30, 1992.
(4)(a) Specimen of Security for the Growth Portfolio as filed as
Exhibit 4 of Post-Effective Amendment No. 26 filed on
June 28, 1993.
(5) Investment Advisory Agreement with Miller Anderson & Sherrerd, LLP
dated July 1, 1988 as filed as Exhibit 5 of Post-Effective Amendment
No. 8.
(5)(a) Investment Advisory Agreement with Miller Anderson &
Sherrerd, LLP dated January 3, 1996 is incorporated by
reference to Exhibit (5)(a) of Post-Effective Amendment
No. 43, as filed January 29, 1997.
</TABLE>
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<TABLE>
<S> <C>
(5)(b) Investment Advisory Agreement with Miller Anderson &
Sherrerd, LLP dated May 31, 1997 is incorporated by
reference to Exhibit 5(b) of Post-Effective Amendment
No. 44, as filed on June 13, 1997.
(6) Distribution Agreement with MAS Fund Distribution, Inc. dated April 13,
1993 as filed as Exhibit 6 of Post-Effective Amendment No. 26, as filed
on June 28, 1993.
(6)(a) Distribution Agreement with MAS Fund Distribution, Inc. dated January
3, 1996 is incorporated by reference to Exhibit (6)(a) of Post-Effective
Amendment No. 43, as filed January 29, 1997.
(7) Not Applicable.
(8) Custodian Agreement with State Street Bank & Trust Company as filed
as Exhibit 8 of the initial Registration Statement, as filed on March 1,
1984.
(8)(a) Custodian Agreement with Morgan Stanley Trust Company
dated September 1, 1993 is incorporated by reference to
Exhibit 8(a) of Post-Effective Amendment No. 41 filed on
January 30, 1996.
(8)(b) Custodian Agreement with United States Trust Company of
New York dated July 22, 1994 is incorporated by reference
to Exhibit 8(b) of Post-Effective Amendment No. 41, as
filed on January 30, 1996.
(8)(c) Amendment dated January 3, 1996 between Morgan Stanley
Trust Company and MAS Funds is incorporated by reference
to Exhibit 8(c) of Post-Effective Amendment No. 41, as
filed on January 30, 1996.
(8)(d) Deferred Compensation for MAS Funds Board of Trustees, as
amended, is incorporated by reference to Exhibit (8)(c)
of Post-Effective Amendment No. 44, as filed on June 13,
1997.
(8)(e) Amendment dated July 22, 1994 to the Custody Agreement
between MAS Funds and United States Trust Company of New
York is incorporated by reference to Exhibit (8)(e) of
Post-Effective Amendment No. 46, as filed on January 29,
1998.
(9) Administration Agreement with The Vanguard Group dated September,
1984 as filed as Exhibit 9 of Pre-Effective Amendment No. 3, as filed on
August 27, 1984.
(9)(a) Administration Agreement with Miller Anderson & Sherrerd,
LLP dated November 18, 1993 as filed as Exhibit 9 of
Post-Effective Amendment No. 29, as filed on December 27,
1993.
(9)(b) Sub-Administration Agreement with United States Trust
Company of New York dated November 18, 1993 is
incorporated by reference to Exhibit (9)(b) of
Post-Effective Amendment No. 46, as filed on January 29,
1998.
(9)(c) Transfer Agency Agreement with United States Trust
Company of New York dated November 18, 1993, as amended
February 9, 1995 and
</TABLE>
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<TABLE>
<S> <C>
November 18, 1996, is incorporated by reference to
Exhibit (9)(c) of Post-Effective Amendment No. 46, as
filed on January 29, 1998.
(9)(d) Administration Agreement with Miller Anderson & Sherrerd,
LLP dated January 3, 1996 is incorporated by reference to
Post-Effective Amendment No. 43, as filed on January 29,
1997.
(9)(e) Investment Class Shareholder Service Agreement is incorporated by
reference to Exhibit 15(a) of Post-Effective Amendment No. 41, as filed
on January 30, 1996.
(9)(f) Investment Class Service Provider Agreement is incorporated by
reference to Exhibit 15(b) of Post-Effective Amendment No. 40, as filed
on December 1, 1995.
(9)(g) Amendment dated August, 1995 to the Transfer Agency and Fund Sub-
Administration Agreement between MAS Funds and United States Trust
Company, is filed herewith.
