<PAGE>
MAS
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MAS FUNDS
INVESTMENT CLASS PROSPECTUS
January 31, 1998
As Revised October 15, 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 thirty-one
portfolios, nine of which are described in this Prospectus. This Prospectus
offers the Investment Class Shares of these nine portfolios.
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The High Yield Portfolio will invest primarily, and certain other portfolios of
the Fund may invest to varying degrees, in high yield, high risk securities
which are speculative with regard to payment of interest and return of principal
(commonly referred to as junk bonds); therefore, investments in these portfolios
may not be suitable for all investors. See High Yield Investing in the Glossary
of Strategies for additional information regarding certain risks associated with
investment in such securities.
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PORTFOLIO PAGE REFERENCE
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<TABLE>
<CAPTION>
How to Use This Prospectus: 3 Fixed Income: Balanced:
- --------------------------- ------------- ---------
<S> <C> <C>
Domestic Fixed Income 14 Balanced 17
Fixed Income 15 Multi-Asset-Class 18
Portfolio Summaries: High Yield 16
- -------------------- Prospectus Glossary:
Equity: --------------------
- ------- Strategies 19
Equity 11 Investments 22
International Equity 11
Mid Cap Value 12
Value 13 General Shareholder
-------------------
Information: 32
Table of Contents: Back Cover
------------------
</TABLE>
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This Prospectus, which should be retained for future reference, sets forth
concisely information that you should know before you invest. A Statement of
Additional Information containing additional information about the Fund has been
filed with the Securities and Exchange Commission. Such Statement is dated
January 31, 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.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
FUND'S SHARES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MILLER
ANDERSON
& SHERRERD, LLP
ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428 o 800-354-8185
<PAGE>
EXPENSE SUMMARY - INVESTMENT CLASS SHARES
The following tables illustrate the various expenses and fees that a shareholder
in a portfolio will incur either directly or indirectly. The Adviser may from
time to time waive fees or reimburse expenses thereby reducing total operating
expenses.
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses:
(as a percentage of average net assets after fee waivers)
12b-1 Fees None
Shareholder Servicing Fee 0.15%
Investment Total
Advisory Other Operating
Portfolio Fees Expenses Expenses
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Equity 0.500% 0.100% 0.750%
International Equity 0.500 0.150 0.800
Mid Cap Value 0.750 0.130 1.030
Value 0.500 0.100 0.750
Domestic Fixed Income 0.375 0.125 0.650
Fixed Income 0.375 0.105 0.630
High Yield 0.375 0.125 0.650
Balanced 0.450 0.130 0.730
Multi-Asset-Class 0.594* 0.186 0.930
The Total Operating Expense ratios reflected in the table above may be higher
than the ratio of expenses actually deducted from portfolio assets because of
the effect of expense offset arrangements. The result of such arrangements is to
offset expenses that otherwise would be deducted from portfolio assets. The
amounts in the above table have been restated to reflect current fees and
expenses.
* The Adviser is, on a voluntary basis, waiving a portion of its fee and/or
reimbursing certain expenses for the Multi-Asset-Class Portfolio. Absent such
waivers and/or reimbursements by the Adviser, Total Operating Expenses would be
0.986%. These fee waivers and expense reimbursements are voluntary and may be
discontinued at any time at the Adviser's discretion.
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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 a portfolio will bear directly or indirectly. The
following example illustrates the expenses that an investor would pay on a
$1,000 investment over various time periods assuming (1) a 5% annual rate of
return, and (2) redemption at the end of each time period. The example should
not be considered a representation of past or future expenses and actual
expenses may be greater or less than those shown. For portfolios with less than
10 months of operations, only the 1 and 3 year examples are shown.
Portfolio 1 year 3 year 5 year 10 year
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Equity $8 $24 $42 $93
International Equity 8 26 44 99
Mid Cap Value 11 33 57 126
Value 8 24 42 93
Domestic Fixed Income 7 21 36 81
Fixed Income 6 20 35 79
High Yield 7 21 36 81
Balanced 7 23 41 91
Multi-Asset-Class 9 30 51 114
HOW TO USE THIS PROSPECTUS
A PROSPECTUS SUMMARY begins on page 4;
FINANCIAL HIGHLIGHTS and a description of YIELD AND TOTAL RETURN begin on
page 6;
GENERAL INFORMATION including INVESTMENT LIMITATIONS pertinent to all portfolios
begins on page 9;
SUMMARY PAGES for each portfolio's Objective, Policies and Strategies begin on
page 11;
The PROSPECTUS GLOSSARY which defines specific Allowable Investments, Policies
and Strategies printed in bold type throughout this Prospectus begins on page
19; and
GENERAL SHAREHOLDER INFORMATION begins on page 32.
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Terms in bold type are defined in the Prospectus Glossary MAS Fund - 3
<PAGE>
SUMMARY INFORMATION:
The following information relates to each portfolio of the Fund and should be
read in conjunction with the specific information about each portfolio.
Objectives: Each portfolio seeks to achieve its investment objective relative to
the universe of securities in which it is authorized to invest and, accordingly,
the total return or current income achieved by a portfolio may not be as great
as that achieved by another portfolio that can invest in a broader range of
securities. Fixed income portfolios will seek to produce total return by
actively trading portfolio securities. The objective of each portfolio is
fundamental and may only be changed with approval of holders of a majority of
the shares of each portfolio. The achievement of any portfolio's objective
cannot be assured.
RISK FACTORS: Prospective investors in the Fund should consider the following
factors as they apply to each portfolio's allowable investments and policies.
See the Prospectus Glossary for more information on terms printed in bold type:
o Each portfolio may invest in Repurchase Agreements, which entail a risk of
loss should the seller default in its obligation to repurchase the security
which is the subject of the transaction;
o Each portfolio may participate in a Securities Lending program which entails a
risk of loss should a borrower fail financially;
o Fixed-Income Securities will be affected by general changes in interest rates
resulting in increases or decreases in the value of the obligations held by a
portfolio. The value of Fixed Income Securities can be expected to vary
inversely to changes in prevailing interest rates, i.e., as interest rates
decline, market value tends to increase and vice versa. Certain Fixed Income
Securities may be highly sensitive to interest rate changes, and highly
sensitive to the rate of principal payments (including prepayments on
underlying mortgage assets). Investments in securities rated below investment
grade, generally referred to as High Yield, high risk or junk bonds, carry a
high degree of credit risk and are considered speculative by the major rating
agencies;
o Common Stocks are subject to market risks which may cause their prices to
fluctuate over time. Changes in the value of portfolio securities will not
necessarily affect cash income derived from these securities, but will affect
a portfolio's net asset value;
o Investments in foreign securities involve certain special considerations which
are not typically associated with investing in U.S. companies. Portfolios
investing in foreign securities may also engage in foreign currency exchange
transactions. See Forwards, Futures & Options, and Swaps;
o Securities purchased on a When-Issued basis may decline or appreciate in
market value prior to their actual delivery to the portfolio;
o Each portfolio may invest a portion of its assets in Derivatives including
Futures & Options. Futures contracts, options and options on futures contracts
entail certain costs and risks, including imperfect correlation between the
value of the securities held by the portfolio and the value of the particular
derivative instrument, and the risk that a portfolio could not close out a
futures or options position when it would be most advantageous to do so; and
o Each portfolio may invest in certain instruments such as Forwards, certain
types of Futures & Options, certain types of Mortgage Securities and
When-Issued Securities which require the portfolio to segregate some or all of
its cash or liquid securities to cover its obligations pursuant to such
instruments. As asset segregation reaches certain levels, a portfolio may lose
flexibility in managing its investments properly, responding to shareholder
redemption requests, or meeting other obligations and may be forced to sell
other securities that it wanted to retain or to realize unintended gains or
losses.
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MAS Fund - 4 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
HOW TO INVEST: Investment Class Shares of each portfolio are available to
Shareholders with combined investments of $1,000,000 and Shareholder
Organizations who have a contractual arrangement with the Fund or the Fund's
Distributor, including institutions such as trusts, foundations or
broker-dealers purchasing for the accounts of others. Shares are offered
directly to investors without a sales commission at the net asset value of the
portfolio next determined after receipt of the order. Share purchases may be
made by sending investments directly to the Fund, subject to acceptance by the
Fund. The Fund also offers Institutional and Adviser Class Shares which differ
from the Investment Class Shares in expenses charged and purchase requirements.
Further information relating to the other classes may be obtained by calling
800-354-8185.
HOW TO REDEEM: Shares of each portfolio may be redeemed at any time at the net
asset value of the portfolio next determined after receipt of the redemption
request. The redemption price may be more or less than the purchase price. See
Redemption of Shares and Shareholder Services.