(10) Opinion and Consent of Counsel dated August 23, 1984 is
incorporated by reference to Exhibit (10) of
Post-Effective Amendment No. 46, as filed on January 29,
1998.
(11) Not Applicable.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Distribution Plan relating to Adviser Class Shares is
incorporated by reference to Exhibit 15 of Post-Effective
Amendment No. 41, as filed on January 30, 1996.
(16) Performance Quotation Computation is incorporated by
reference to Exhibit (16) of Post-Effective Amendment No.
46, as filed on January 29, 1998.
(17) Not Applicable.
(18) Rule 18f-3 Multiple Class Plan is incorporated by
reference to Exhibit 18 of Post-Effective Amendment No.
41, as filed on January 30, 1996.
(24) Powers of Attorney for Joseph P. Healey, Joseph J. Kearns, John H.
Grady, Jr., Lorraine Truten, C. Oscar Morong, Jr., Thomas L. Bennett,
James D. Schmid, Vincent R. McLean and Thomas P. Gerrity are
incorporated by reference to Exhibit (24) of Post-Effective Amendment
No. 46, as filed on January 29, 1998.
(24)(a) Power of Attorney for Michael Leary is filed herewith.
</TABLE>
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant is not controlled by or under common control with any person.
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Item 26. Number of Holders of Securities:
As of December 31, 1997, the number of record holders of each class of
securities of Registrant was as follows:
Number of
Title of Class Record Holders
-------------- --------------
Institutional Class:
Advisory Foreign Fixed Income........................................ 85
Advisory Mortgage.................................................... 82
Emerging Markets Value (formerly Emerging Markets)................... 98
Equity............................................................... 488
Growth............................................................... 0
International Equity................................................. 557
Mid Cap Growth....................................................... 713
Mid Cap Value........................................................ 334
Small Cap Value...................................................... 386
Value................................................................1089
Cash Reserves........................................................ 133
Domestic Fixed Income................................................ 62
Fixed Income.........................................................1013
Fixed Income II...................................................... 50
Global Fixed Income.................................................. 48
High Yield........................................................... 376
Intermediate Duration................................................ 53
International Fixed Income........................................... 50
Limited Duration..................................................... 194
Mortgage-Backed Securities........................................... 20
Municipal............................................................ 86
PA Municipal......................................................... 31
Special Purpose Fixed Income......................................... 243
Multi-Market Fixed Income............................................ 8
Balanced............................................................. 110
Multi-Asset-Class.................................................... 111
Balanced Plus........................................................ 0
Investment Class:
Equity............................................................... 6
Value................................................................ 24
Fixed Income......................................................... 14
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International Equity................................................. 7
High Yield........................................................... 15
Mid Cap Value........................................................ 13
Domestic Fixed Income................................................ 0
Multi-Asset-Class.................................................... 6
Balanced............................................................. 3
Adviser Class:
Equity............................................................... 0
International Equity................................................. 0
Mid Cap Growth....................................................... 6
Mid Cap Value........................................................ 0
Value................................................................ 17
Fixed Income......................................................... 13
High Yield........................................................... 4
Balanced............................................................. 7
Multi-Asset-Class.................................................... 0
Item 27. Indemnification:
Reference is made to Article V of Registrant's By-Laws dated November 18, 1993,
which is incorporated by reference. Registrant hereby also makes the undertaking
consistent with rule 484 under the Securities Act of 1933, as amended.
The Trust shall indemnify each of its Trustees and officers (including persons
who serve at the Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a shareholder, creditor or
otherwise) (hereinafter referred to as a "Covered Person") against all
liabilities and expenses, including but not limited to amounts paid in
satisfaction of judgements, in compromise or as fines and penalties, and counsel
fees reasonably incurred by any Covered Person in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
or whether by or in the right of the Trust, before any court or administrative
or legislative body, in which such Covered Person may be or may have been
involved as a party or otherwise or with which such person may be or may have
been threatened, while in office or thereafter, by reason of any alleged act or
omission as a Trustee or officer, except with respect to any matter as to which
such Covered Person shall have been finally adjudicated in any such action, suit
or other proceeding not to have acted in good faith in the reasonable belief
that such Covered Person's action was in the best interest of the Trust and
except that no Covered Person shall be indemnified against any liability to the
Trust or its Shareholders to which such Covered Person would otherwise be
C-5
<PAGE>
subject by reason of self-dealing, willful misconduct or recklessness. Expenses,
including counsel fees so incurred by any such Covered Person, may be paid from
time to time by the Trust in advance of the final disposition of any such
action, suit or proceeding on the condition that the amounts so paid shall be
repaid to the Trust if it is ultimately determined that indemnification of such
expenses is not authorized under this Article.
Item 28. Business and Other Connections of Investment Adviser:
Miller Anderson & Sherrerd, LLP (the "Adviser") is a Pennsylvania limited
liability partnership founded 1969. The Adviser provides investment services to
employee benefit plans, endowment funds, foundations and other institutional
investors.
The information required by this Item 28 with respect to each director, officer,
or partner of the Adviser together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated by reference
to Schedules B and D of Form ADV filed by the Adviser pursuant to the Investment
Advisers Act of 1940 (SEC file No. 801-10437).
Item 29. Principal Underwriters:
(a) MAS Fund Distribution, Inc. acts as sole distributor of the
Registrant's shares.
(b) The principal address for MAS Fund Distribution, Inc. and each partner
and officer listed below is One Tower Bridge, West Conshohocken, PA
19428.
<TABLE>
<CAPTION>
Name and Principal Positions and Positions and
Business Address Offices with Underwriter Offices with Registrant
- ------------------- ------------------------ -----------------------
<S> <C> <C>
Marna Whittington Chief Executive Officer N/A
Lorraine Truten President Vice President
Ronald R. Reese Secretary & Treasurer N/A
Paul A. Frick Compliance Officer N/A
Gary G. Schlarbaum Director N/A
Thomas L. Bennett Director Trustee
James D. Schmid Director President
Marion Mitchell Client Account Manager Assistant Secretary
</TABLE>
(c) Not applicable
C-6
<PAGE>
Item 30. Location of Accounts and Records:
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, N.Y. 10081
(records relating to its function as custodian)
Morgan Stanley Trust Company
1 Pierrepont Plaza
Brooklyn, New York 11201
(records relating to its function as custodian)
Chase Global Funds Services
73 Tremont Street
Boston, MA 02108-3913
(records relating to its functions as sub-administrator,
transfer agent and dividend disbursing agent)
Miller Anderson & Sherrerd, LLP
One Tower Bridge
West Conshohocken, Pennsylvania 19428
(records relating to its function as investment adviser)
Item 31. Management Services
Not Applicable
Item 32. Undertakings:
(a) Not applicable
(b) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C-7
<PAGE>
(c) Registrant hereby undertakes to comply with the intent of the provisions of
Section 16(c) of the Investment Company Act of 1940 in regard to
shareholders' rights to call a meeting of shareholders for the purpose of
voting on the removal of trustees and to assist in shareholder
communications in such matters.
(d) Registrant hereby undertakes to file a post-effective amendment to its
Registration Statement within four to six months of the effective date of
Post-Effective Amendment No. 42 that contains financial statements for the
Balanced Plus Portfolio which need not be audited.
(e) Registrant hereby undertakes to file a post-effective amendment to its
Registration Statement within four to six months of the effective date of
Post-Effective Amendment No. 45 that contains financial statements for the
Multi-Market Fixed Income Portfolio which need not be audited.
(f) Registrant hereby undertakes to file a post-effective amendment to its
Registration Statement within four to six months of the effective date
of Post-Effective Amendment No. 47 that contains financial statements for
the Value II Portfolio which need not be audited.
C-8
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant has
duly caused this Post-Effective Amendment No. 47 to Registration Statement No.
2-89729 to be signed on its behalf by the undersigned, thereunto duly authorized
in the District of Columbia on the 12th day of February 1998.
MAS FUNDS
By: *
---------------------------
James D. Schmid, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment has been signed below by the following persons in the capacity on the
dates indicated.
<TABLE>
<S> <C> <C>
* Trustee February 12, 1998
- --------------------------
Thomas L. Bennett
* Trustee February 12, 1998
- --------------------------
Thomas P. Gerrity
* Trustee February 12, 1998
- --------------------------
Joseph P. Healey
* Trustee February 12, 1998
- --------------------------
Joseph J. Kearns
* Trustee February 12, 1998
- --------------------------
Vincent R. McLean
* Trustee February 12, 1998
- --------------------------
C. Oscar Morong, Jr.
* President February 12, 1998
- --------------------------
James D. Schmid
*
- -------------------------- Chief Financial Officer February 12, 1998
Michael Leary
</TABLE>
*By: /s/ John H. Grady, Jr.