THE FUND'S INVESTMENT ADVISER: Miller Anderson & Sherrerd, LLP (the "Adviser")
is a Pennsylvania limited liability partnership founded in 1969, wholly owned by
indirect subsidiaries of Morgan Stanley Dean Witter & 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 June 30, 1998 had in excess of $67 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>
Financial Highlights - Fiscal Years Ended September 30
Selected per share data and ratios for a share of each Portfolio outstanding
throughout each period
The following information should be read in conjunction with the Fund's
financial statements which are included in the Annual Report to Shareholders
incorporated by reference in the Statement of Additional Information. The Fund's
financial statements for the year ended September 30, 1997 have been examined by
Price Waterhouse LLP whose opinion thereon (which was unqualified) is also
incorporated by reference in the Statement of Additional Information.
The Investment Class shares of the Domestic Fixed Income Portfolio had not
commenced operations as of September 30, 1997, therefore,
Institutional Class share financial information is provided to investors for
informational purposes only and should be referred to as an historical guide to
the Portfolio's operations and expenses. Past performance does not indicate
future results. (Data is adjusted to reflect a 2.5 for 1 share split as of
August 13, 1993 for the Domestic Fixed Income Portfolio.)
<TABLE>
<CAPTION>
Net Gains Dividend
Net Asset or Losses Distributions Capital Gain
Value- Net on Securities Total from (net Distributions
Beginning Investment (realized and Investment investment (realized net Other
of Period Income unrealized) Activities income) capital gains) Distributions
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Equity Portfolio (Commencement of Investment Class Operations 04/10/96)
1997 $25.66 $0.34 $8.17 $8.51 ($0.35) ($4.40) --
1996 24.31 0.22 1.24 1.46 (0.11) -- --
International Equity Portfolio (Commencement of Investment Class Operations 04/10/96)
1997+++ $13.23 $0.23 $2.69 $2.92 ($0.25) ($0.27) --
1996 13.02 0.09 0.12 0.21 -- -- --
Mid Cap Value Portfolio (Commencement of Investment Class Operations 05/10/96)
1997+++ $14.48 $0.01 $8.36 $8.37 ($0.09) ($1.01) --
1996 13.77 0.04 0.67 0.71 -- -- --
Value Portfolio (Commencement of Investment Class Operations 05/06/96)
1997+++ $15.60 $0.31 $5.75 $6.06 ($0.27) ($1.03) --
1996 14.97 0.12 0.59 0.71 (0.08) -- --
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio Average
Total End of Total Period to Average to Average Turnover Commission
Distributions Period Return** (thousands) Net Assets+ Net Assets Rate Rate***
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Portfolio (Commencement of Investment Class Operations 04/10/96)
1997 ($4.75) $29.42 38.12% $2,354 0.80%++ 1.12%++ 85% $0.0294
1996 (0.11) 25.66 6.02 113 0.75* 1.83* 67 0.0557
International Equity Portfolio (Commencement of Investment Class Operations 04/10/96)
1997+++ ($0.52) $15.63 22.85% $631 0.89%++ 1.60%++ 62% $0.0035
1996 -- 13.23 1.61 235 0.81* 1.81* 78 0.0093
Mid Cap Value Portfolio (Commencement of Investment Class Operations 05/10/96)
1997+++ ($1.10) $21.75 61.05% $1,238 1.09%++ 0.04%++ 184% $0.0467
1996 -- 14.48 5.16 127 1.03*++ 0.86*++ 377 0.0462
Value Portfolio (Commencement of Investment Class Operations 05/06/96)
1997+++ ($1.30) $20.36 41.01% $29,847 0.80%++ 1.75%++ 46% $0.0577
1996 (0.08) 15.60 4.78 9,244 0.76* 2.05* 53 0.0572
</TABLE>
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MAS Fund - 6 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Financial Highlights - Fiscal Years Ended September 30
<TABLE>
<CAPTION>
Net Gains Dividend
Net Asset or Losses Distributions Capital Gain
Value- Net on Securities Total from (net Distributions
Beginning Investment (realized and Investment investment (realized net Other
of Period Income unrealized) Activities income) capital gains) Distributions
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<S> <C> <C> <C> <C> <C> <C> <C>
Domestic Fixed Income Portfolio (Commencement of Institutional Class Operations 9/30/87)
1997 $10.89 $0.74 $0.33 $1.07 ($0.67) ($0.02) --
1996 11.03 0.56 (0.09) 0.47 (0.57) -- (0.04)#
1995 9.87 0.52 0.87 1.39 (0.23) -- --
1994 11.99 0.94 (1.23) (0.29) (0.95) ($0.73) (0.15)#
1993 11.80 0.84 0.66 1.50 (0.78) (0.53) --
1992 11.34 0.87 0.76 1.63 (1.00) (0.17) --
1991 10.26 0.92 1.10 2.02 (0.94) -- --
1990 10.90 0.87 (0.45) 0.42 (0.96) (0.10) --
1989 10.78 0.86 0.08 0.94 (0.78) (0.04) --
1988 9.99 0.73 0.52 1.25 (0.45) (0.01) --
Fixed Income Portfolio (Commencement of Investment Class Operations 10/15/96)
1997+++ $11.80 $0.75 $0.40 $1.15 ($0.60) ($0.13) --
High Yield Portfolio (Commencement of Investment Class Operations 5/21/96)
1997+++ $ 9.31 $0.84 $0.88 $1.72 ($0.84) ($0.03) --
1996 9.06 0.31 0.16 0.47 (0.22) -- --
Balanced Portfolio (Commencement of Investment Class Operations 04/04/97)
1997 $13.11 $0.30 $2.09 $2.39 ($0.20) -- --
Multi-Asset-Class Portfolio (Commencement of Investment Class Operations 6/10/96)
1997+++ $12.27 $0.36 $2.57 $2.93 ($0.49) ($1.08) --
1996 12.17 0.13 $0.08 0.21 (0.11) -- --
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio Average
Total End of Total Period to Average to Average Turnover Commission
Distributions Period Return** (thousands) Net Assets+ Net Assets Rate Rate***
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic Fixed Income Portfolio (Commencement of Institutional Class Operations 9/30/87)
1997 ($0.69) $11.27 10.20% $96,954 0.51%++ 6.48% 217% --
1996 (0.61) 10.89 4.41 95,362 0.52++ 5.73 168 --
1995 (0.23) 11.03 14.33 36,147 0.51++ 6.80 313 --
1994 (1.83) 9.87 (2.87) 36,521 0.50++ 7.65 78 --
1993 (1.31) 11.99 14.08 90,350 0.50 7.15 96 --
1992 (1.17) 11.80 15.41 98,130 0.47 7.67 136 --
1991 (0.94) 11.34 20.99 83,200 0.48 8.18 131 --
1990 (1.06) 10.26 3.90 77,622 0.48 8.35 181 --
1989 (0.82) 10.90 9.14 68,855 0.49 8.24 219 --
1988 (0.46) 10.78 12.63 53,236 0.50 8.62 224 --
Fixed Income Portfolio (Commencement of Investment Class Operations 10/15/96)
1997+++ ($0.73) $12.22 10.07% $9,527 0.66%*++ 6.57%* 179% --
High Yield Portfolio (Commencement of Investment Class Operations 5/21/96)
1997+++ ($0.87) $10.16 19.77% $10,916 0.70%++ 8.84% 96% --
1996 (0.22) 9.31 5.34 5,139 0.62* 11.06* 115 --
Balanced Portfolio (Commencement of Investment Class Operations 04/04/97)
1997 ($0.20) $15.30 18.40% $3,943 0.73%*++ 3.32%* 145% $0.0578
Multi-Asset-Class Portfolio (Commencement of Investment Class Operations 6/10/96)
1997+++ ($1.57) $13.63 26.32% $5,075 0.96%++ 2.85% 141% $0.0114
1996 (0.11) 12.27 1.75 3,074 0.73*++ 3.68* 122 0.0225
</TABLE>
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Terms in bold type are defined in the Prospectus Glossary MAS Fund - 7
<PAGE>
Notes to the Financial Highlights
* Annualized
** Total return figures for partial years are not annualized.
*** For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose the average commission rate per share paid for
security transactions on which commissions were charged.
# Represents distribution in excess of net realized gains.
## Represents distributions in excess of net investment income.
+ For the respective periods ended September 30, the Ratio of Expenses to
Average Net Assets for the following Portfolios excludes the effect of
expense offsets. If expense offsets were included, the Ratio of Expenses to
Average Net Assets would be as follows for the respective periods.
Portfolio 1995 1996 1997
Equity -- 0.75%* 0.80%
International Equity -- 0.77 0.86
Mid Cap Value -- 1.03* 1.07
Value -- 0.75* 0.79
Domestic Fixed Income 0.50% 0.50 0.50
Fixed Income -- -- 0.65*
High Yield -- 0.61* 0.69
Balanced -- -- 0.70*
Multi-Asset-Class -- 0.73* 0.96
++ For the periods indicated, the Adviser voluntarily agreed to waive its
advisory fees and/or reimburse certain expenses to the extent necessary
in order to keep Total Operating Expenses actually deducted from
portfolio assets for the respective portfolios from exceeding voluntary
expense limitations. For the respective periods ended September 30, the
voluntarily waived and/or reimbursed expenses totaled the below listed
amounts.
Voluntarily waived and/or reimbursed expenses for:
Portfolio 1994 1995 1996 1997
Equity -- -- -- 1.28%
International Equity -- -- -- 6.83
Mid Cap Value -- -- 0.14%* 4.60
Value -- -- -- 0.09
Domestic Fixed Income 0.03% 0.09% 0.01 0.01
Fixed Income -- -- -- 0.12*
High Yield -- -- -- 0.22
Multi-Asset-Class -- -- 0.08* 0.55
+++ Per share amounts for the year ended September 30, 1997, are based on
average shares outstanding.
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MAS Fund - 8 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
YIELD AND TOTAL RETURN:
From time to time each portfolio of the Fund advertises its yield and total
return. Both yield and total return figures are based on historical earnings and
are not intended to indicate future performance. The average annual total return
reflects changes in the price of a portfolio's shares and assumes that any
income dividends and/or capital gain distributions made by the portfolio during
the period were reinvested in additional shares of the portfolio. Figures will
be given for one-, five- and ten-year periods ending with the most recent
calendar quarter-end (if applicable), and may be given for other periods as well
(such as from commencement of the portfolio's operations).
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 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 a portfolio may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported in
financial and industry publications, returns of other investment advisers and
mutual funds, and various indices as further described in the Statement of
Additional Information
The performance of Institutional Class Shares, Investment Class Shares and
Adviser Class Shares differ because of any class specific expenses paid by each
class and the shareholder servicing fees charged to Investment Class Shares and
distribution fees charged to Adviser Class Shares.
The Annual Report to Shareholders of the Fund for the Fund's most recent fiscal
year-end contains additional performance information that includes comparisons
with appropriate indices. The Annual Report is available without charge upon
request by writing to the Fund or calling the Client Services Group at the
telephone number shown on the front cover of this Prospectus.
GENERAL INFORMATION
Suitability: The Fund's portfolios are designed for long-term investors who can
accept the risks entailed in investing in the stock and bond markets, and are
not meant to provide a vehicle for playing short-term swings in the market. The
Fund's portfolios are designed principally for the investments of tax-exempt
fiduciary investors who are entrusted with the responsibility of investing
assets held for the benefit of others. Since such investors are not subject to
Federal income taxes, securities transactions for all portfolios will not be
influenced by the different tax treatment of long-term capital gains, short-term
capital gains, and dividend income under the Internal Revenue Code.
Securities Lending: Each portfolio may lend its securities to qualified brokers,
dealers, banks and other financial institutions for the purpose of realizing
additional income. Loans of securities will be collateralized by cash, letters
of credit, or securities issued or guaranteed by the U.S. Government or its
agencies. The collateral will equal at least 100% of the current market value of
the loaned securities. In addition, a portfolio will not loan its portfolio
securities to the extent that greater than one-third of its total assets, at
fair market value, would be committed to loans at that time.
Illiquid Securities/Restricted Securities: Each of the portfolios may invest up
to 15% of its net assets in securities that are illiquid by virtue of the
absence of a readily available market, or because of legal or contractual
restrictions on resale. This policy does not limit the acquisition of (i)
restricted securities eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933 or (ii) commercial paper
issued pursuant to Section 4(2) under the Securities Act of 1933 or other
restricted securities, that are determined to be liquid in accordance with
guidelines established by the Fund's Board of Trustees.
Turnover: The Adviser manages the portfolios generally without regard to
restrictions on annual turnover. In general, the portfolios will not trade for
short-term profits, but when circumstances warrant, investments may be sold
without regard to the length of time held.
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Terms in bold type are defined in the Prospectus Glossary MAS Fund - 9
<PAGE>
With respect to the fixed income portfolios and the fixed-income portion of the
Balanced and Multi-Asset-Class Portfolios the annual turnover rate will
ordinarily exceed 100% due to changes in portfolio duration, yield curve
strategy or commitments with respect to forward delivery mortgage-backed
securities. For the Balanced and Multi-Asset-Class Portfolios, the annual
turnover rate is not expected to exceed 100% with respect to Equity Securities.
The following portfolios have annual turnover rates of 100% or more: Mid Cap
Value, Fixed Income, Domestic Fixed Income, Balanced and Multi-Asset-Class.
These high rates of annual turnover necessarily result in correspondingly
heavier portfolio trading costs which are paid by a portfolio as well as
possible tax consequences (e.g., higher level of realized gains). Trading in
Fixed-Income Securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs. To the extent net
short-term capital gains are realized, any distributions resulting from such
gains are considered ordinary income for federal income tax purposes. The annual
turnover rate for each portfolio is shown in the Financial Highlights under
"Portfolio Turnover Rate."
Cash Equivalents/Temporary Defensive Investing: Although each portfolio intends
to remain substantially fully invested, a small percentage of a portfolio's
assets is generally held in the form of Cash Equivalents in order to meet
redemption requests and otherwise manage the daily affairs of each portfolio. In
addition, any portfolio may, when the Adviser deems that market conditions are
such that a temporary defensive approach is desirable, invest in Cash
Equivalents or the Fixed-Income Securities listed for that portfolio without
limit. In addition, the Adviser may, for temporary defensive purposes, increase
or decrease the average weighted maturity or duration of any fixed-income
portfolio without regard to that portfolio's usual average weighted maturity.
Concentration: Concentration is defined as investment of 25% or more of a
portfolio's total assets in the securities of issuers operating in any one
industry. Except as provided in a portfolio's specific investment policies, or
as detailed in Investment Limitations, a portfolio will not concentrate
investments in any one industry.
Investment Limitations: Each portfolio is subject to certain limitations
designed to reduce its exposure to specific situations. Some of these
limitations are:
(a) with respect to 75% of its assets, a portfolio will not purchase securities
of any issuer if, as a result, more than 5% of the portfolio's total assets
taken at market value would be invested in the securities of any single issuer
except that this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities; and
(b) with respect to 75% of its assets, a portfolio will not purchase a security
if, as a result, the portfolio would hold more than 10% of the outstanding
voting securities of any issuer.
Limitations (a) and (b), and certain other limitations described in the
Statement of Additional Information are fundamental and may be changed only with
the approval of the holders of a majority of the shares of the portfolios. Other
investment limitations described here and in the Statement of Additional
Information are not fundamental policies; meaning that the Board of Trustees may
change them without shareholder approval. If a percentage limitation on
investment or utilization of assets as set forth in this prospectus or the
Statement of Additional Information is adhered to at the time an investment is
made, a later change in percentage resulting from changes in the value or total
cost of the portfolios' assets will not be considered a violation of the
restriction, and the sale of securities will not be required.
- --------------------------------------------------------------------------------
MAS Fund - 10 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Equity Portfolio
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing primarily in dividend-paying common
stocks of companies which are deemed by the Adviser to
demonstrate long-term earnings growth that is greater
than the economy in general and greater than the
expected rate of inflation.
Approach: The Adviser's investment process is designed to capture
value by identifying stocks that offer low but rising
expectations. To determine the level of expectations for
various companies and the direction of changes in those
expectations, the Adviser analyzes the companies' equity
valuations and changes in the companies' estimates of
future earnings. In addition, the Adviser diversifies
across sectors to preserve return while reducing risk,
seeking the best values within each sector of the
market. A group of senior investment professionals
invests the portfolio using a disciplined approach to
stock selection supported by fundamental research
analysts. Each investment professional makes his or her
own buy, sell and sector-allocation decisions. Overall
sector allocation is driven by bottom-up stock selection
and is reviewed regularly to preserve the benefits of
diversification.
Policies: Generally at least 65% invested in Equity Securities Up
to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally greater than $1 billion
Allowable Investments: ADRs Corporates Futures & Options Swaps
Agencies Foreign Bonds Investment Companies U.S. Governments
Cash Equivalents Foreign Currency Preferred Stock Warrants
Common Stocks Foreign Equities Repurchase Agreements When Issued Securities
Convertibles Forwards Rights Zero Coupons
Comparative Index: S&P 500 Index
Strategies: Core Equity Investing
Portfolio
Management Team: Arden C. Armstrong, James J. Jolinger, Nicholas J. Kovich, Brian Kramp, Robert J. Marcin and
Gary G. Schlarbaum
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
International Equity Portfolio
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in common stocks of companies based
outside of the U.S.
Approach: The Adviser evaluates both short-term and long-term
international economic trends and the relative
attractiveness of non-U.S. equity markets and individual
securities.
Policies: Generally at least 65% invested in Foreign Equities of
issuers in at least 3 countries other than the U.S.