----------------------
John H. Grady, Jr.
Attorney-in-Fact
C-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
- ------- ----
<S> <C> <C>
EX-99.B1 Amended and Restated Declaration of Trust as filed as Exhibit 1 of the
initial Registration Statement, as filed on March 1, 1984.
EX-99.B1(a) Amendment No. 1 to Amended and Restated Declaration of Trust,
dated May 20, 1992 as filed as Exhibit 2 of Post-Effective Amendment
No. 25, as filed on January 28, 1993.
EX-99.B1(b) Amended and Restated Declaration of Trust, dated November
18, 1993 as filed as Exhibit 1 of Post-Effective Amendment
No. 29, as filed on December 27, 1993.
EX-99.B1(c) Amended and Restated Agreement and Declaration of Trust
dated November 18, 1993, as corrected by the Trustees on
February 29, 1996, is incorporated by reference to Exhibit
1 of Post-Effective Amendment No. 42, as filed on July 15,
1996.
EX-99.B2 By-Laws as filed as Exhibit 2 of the initial Registration Statement, as
filed on March 1, 1984.
EX-99.B2(a) By-Laws as filed as Exhibit 2 of Post-Effective Amendment No. 29, as
filed on December 27, 1993.
EX-99.B2(b) Amended and Restated By-Laws dated November 21, 1996, are
incorporated by reference to Exhibit (2)(b) of
Post-Effective Amendment No. 43, as filed on January 29,
1997.
EX-99.B3 Not Applicable.
EX-99.B4 Specimen of Security for the Global Fixed Income Portfolio and the
Balanced Portfolio as filed as Exhibit 4 of Post-Effective Amendment
No. 24 filed on October 30, 1992.
EX-99.B4(a) Specimen of Security for the Growth Portfolio as filed as Exhibit 4 of
Post-Effective Amendment No. 26 filed on June 28, 1993.
EX-99.B5 Investment Advisory Agreement with Miller Anderson &
Sherrerd, LLP dated July 1, 1988 as filed as Exhibit 5 of
Post-Effective Amendment No. 8.
EX-99.B5(a) Investment Advisory Agreement with Miller Anderson &
Sherrerd, LLP dated January 3, 1996 is incorporated by
reference to Exhibit (5)(a) of Post-Effective Amendment
No. 43, as filed on January 29, 1997.
EX-99.B5(b) Investment Advisory Agreement with Miller Anderson &
Sherrerd, LLP dated May 31, 1997 is incorporated by
reference to Exhibit 5(b) of Post-Effective Amendment No.
44, as filed on June 13, 1997.
EX-99.B6 Distribution Agreement with MAS Fund Distribution, Inc. dated April 13,
1993 as filed as Exhibit 6 of Post-Effective Amendment No. 26, as filed
on June 28, 1993.
EX-99.B6(a) Distribution Agreement with MAS Fund Distribution, Inc. dated January
3, 1996 is incorporated by reference to Exhibit (6)(a) of Post-Effective
Amendment No. 43, as filed on January 29, 1997.
EX-99.B7 Not Applicable.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
EX-99.B8 Custodian Agreement with State Street Bank & Trust Company
as filed as Exhibit 8 of the initial Registration
Statement, as filed on March 1, 1984.
EX-99.B8(a) Custodian Agreement with Morgan Stanley Trust Company
dated September 1, 1993 is incorporated by reference to
Exhibit 8(a) of Post-Effective Amendment No. 41 filed on
January 30, 1996.
EX-99.B8(b) Custodian Agreement with United States Trust Company of
New York dated July 22, 1994 is incorporated by reference
to Exhibit 8(b) of Post-Effective Amendment No. 41, as
filed on January 30, 1996.
EX-99.B8(c) Amendment dated January 3, 1996 between Morgan Stanley
Trust Company and MAS Funds is incorporated by reference
to Exhibit 8(c) of Post-Effective Amendment No. 41, as
filed on January 30, 1996.
EX-99.B8(d) Deferred Compensation Plan for MAS Funds Board of
Trustees, as amended, is incorporated by reference to
Exhibit 8(c) of Post-Effective Amendment No. 44, as filed
on June 13, 1997.