Derivatives may be used to pursue portfolio strategy
Allowable Investments: ADRs Eastern European Issuers Investment Companies Structured Notes
Agencies Emerging Markets Issuers Investment Funds Swaps
Brady Bonds Foreign Bonds Loan Participations U.S. Governments
Cash Equivalents Foreign Currency Preferred Stock Warrants
Common Stocks Foreign Equities Repurchase Agreements When Issued Securities
Convertibles Forwards Rights Zero Coupons
Corporates Futures & Options Structured Investments
Comparative Index: MSCI World Ex-U.S. Index
Strategies: International Equity Investing
Emerging Markets Investing
Foreign Investing
Portfolio
Management Team: Hassan Elmasry and Horacio A. Valeiras
</TABLE>
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus MAS Fund - 11
<PAGE>
Mid Cap Value Portfolio
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in common stocks with equity
capitalizations in the range of the companies
represented in the S&P MidCap 400 Index which are deemed
by the Adviser to be relatively undervalued based on
certain proprietary measures of value. The Portfolio
will typically exhibit a lower price/earnings value
ratio than the S&P MidCap 400 Index.
Approach: The Adviser selects common stocks which are deemed to be
undervalued at the time of purchase, based on
proprietary measures of value. The portfolio will be
structured taking into account the economic sector
weights of the S&P MidCap 400 Index, with sector weights
normally being within 5% of the sector weights of the
Index.
Policies: Generally at least 65% invested in Equity Securities of
mid-cap companies, which are deemed to be undervalued Up
to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally matching the S&P MidCap 400 Index (currently
$500 million to $6 billion)
Allowable Investments: ADRs Corporates Futures & Options Swaps
Agencies Foreign Bonds Investment Companies U.S. Governments
Cash Equivalents Foreign Currency Preferred Stock Warrants
Common Stocks Foreign Equities Repurchase Agreements When Issued Securities
Convertibles Forwards Rights Zero Coupons
Comparative Index: S&P MidCap 400 Index
Strategies: Value Stock Investing
Portfolio
Management Team: Bradley S. Daniels, William B. Gerlach, Chris Leavy and
Gary G. Schlarbaum
</TABLE>
- --------------------------------------------------------------------------------
MAS Fund - 12 Terms in bold are defined in the Prospectus Glossary
<PAGE>
Value Portfolio
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in common stocks with equity
capitalizations usually greater than $300 million which
are deemed by the Adviser to be relatively undervalued,
based on various measures such as price/earnings ratios
and price/book ratios. While capital return will be
emphasized somewhat more than income return, the
portfolio's total return will consist of both capital
and income returns. It is expected that income return
will be higher than that of the Equity Portfolio because
stocks which are deemed to be undervalued in the
marketplace have, under most market conditions, provided
higher dividend income returns than stocks which are
deemed to have long-term earnings growth potential which
normally sell at higher price/earnings ratios.
Approach: The Adviser selects common stocks which are deemed to be
undervalued relative to the stock market in general as
measured by the Standard & Poor's 500 Index, based on
the value measures such as price/earnings ratios and
price/book ratios, as well as fundamental research.
Policies: Generally at least 65% invested in Equity Securities,
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
Allowable Investments: ADRs Corporates Futures & Options Swaps
Agencies Foreign Bonds Investment Companies U.S. Governments
Cash Equivalents Foreign Currency Preferred Stock Warrants
Common Stocks Foreign Equities Repurchase Agreements When Issued Securities
Convertibles Forwards Rights Zero Coupons
Comparative Index: S&P 500 Index
Strategy: Value Stock Investing
Portfolio
Management Team: Richard M. Behler, Nicholas J. Kovich and Robert J.
Marcin
</TABLE>
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Fund - 13
<PAGE>
Domestic Fixed Income Portfolio
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of U.S.
Government securities and other investment grade
fixed-income securities of domestic issuers.
Approach: The Adviser actively manages the maturity and duration
structure of the portfolio in anticipation of long-term
trends in interest rates and inflation. Investments are
diversified among a wide variety of U.S. Fixed-Income
Securities in all market sectors.
Policies: Generally at least 65% invested in Fixed-Income
Securities 100% invested in domestic issuers May invest
greater than 50% in Mortgage Securities Derivatives may
be used to pursue portfolio strategy
Quality Specifications: 80% of Fixed-Income Securities rated A or higher
(or its equivalent) May invest up to 20% in Fixed-Income
Securities rated BBB (or its equivalent)
Maturity and Duration: Average weighted maturity generally greater than 5 years
Allowable Investments: Agencies Corporates Mortgage Securities Structured Notes
Asset-Backeds Floaters Municipals Swaps
Cash Equivalents Futures & Options Preferred Stock U.S. Governments
CMOs Inverse Floaters Repurchase Agreements When Issued Securities
Convertibles Investment Companies SMBS Zero Coupons
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
Portfolio
Management Team Thomas L. Bennett, Kenneth B. Dunn and Richard B.
Worley
</TABLE>
- --------------------------------------------------------------------------------
MAS Fund - 14 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Fixed Income Portfolio
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of U.S.
Government securities, corporate bonds (including bonds
rated below investment grade, commonly referred to as
junk bonds), foreign fixed-income securities and
mortgage-backed securities of domestic issuers and other
fixed-income securities. The portfolio's average
weighted maturity will ordinarily be greater than five
year
Approach: The Adviser actively manages the maturity and duration
structure of the portfolio in anticipation of long-term
trends in interest rates and inflation. Investments are
diversified among a wide variety of Fixed-Income
Securities in all market sectors.
Policies: Generally at least 65% invested in Fixed-Income
Securities May invest greater than 50% in Mortgage
Securities Derivatives may be used to pursue portfolio
strategy
Quality Specifications: 80% Investment Grade Securities Up to 20% High Yield
Maturity and Duration: Average weighted maturity generally greater than 5 years
Allowable Investments: Agencies Floaters Investment Companies Structured Notes
Asset-Backeds Foreign Bonds Loan Participations Swaps
Brady Bonds Foreign Currency Mortgage Securities U.S. Governments
Cash Equivalents Forwards Municipals When Issued Securities
CMOs Futures & Options Preferred Stock Yankees
Convertibles High Yield Repurchase Agreements Zero Coupons
Corporates Inverse Floaters SMBS
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Investing
Foreign Fixed Income Investing
Portfolio
Management Team: Thomas L. Bennett, Kenneth B. Dunn and Richard B. Worley
</TABLE>
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Fund - 15
<PAGE>
High Yield Portfolio
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in high yielding corporate
fixed-income securities (including bonds rated below
investment grade, commonly referred to as junk bonds).
The portfolio may also invest in U.S. Government
securities, mortgage-backed securities, investment grade
corporate bonds and in short-term fixed-income
securities, such as certificates of deposit, treasury
bills, and commercial paper. The portfolio expects to
achieve its objective by earning a high rate of current
income, although the portfolio may seek capital growth
opportunities when consistent with its objective. The
portfolio's average weighted maturity will ordinarily be
greater than five years.
Approach: The Adviser uses equity and fixed-income valuation
techniques and analyses of economic and industry trends
to determine portfolio structure. Individual securities
are selected, and monitored, by fixed-income portfolio
managers who specialize in corporate bonds and use
in-depth financial analysis to uncover opportunities in
undervalued issues.
Policies: Generally at least 65% invested in High Yield securities
(commonly referred to as junk bonds) Derivatives may be
used to pursue portfolio strategy
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
Allowable Investments: Agencies Emerging Markets Issuers Inverse Floaters Structured Notes
Asset-Backeds Floaters Investment Companies Swaps
Brady Bonds Foreign Bonds Loan Participations U.S. Governments
Cash Equivalents Foreign Currency Mortgage Securities When Issued Securities
CMOs Foreign Equities Municipals Yankees
Convertibles Forwards Preferred Stock Zero Coupons
Corporates Futures & Options Repurchase Agreements
Eastern European Issuers High Yield SMBS
Comparative Index: Salomon High Yield Market Index
Strategies: High Yield Investing
Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Investing
Foreign Fixed Income Investing
Emerging Markets Investing
Portfolio
Management Team: Robert E. Angevine, Thomas L. Bennett and Stephen F.
Esser
</TABLE>
- --------------------------------------------------------------------------------
MAS Fund - 16 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Balanced Portfolio
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Objective: To achieve above average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of common
stocks and fixed-income securities. When the Adviser
judges the relative outlook for the equity and
fixed-income markets to be neutral the portfolio will be
invested 60% in common stocks and 40% in fixed-income
securities. The asset mix may be changed, however, with
common stocks ordinarily representing between 45% and
75% of the total investment. The average weighted
maturity of the fixed-income portion of the portfolio
will ordinarily be greater than five years.
Approach: The Adviser determines investment strategies for the
equity and fixed-income portions of the portfolio
separately and then determines the mix of those
strategies expected to maximize the return available
from both the stock and bond markets. Strategic
judgments on the equity/fixed-income asset mix are based
on valuation disciplines and tools for analysis
developed by the Adviser over its twenty-five year
history of managing balanced accounts.
Policies: Generally 45% to 75% invested in Equity Securities Up to
25% invested in Foreign Bonds and/or Foreign Equities
(excluding ADRs) Up to 10% invested in Brady Bonds At
least 25% invested in senior Fixed-Income Securities
Derivatives may be used to pursue portfolio strategy
Equity Capitalization: Generally greater than $1 billion
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
Allowable Investments: ADRs Eastern European Issuers Investment Companies SMBS
Agencies Floaters Investment Funds Structured Notes
Asset-Backeds Foreign Bonds Loan Participations Swaps
Brady Bonds Foreign Currency Mortgage Securities U.S. Governments
Cash Equivalents Foreign Equities Municipals Warrants
CMOs Forwards Preferred Stock When Issued Securities
Common Stocks Futures & Options Repurchase Agreements Yankees
Convertibles High Yield Rights Zero Coupons
Corporates Inverse Floaters
Comparative Index: A weighted blend of quarterly returns compiled by the
Adviser using:
60% S&P 500 Index
40% Salomon Broad Investment Grade Index
Strategies: Asset Allocation Management
Core Equity Investing
Fixed Income Management and Asset Allocation
Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Investing
Foreign Fixed Income Investing
Portfolio
Management Team: Thomas L. Bennett, Gary G. Schlarbaum, Horacio A.
Valeiras and Richard B. Worley
</TABLE>
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Fund - 17
<PAGE>
Multi-Asset-Class Portfolio
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Objective: To achieve above average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of common
stocks and fixed-income securities of U.S. and foreign
issuers.
Approach: The Adviser determines the mix of investments in
domestic and foreign equity and fixed-income and high
yield securities expected to maximize available total
return. Strategic judgments on the asset mix are based
on valuation disciplines and tools for analysis which
have been developed by the Adviser to compare the
relative potential returns and risks of global stock and
bond markets.
Policies: Generally at least 65% invested in issuers located in at
least 3 countries, including the U.S. Derivatives may be
used to pursue portfolio strategy
Domestic Equity
Capitalization: Generally greater than $1 billion
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
Allowable Investments: ADRs Eastern European Issuers Inverse Floaters SMBS
Agencies Emerging Markets Issuers Investment Companies Structured Investments
Asset-Backeds Floaters Investment Funds Structured Notes
Brady Bonds Foreign Bonds Loan Participations Swaps
Cash Equivalents Foreign Currency Mortgage Securities U.S. Governments
CMOs Foreign Equities Municipals Warrants
Common Stocks Forwards Preferred Stock When Issued Securities
Convertibles Futures & Options Repurchase Agreements Yankees
Corporates High Yield Rights Zero Coupons
Comparative Index: A weighted blend of quarterly returns compiled by the Adviser using:
50% S&P 500 Index
14% EAFE-GDP Weighted Index
24% Salomon Broad Investment Grade Index
6% Salomon World Government Bond Index Ex U.S.
6% Salomon High Yield Market Index
Strategies: Asset Allocation Management
Fixed Income Management and Asset Allocation
Maturity and Duration Management
Value Investing
Foreign Investing
Core Equity Investing
International Equity Investing
Emerging Markets Investing
High Yield Investing
Foreign Fixed Income Investing
Mortgage Investing
Portfolio
Management Team: Thomas L. Bennett, J. David Germany, Gary G. Schlarbaum,
Horacio A. Valeiras and Richard B. Worley
</TABLE>
- --------------------------------------------------------------------------------
MAS Fund - 18 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
POSPECTUS GLOSSARY
CHARACTERISTICS AND RISKS OF STRATEGIES AND INVESTMENTS
STRATEGIES
Asset Allocation Management: The Adviser's approach to asset allocation
management is to determine investment strategies for each asset class in a
portfolio separately, and then determine the mix of those strategies expected to
maximize the return available from each market. Strategic judgments on the mix
among asset classes are based on valuation disciplines and tools for analysis
which have been developed over the Adviser's twenty-five year history of
managing balanced accounts.
Tactical asset-allocation shifts are based on comparisons of prospective risks,
returns, and the likely risk-reducing benefits derived from combining different
asset classes into a single portfolio. Experienced teams of equity, fixed-
income, and international investment professionals manage the investments in
each asset class.
Core Equity Investing: The Adviser's "core" or primary equity strategy
emphasizes common stocks of large companies, with targeted investments in small
company stocks that promise special growth opportunities. Depending on the
Adviser's outlook for the economy and different market sectors, the mix between
value stocks and growth stocks will change.
Emerging Markets Investing: The Adviser's approach to emerging markets investing
is based on the Adviser's evaluation of both short-term and long-term
international economic trends and the relative attractiveness of emerging
markets and individual emerging market securities.
As used in this Prospectus, emerging markets describes any country which is
generally considered to be an emerging or developing country by the
international financial community such as the International Bank for
Reconstruction and Development (more commonly known as the World Bank) and the
International Finance Corporation. There are currently over 130 countries which
are generally considered to be emerging or developing countries by the
international financial community, approximately 40 of which currently have
stock markets. Emerging markets can include every nation in the world except the
United States, Canada, Japan, Australia, New Zealand and most nations located in
Western Europe.
Currently, investing in many emerging markets is either not feasible or very
costly, or may involve unacceptable political risks. Other special risks include
the possible increased likelihood of expropriation or the return to power of a
communist regime which would institute policies to expropriate, nationalize or
otherwise confiscate investments. A portfolio will focus its investments on
those emerging market countries in which the Adviser believes the potential for
market appreciation outweighs these risks and the cost of investment. Investing
in emerging markets also involves an extra degree of custodial and/or market
risk, especially where the securities purchased are not traded on an official
exchange or where ownership records regarding the securities are maintained by
an unregulated entity (or even the issuer itself).
Fixed Income Management and Asset Allocation: Within the Balanced and
Multi-Asset-Class Portfolios, the Adviser selects Fixed-Income Securities not
only on the basis of judgments regarding Maturity and Duration Management and
Value Investing, but also on the basis of the value offered by various segments
of the Fixed-Income Securities market relative to Cash Equivalents and Equity
Securities. In this context, the Adviser may find that certain segments of the
Fixed-Income Securities market offer more or less attractive relative value when
compared to Equity Securities than when compared to other Fixed-Income
Securities.
For example, in a given interest rate environment, Equity Securities may be
judged to be fairly valued when compared to intermediate duration Fixed-Income
Securities, but overvalued compared to long duration Fixed-Income Securities.
Consequently, while a portfolio investing only in Fixed-Income Securities may
not emphasize long duration assets to the same extent, the fixed-income portion
of a balanced investment may invest a percentage of its assets in long duration
bonds on the basis of their valuation relative to Equity Securities.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Fund - 19
<PAGE>
Foreign Fixed Income Investing: The Adviser invests in Foreign Bonds and other
Fixed-Income Securities denominated in foreign currencies, where, in the opinion
of the Adviser, the combination of current yield and currency value offer
attractive expected returns. When the total return opportunities in a foreign
bond market appear attractive in local currency terms, but where in the
Adviser's judgment unacceptable currency risk exists, currency Futures &
Options, Forwards and Swaps may be used to hedge the currency risk.
Foreign Investing: Investors should recognize that investing in Foreign Bonds
and Foreign Equities involves certain special considerations which are not
typically associated with investing in domestic securities.
As non-U.S. companies are not generally subject to uniform accounting, auditing
and financial reporting standards and practices comparable to those applicable
to U.S. companies, there may be less publicly available information about
certain foreign securities than about U.S. securities. Foreign Bonds and Foreign
Equities may be less liquid and more volatile than securities of comparable U.S.
companies. There is generally less government supervision and regulation of
stock exchanges, brokers and listed companies than in the U.S. With respect to
certain foreign countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could affect U.S. investments in those countries.
Additionally, there may be difficulty in obtaining and enforcing judgments
against foreign issuers.
Since Foreign Bonds and Foreign Equities may be denominated in foreign
currencies, and since a portfolio may temporarily hold uninvested reserves in
bank deposits of foreign currencies prior to reinvestment or conversion to U.S.
dollars, a portfolio may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and may incur costs in
connection with conversions between various currencies.
Although a portfolio will endeavor to achieve the most favorable execution costs
in its portfolio transactions in foreign securities, fixed commissions on many
foreign stock exchanges are generally higher than negotiated commissions on U.S.
exchanges. In addition, it is expected that the expenses for custodial
arrangements of a portfolio's foreign securities will be greater than the
expenses for the custodial arrangements for handling U.S. securities of equal
value. Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income a portfolio receives from the companies comprising the portfolio's
investments.
High Yield Investing: Involves investing in High Yield securities based on the
Adviser's analysis of economic and industry trends and individual security
characteristics. The Adviser conducts credit analysis for each security
considered for investment to evaluate its attractiveness relative to its risk. A
high level of diversification is also maintained to limit credit exposure to
individual issuers.