EX-99.B8(e) Amendment dated July 22, 1994 to the Custody Agreement
between MAS Funds and United States Trust Company of New
York is incorporated by reference to Exhibit (8)(e) of
Post-Effective Amendment No. 46, as filed on January 29,
1998.
EX-99.B9 Administration Agreement with The Vanguard Group dated September,
1984 as filed as Exhibit 9 of Pre-Effective Amendment No. 3, as filed
on August 27, 1984.
EX-99.B9(a) Administration Agreement with Miller Anderson & Sherrerd,
LLP dated November 18, 1993 as filed as Exhibit 9 of
Post-Effective Amendment No. 29, as filed on December 27,
1993.
EX-99.B9(b) Sub-Administration Agreement with United States Trust
Company of New York dated November 18, 1993 is
incorporated by reference to Exhibit (9)(b) of
Post-Effective Amendment No. 46, as filed on January 29,
1998.
EX-99.B9(c) Transfer Agency Agreement with United States Trust Company
of New York dated November 18, 1993 and amended February
9, 1995 and November 18, 1996 is incorporated by reference
to Exhibit (9)(c) of Post-Effective Amendment No. 46, as
filed on January 29, 1998.
EX-99.B9(d) Administration Agreement with Miller Anderson & Sherrerd,
LLP is dated January 3, 1996 is incorporated by reference
to Post-Effective Amendment No. 43, as filed on January
29, 1997.
EX-99.B9(e) Investment Class Shareholder Service Agreement is incorporated by
reference to Exhibit 15(a) of Post-Effective Amendment No. 41, as filed
on January 30, 1996.
EX-99.B9(f) Investment Class Service Provider Agreement is incorporated by
reference to Exhibit 15(b) of Post-Effective Amendment No. 40, as filed
on December 1, 1995.
EX-99.B9(g) Amendment dated August, 1995 to the Transfer Agency and
Fund Sub-Administration Agreements between MAS Funds and
United States Trust Company is incorporated by reference
to Exhibit (9)(g) of Post-Effective Amendment No. 46, as
filed on January 29, 1998.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
EX-99.B10 Opinion and Consent of Counsel dated August 23, 1984 is
incorporated by reference to Exhibit 10 of Post-Effective
Amendment No. 46, as filed on January 29, 1998.
EX-99.B11 Not Applicable.
EX-99.B12 Not Applicable.
EX-99.B13 Not Applicable.
EX-99.B14 Not Applicable.
EX-99.B15 Distribution Plan relating to Adviser Class Shares is
incorporated by reference to Exhibit 15 of Post-Effective
Amendment No. 41, as filed on January 30, 1996.
EX-99.B16 Performance Quotation Computation is incorporated by reference to
Exhibit 15 of Post-Effective Amendment No. 46, as filed on January 29,
1998.
EX-99.B18 Rule 18f-3 Multiple Class Plan is incorporated by
reference to Exhibit 18 of Post-Effective Amendment No.
41, as filed on January 30, 1996.
EX-99.B24 Powers of Attorney for Joseph P. Healey, Joseph J. Kearns, John H.
Grady, Jr., Lorraine Truten, C. Oscar Morong, Jr., Thomas L. Bennett,
James D. Schmid, Vincent R. McLean and Thomas P. Gerrity are
incorporated by reference to Exhibit 24 of Post-Effective Amendment
No. 46, as filed on January 29, 1998.
EX-99.B24(a) Power of Attorney for Michael Leary is filed herewith.
</TABLE>
<PAGE>
Exhibit 24(a)
MAS FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the MAS Funds (the "Fund"), a business trust organized under the laws
of The Commonwealth of Pennsylvania, hereby constitutes and appoints Lorraine
Truten and John H. Grady, Jr., and each of them singly, his or her true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, to sign for him or her and in his or her name, place and stead,
and in the capacity indicated below, to sign any or all amendments (including
post-effective amendments) to the Fund's Registration Statement on Form N-1A
under the provisions of the Investment Company Act of 1940 and the Securities
Act of 1933, each such Act as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, acting alone, full power and authority to do and perform each and every
act and thing requisite or necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand and
seal as of the date set forth below.
/s/ Michael Leary Dated: 02/12/98
- -------------------------
Michael Leary
Principal Financial Officer