To the extent a portfolio invests in High Yield securities it will be exposed to
a substantial degree of credit risk. Lower-rated bonds are considered
speculative by traditional investment standards. High Yield securities may be
issued as a consequence of corporate restructuring or similar events. Also, High
Yield securities are often issued by smaller, less credit worthy companies, or
by highly leveraged (indebted) firms, which are generally less able than more
established or less leveraged firms to make scheduled payments of interest and
principal. The risks posed by securities issued under such circumstances are
substantial.
The market for High Yield securities is still relatively new. Because of this, a
long-term track record for bond default rates does not exist. In addition, the
secondary market for High Yield securities is generally less liquid than that
for investment grade corporate securities. In periods of reduced market
liquidity, high yield bond prices may become more volatile, and both the high
yield market and a portfolio may experience sudden and substantial price
declines. This lower liquidity might have an effect on a portfolio's ability to
value or dispose of such securities. Also, there may be significant disparities
in the prices quoted for High Yield securities by various dealers. Under such
conditions, a portfolio may find it difficult to value its securities
accurately. A portfolio may also be forced to sell securities at a significant
loss in order to meet shareholder redemptions. These factors add to the risks
associated with investing in High Yield securities.
- --------------------------------------------------------------------------------
MAS Fund - 20 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
High yield bonds may also present risks based on payment expectations. For
example, high yield bonds may contain redemption or call provisions. If an
issuer exercises these provisions in a declining interest rate market, a
portfolio would have to replace the security with a lower yielding security,
resulting in a decreased return for investors.
Certain types of high yield bonds are non-income paying securities. For example,
Zero Coupons pay interest only at maturity and payment-in-kind bonds pay
interest in the form of additional securities. Payment in the form of additional
securities, or interest income recognized through discount accretion, will,
however, be treated as ordinary income which will be distributed to shareholders
even though the portfolio does not receive periodic cash flow from these
investments.
The table below provides a summary of ratings assigned to all U.S. and foreign
debt holdings of those portfolios with more than 5% invested in High Yield
securities as of September 30, 1997 (not including money market instruments).
These figures are dollar-weighted averages of month-end portfolio holdings and
do not necessarily indicate a portfolio's current or future debt holdings.
Portfolios whose debt holdings total less than 100% also invest in Equity
Securities.
High Yield Portfolio Multi-Asset-Class Portfolio
QUALITY QUALITY
TSY, AGY, AAA 9.06% TSY, AGY, AAA 26.22%
AA 0.05 AA 2.32
A 0.19 A 1.09
BBB 6.09 BBB 2.09
BB 42.51 BB 4.64
B 35.48 B 6.02
CCC 0.96 CCC 0.35
Not Rated: Not Rated:
BB 0.83* BB 0.06*
B 2.30* B 0.22*
NR 2.54 NR 0.17
---- ----
Total Not Rated: 5.66 Total Not Rated: 0.45
TOTAL 100.00% TOTAL 43.18%
* The Adviser believes that these non-rated securities are equivalent in quality
to the rating indicated.
International Equity Investing: The Adviser's approach to international equity
investing is based on its evaluation of both short-term and long-term
international economic trends and the relative attractiveness of non-U.S. equity
markets and individual securities.
The Adviser considers fundamental investment characteristics, the principles of
valuation and diversification, and a relatively long-term investment time
horizon. Since liquidity will also be a consideration, emphasis will likely be
influenced by the relative market capitalizations of different non-U.S. stock
markets and individual securities. Portfolios seek to diversify investments
broadly among both developed and newly industrializing foreign countries. Where
appropriate, a portfolio may also invest in regulated Investment Companies or
Investment Funds which invest in such countries to the extent allowed by
applicable law.
Maturity and Duration Management: One of two primary components of the Adviser's
fixed-income investment strategy is maturity and duration management. The
maturity and duration structure of a portfolio investing in Fixed-Income
Securities is actively managed in anticipation of cyclical interest rate
changes. Adjustments are not made in an effort to capture short-term, day-to-day
movements in the market, but instead are implemented in anticipation of longer
term shifts in the levels of interest rates. Adjustments made to shorten
portfolio maturity and duration are made to limit capital losses during periods
when interest rates are expected to rise. Conversely, adjustments made to
lengthen maturity are intended to produce capital appreciation in periods when
interest rates are expected to fall. The foundation for maturity and duration
strategy lies in analysis of the U.S. and global economies, focusing on levels
of real interest rates, monetary and fiscal policy actions, and cyclical
indicators. See Value Investing for a description of the second primary
component of the Adviser's fixed-income strategy.
About Maturity and Duration: Most debt obligations provide interest (coupon)
payments in addition to a final (par) payment at maturity. Some obligations also
have call provisions. Depending on the relative magnitude of these pay-
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Fund - 21
<PAGE>
ments and the nature of the call provisions, the market values of debt
obligations may respond differently to changes in the level and structure of
interest rates. Traditionally, a debt security's term-to-maturity has been used
as a proxy for the sensitivity of the security's price to changes in interest
rates (which is the interest rate risk or volatility of the security). However,
term-to-maturity measures only the time until a debt security provides its final
payment, taking no account of the pattern of the security's payments prior to
maturity.
Duration is a measure of the expected life of a Fixed-Income Security that was
developed as a more precise alternative to the concept of term-to-maturity.
Duration incorporates a bond's yield, coupon interest payments, final maturity
and call features into one measure. Duration is one of the fundamental tools
used by the Adviser in the selection of Fixed-Income Securities. Duration is a
measure of the expected life of a Fixed-Income Security on a present value
basis. Duration takes the length of the time intervals between the present time
and the time that the interest and principal payments are scheduled or, in the
case of a callable bond, expected to be received, and weights them by the
present values of the cash to be received at each future point in time. For any
Fixed-Income Security with interest payments occurring prior to the payment of
principal, duration is always less than maturity. In general, all other factors
being the same, the lower the stated or coupon rate of interest of a
Fixed-Income Security, the longer the duration of the security; conversely, the
higher the stated or coupon rate of interest of a Fixed-Income Security, the
shorter the duration of the security.
There are some situations where even the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure. In
these and other similar situations, the Adviser will use sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
Mortgage Investing: At times it is anticipated that greater than 50% of a
fixed-income portfolio's assets may be invested in mortgage-related securities.
These include Mortgage Securities which represent interests in pools of mortgage
loans made by lenders such as commercial banks, savings and loan associations,
mortage bankers and others. The pools are assembled by various organizations,
including the Government National Mortgage Association (GNMA), Federal Home Loan
Mortgage Corporation (FHLMC), Fannie Mae, other government agencies, and private
issuers. It is expected that a portfolio's primary emphasis will be in Mortgage
Securities issued by the various government-related organizations. However, a
portfolio may invest, without limit, in Mortgage Securities issued by private
issuers when the Adviser deems that the quality of the investment, the quality
of the issuer, and market conditions warrant such investments. Securities issued
by private issuers will be rated investment grade by Moody's or Standard &
Poor's or be deemed by the Adviser to be of comparable investment quality.
Value Investing: One of two primary components of the Adviser's fixed-income
strategy is value investing, whereby the Adviser seeks to identify undervalued
sectors and securities through analysis of credit quality, option
characteristics and liquidity. Quantitative models are used in conjunction with
judgment and experience to evaluate and select securities with embedded put or
call options which are attractive on a risk- and option-adjusted basis.
Successful value investing will permit a portfolio to benefit from the price
appreciation of individual securities during periods when interest rates are
unchanged. See Maturity and Duration Management for a description of the other
key component of the Adviser's fixed-income investment strategy.
Value Stock Investing: Emphasizes Common Stocks which are deemed by the Adviser
to be undervalued relative to the stock market in general as measured by the
appropriate market index, based on value measures such as price/earnings ratios
and price/book ratios. Value stocks are generally dividend paying Common Stocks.
However, non-dividend paying stocks may also be selected for their value
characteristics.
INVESTMENTS
Each portfolio may invest in the securities defined below in accordance with
their listing of Allowable Investments and any quality or policy constraints.
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MAS Fund - 22 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
ADRs--American Depository Receipts: are dollar-denominated securities which are
listed and traded in the United States, but which represent claims to shares of
foreign stocks. ADRs may be either sponsored or unsponsored. Unsponsored ADR
facilities typically provide less information to ADR holders. ADRs also include
American Depository Shares.
Agencies: are securities which are not guaranteed by the U.S. Government, but
which are issued, sponsored or guaranteed by a federal agency or federally
sponsored agency such as the Student Loan Marketing Association or any of
several other agencies.
Asset-Backeds: are securities collateralized by shorter term loans such as
automobile loans, home equity loans, computer leases, or credit card
receivables. The payments from the collateral are passed through to the security
holder. The collateral behind asset-backed securities tends to have prepayment
rates that do not vary with interest rates. In addition the short-term nature of
the loans reduces the impact of any change in prepayment level. Due to
amortization, the average life for these securities is also the conventional
proxy for maturity.
Possible Risks: Due to the possibility that prepayments (on automobile loans and
other collateral) will alter the cash flow on asset-backed securities, it is not
possible to determine in advance the actual final maturity date or average life.
Faster prepayment will shorten the average life and slower prepayments will
lengthen it. However, it is possible to determine what the range of that
movement could be and to calculate the effect that it will have on the price of
the security. In selecting these securities, the Adviser will look for those
securities that offer a higher yield to compensate for any variation in average
maturity.
Brady Bonds: are debt obligations which are created through the exchange of
existing commercial bank loans to foreign entities for new obligations in
connection with debt restructuring under a plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the Brady Plan). Brady Bonds have
been issued fairly recently, and, accordingly, do not have a long payment
history. They may be collateralized or uncollateralized and issued in various
currencies (although most are dollar-denominated) and they are actively traded
in the over-the-counter secondary market. For further information on these
securities, see the Statement of Additional Information. Portfolios will only
invest in Brady Bonds consistent with quality specifications.
Cash Equivalents: are short-term fixed-income instruments comprising:
(1) Time deposits, certificates of deposit (including marketable variable rate
certificates of deposit) and bankers' acceptances issued by a commercial bank or
savings and loan association. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. Certificates of deposit are negotiable short-term obligations
issued by commercial banks or savings and loan associations against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods).
Each portfolio may invest in obligations of U.S. banks and, except for the
Domestic Fixed Income Portfolio, in foreign branches of U.S. banks (Eurodollars)
and U.S. branches of foreign banks (Yankee dollars). Euro and Yankee dollar
investments will involve some of the same risks of investing in international
securities that are discussed in the Foreign Investing section of this
Prospectus.
The portfolios will not invest in any security issued by a commercial bank
unless (i) the bank has total assets of at least $1 billion, or the equivalent
in other currencies, or, in the case of domestic banks which do not have total
assets of at least $1 billion, the aggregate investment made in any one such
bank is limited to $100,000 and the principal amount of such investment is
insured in full by the Federal Deposit Insurance Corporation, (ii) in the case
of U.S. banks, it is a member of the Federal Deposit Insurance Corporation, and
(iii) in the case of foreign branches of U.S. banks, the security is deemed by
the Adviser to be of an investment quality comparable with other debt securities
which may be purchased by the portfolio.
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Terms in bold type are defined in the Prospectus Glossary MAS Fund - 23
<PAGE>
(2) Each portfolio may invest in commercial paper rated at time of purchase by
one or more Nationally Recognized Statistical Rating Organizations ("NRSRO") in
one of their two highest categories, (e.g., A-l or A-2 by Standard & Poor's or
Prime 1 or Prime 2 by Moody's), or, if not rated, issued by a corporation having
an outstanding unsecured debt issue rated high-grade by a NRSRO (e.g., A or
better by Moody's, Standard & Poor's or Fitch);
(3) Short-term corporate obligations rated high-grade at the time of purchase by
a NRSRO (e.g., A or better by Moody's, Standard & Poor's or Fitch);
(4) U.S. Government obligations including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of the U.S.
Government and differ mainly in interest rates, maturities and dates of issue;
(5) Government Agency securities issued or guaranteed by U.S. Government
sponsored instrumentalities and Federal agencies. These include securities
issued by the Federal Home Loan Banks, Federal Land Bank, Farmers Home
Administration, Farm Credit Banks, Federal Intermediate Credit Bank, Fannie Mae,
Federal Financing Bank, the Tennessee Valley Authority, and others; and
(6) Repurchase Agreements collateralized by securities listed above.
CMOs--Collateralized Mortgage Obligations: are Derivatives which are
collateralized by mortgage pass-through securities. Cash flows from the mortgage
pass-through securities are allocated to various tranches (a "tranche" is
essentially a separate security) in a predetermined, specified order. Each
tranche has a stated maturity - the latest date by which the tranche can be
completely repaid, assuming no prepayments - and has an average life - the
average of the time to receipt of a principal payment weighted by the size of
the principal payment. The average life is typically used as a proxy for
maturity because the debt is amortized (repaid a portion at a time), rather than
being paid off entirely at maturity, as would be the case in a straight debt
instrument.
Possible Risks: Due to the possibility that prepayments (on home mortgages and
other collateral) will alter the cash flow on CMOs, it is not possible to
determine in advance the actual final maturity date or average life. Faster
prepayment will shorten the average life and slower prepayments will lengthen
it. However, it is possible to determine what the range of that movement could
be and to calculate the effect that it will have on the price of the security.
In selecting these securities, the Adviser will look for those securities that
offer a higher yield to compensate for any variation in average maturity.
Like bonds in general, Mortgage Securities will generally decline in price when
interest rates rise. Rising interest rates also tend to discourage refinancings
of home mortgages with the result that the average life of Mortgage Securities
held by a portfolio may be lengthened. This extension of average life causes the
market price of the securities to decrease further than if their average lives
were fixed. In part to compensate for these risks, mortgages will generally
offer higher yields than comparable bonds. However, when interest rates fall,
mortgages may not enjoy as large a gain in market value due to prepayment risk
because additional mortgage prepayments must be reinvested at lower interest
rates.
Common Stocks: are Equity Securities which represent an ownership interest in a
corporation, entitling the shareholder to voting rights and receipt of dividends
paid based on proportionate ownership.
Convertibles: are convertible bonds or shares of convertible Preferred Stock
which may be exchanged for a fixed number of shares of Common Stock at the
purchaser's option.
Corporates--Corporate bonds: are debt instruments issued by private
corporations. Bondholders, as creditors, have a prior legal claim over common
and preferred stockholders of the corporation as to both income and assets for
the principal and interest due to the bondholder. A portfolio will buy
Corporates subject to any quality constraints. If a security held by a portfolio
is down-graded, the portfolio may retain the security if the Adviser deems
retention of the security to be in the best interests of the portfolio.
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MAS Fund - 24 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Depositary Receipts: include both Global Depositary Receipts ("GDRs") and
European Depositary Receipts ("EDRs"), in addition to other similar types of
depositary shares, and are securities that can be traded in U.S. or foreign
securities markets but which represent ownership interests in a security or pool
of securities by a foreign or U.S. corporation. Depositary Receipts may be
sponsored or unsponsored. The depositary of unsponsored Depositary Receipts may
provide less information to receipt holders.
Derivatives: A financial instrument whose value and performance are based on the
value and performance of another security or financial instrument. The Adviser
will use derivatives only in circumstances where they offer the most economic
means of improving the risk/reward profile of the portfolio. The Adviser will
not use derivatives to increase portfolio risk above the level that could be
achieved in the portfolio using only traditional investment securities. In
addition, the Adviser will not use derivatives to acquire exposure to changes in
the value of assets or indexes of assets that are not listed in the applicable
Allowable Investments for the portfolio. Any applicable limitations are
described under each investment definition. The portfolios may enter into
over-the-counter Derivatives transactions with counterparties approved by the
Adviser in accordance with guidelines established by the Board of Trustees.
These guidelines provide for a minimum credit rating for each counterparty and
various credit enhancement techniques (for example, collateralization of amounts
due from counterparties) to limit exposure to counterparties with ratings below
AA. Derivatives include, but are not limited to, CMOs, Forwards, Futures and
Options, SMBS, Structured Investments, Structured Notes and Swaps. See each
individual portfolio's listing of Allowable Investments to determine which of
these a portfolio may hold.
Eastern European Issuers: The economies of Eastern European countries are
currently suffering both from the stagnation resulting from centralized economic
planning and control and the higher prices and unemployment associated with the
transition to market economics. Unstable economic and political conditions may
adversely affect security values. Upon the accession to power of Communist
regimes during the 1940's, the governments of a number of Eastern European
countries expropriated a large amount of property. The claims of many property
owners against those governments were never finally settled. As a result, there
can be no assurance that the portfolio's investments in Eastern Europe would not
be expropriated, nationalized or otherwise confiscated.
Emerging Markets Issuers: An emerging market security is one issued by a company
that has one or more of the following characteristics: (i) its principal
securities trading market is in an emerging market, (ii) alone or on a
consolidated basis it derives 50% or more of its annual revenue from either
goods produced, sales made or services performed in emerging markets, or (iii)
it is organized under the laws of, and has a principal office in, an emerging
market country. The Adviser will base determinations as to eligibility on
publicly available information and inquiries made to the companies. Investing in
emerging markets may entail purchasing securities issued by or on behalf of
entities that are insolvent, bankrupt, in default or otherwise engaged in an
attempt to reorganize or reschedule their obligations, and in entities that have
little or no proven credit rating or credit history. In any such case, the
issuer's poor or deteriorating financial condition may increase the likelihood
that the investing fund will experience losses or diminution in available gains
due to bankruptcy, insolvency or fraud.
Equity Securities: Commonly include but are not limited to Common Stock,
Preferred Stock, ADRs, Rights, Warrants, Convertibles, and Foreign Equities. See
each individual portfolio listing of Allowable Investments to determine which of
these a portfolio may hold. Preferred Stock is contained in both the definition
of Equity Securities and Fixed-Income Securities since it exhibits
characteristics commonly associated with each type.
Fixed-Income Securities: Commonly include but are not limited to U.S.
Governments, Zero Coupons, Agencies, Corporates, High Yield, Mortgage
Securities, SMBS, CMOs, Asset-Backeds, Convertibles, Brady Bonds, Floaters,
Inverse Floaters, Cash Equivalents, Repurchase Agreements, Preferred Stock, and
Foreign Bonds. See each individual portfolio's listing of Allowable Investments
to determine which of these a portfolio may hold. Preferred Stock is contained
in both the definition of Equity Securities and Fixed-Income Securities since it
exhibits characteristics commonly associated with each type of security.
Floaters--Floating and Variable Rate Obligations: are debt obligations with a
floating or variable rate of interest, i.e. the rate of interest varies with
changes in specified market rates or indices, such as the prime rate, or at
specified intervals. Certain floating or variable rate obligations may carry a
demand feature that permits the holder to tender them back to the issuer of the
underlying instrument, or to a third party, at par value prior to maturity. When
the demand
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Terms in bold type are defined in the Prospectus Glossary MAS Fund - 25
<PAGE>
feature of certain floating or variable rate obligations represents an
obligation of a foreign entity, the demand feature will be subject to certain
risks discussed under Foreign Investing.
Foreign Bonds: are Fixed Income Securities denominated in foreign currency and
issued and traded primarily outside of the U.S., including: (1) obligations
issued or guaranteed by foreign national governments, their agencies,
instrumentalities, or political subdivisions; (2) debt securities issued,
guaranteed or sponsored by supranational organizations established or supported
by several national governments, including the World Bank, the European
Community, the Asian Development Bank and others; (3) non-government foreign
corporate debt securities; and (4) foreign Mortgage Securities and various other
mortgages and asset-backed securities.
Foreign Currency: Portfolios investing in foreign securities may transact
security purchases and sales in foreign currencies. These portfolios may hold
foreign currency or purchase or sell currencies on a forward basis (see
Forwards).
Foreign Equities: are Common Stock, Preferred Stock, Rights and Warrants of
foreign issuers denominated in foreign currency and traded primarily in non-U.S.
markets. Foreign Equities also include Depositary Receipts. Investing in foreign
companies involves certain special considerations which are not typically
associated with investing in U.S. companies (see Foreign Investing).
Forwards--Forward Foreign Currency Exchange Contracts: are Derivatives which are
used to protect against uncertainty in the level of future foreign exchange
rates. A forward foreign currency exchange contract is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. Such contracts do not eliminate fluctuations caused by
changes in the local currency prices of the securities, but rather, they
establish an exchange rate at a future date. Also, although such contracts can
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time they limit any potential gain that might be realized.
A portfolio may use currency exchange contracts in the normal course of business
to lock in an exchange rate in connection with purchases and sales of securities
denominated in foreign currencies (transaction hedge) or to lock in the U.S.
dollar value of portfolio positions (position hedge). In addition, the
portfolios may cross hedge currencies by entering into a transaction to purchase
or sell one or more currencies that are expected to decline in value relative to
other currencies to which a portfolio has or expects to have portfolio exposure.
Portfolios may also engage in proxy hedging which is defined as entering into
positions in one currency to hedge investments denominated in another currency,
where the two currencies are economically linked. A portfolio's entry into
forward contracts, as well as any use of cross or proxy hedging techniques will
generally require the portfolio to hold liquid securities or cash equal to the
portfolio's obligations in a segregated account throughout the duration of the
contract.
A portfolio may also combine forward contracts with investments in securities
denominated in other currencies in order to achieve desired credit and currency
exposures. Such combinations are generally referred to as synthetic securities.
For example, in lieu of purchasing a foreign bond, a portfolio may purchase a
U.S. dollar-denominated security and at the same time enter into a forward
contract to exchange U.S. dollars for the contract's underlying currency at a
future date. By matching the amount of U.S. dollars to be exchanged with the
anticipated value of the U.S. dollar-denominated security, a portfolio may be
able to lock in the foreign currency value of the security and adopt a synthetic
investment position reflecting the credit quality of the U.S. dollar-denominated
security.
There is a risk in adopting a transaction hedge or position hedge to the extent
that the value of a security denominated in foreign currency is not exactly
matched with a portfolio's obligation under the forward contract. On the date of
maturity, a portfolio may be exposed to some risk of loss from fluctuations in
that currency. Although the Adviser will attempt to hold such mismatching to a
minimum, there can be no assurance that the Adviser will be able to do so. For
proxy hedges, cross hedges or a synthetic position, there is an additional risk
in that these transactions create residual foreign currency exposure. When a
portfolio enters into a forward contract for purposes of creating a position
hedge, transaction hedge, cross hedge or a synthetic security, it will generally
be required to hold liquid securities or cash in a segregated account with a
daily value at least equal to its obligation under the forward contract.
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MAS Fund - 26 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Futures & Options--Futures Contracts, Options on Futures Contracts and Options:
are Derivatives. Futures contracts provide for the sale by one party and
purchase by another party of a specified amount of a specific security, at a
specified future time and price. An option is a legal contract that gives the
holder the right to buy or sell a specified amount of the underlying security or
futures contract at a fixed or determinable price upon the exercise of the
option. A call option conveys the right to buy and a put option conveys the
right to sell a specified quantity of the underlying security.
A fixed-income portfolio may enter into futures contracts and options thereon
for both hedging and non-hedging purposes, provided that not more than 5% of
such portfolio's total assets at the time of entering the transaction are
required as margin and option premiums to secure obligations under such
contracts other than those relating to bona fide hedging activities. 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.
An equity or balanced portfolio will not enter into futures contracts to the
extent that its outstanding obligations to purchase securities under these
contracts in combination with its outstanding obligations with respect to
options transactions would exceed 50% of its total assets. It will maintain
assets sufficient to meet its obligations under such contracts in a segregated
account with the custodian bank or will otherwise comply with the Securities and
Exchange Commission's ("SEC's") position on asset coverage.
Possible Risks: The primary risks associated with the use of Futures and Options
are (i) imperfect correlation between the change in market value of the
securities held by a portfolio and the prices of futures and options relating to
the stocks, bonds or futures contracts purchased or sold by a portfolio; and
(ii) possible lack of a liquid secondary market for a futures contract and the
resulting inability to close a futures position which could have an adverse
impact on a portfolio's ability to execute futures and options strategies; (iii)
potentially unlimited losses with respect to certain futures contracts; and (iv)
inaccurate predictions of the direction of stock prices, interest rates, and
other economic factors, which determine the extent of gains and losses from
options and futures. Additional risks associated with options transactions are
(i) the risk that an option will expire worthless; (ii) the risk that the issuer
of an over-the- counter option will be unable to fulfill its obligation to the
portfolio due to bankruptcy or related circumstances; (iii) the risk that
options may exhibit greater short-term price volatility than the underlying
security; and (iv) the risk that a portfolio may be forced to forego
participation in the appreciation of the value of underlying securities, futures
contracts or currency due to the writing of a call option.
High Yield: High yield securities are generally considered to be Corporates,
Preferred Stocks, and Convertibles rated Ba through C by Moody's or BB through D
by Standard & Poor's, and unrated securities considered to be of equivalent
quality. Securities rated less than Baa by Moody's or BBB by Standard & Poor's
are classified as non-investment grade securities and are commonly referred to
as junk bonds or high yield, high risk securities. Such securities carry a high
degree of risk and are considered speculative by the major credit rating
agencies. The following are excerpts from the Moody's and Standard & Poor's
definitions for speculative-grade debt obligations:
Moody's: Ba-rated bonds have "speculative elements" so their future
"cannot be considered assured," and protection of principal and
interest is "moderate" and "not well safeguarded during both good and
bad times in the future." B-rated bonds "lack characteristics of a
desirable investment" and the assurance of interest or principal
payments "may be small." Caa-rated bonds are "of poor standing" and
"may be in default" or may have "elements of danger with respect to
principal or interest." Ca-rated bonds represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings. C-rated bonds are the "lowest rated" class
of bonds, and issues so rated can be regarded as having "extremely poor
prospects" of ever attaining any real investment standing.
Standard & Poor's: BB-rated bonds have "less near-term vulnerability to
default" than B- or CCC-rated securities but face "major ongoing
uncertainties . . . which may lead to inadequate capacity" to pay
interest or principal. B-rated bonds have a "greater vulnerability to
default than BB-rated bonds and the ability to pay interest or
principal will likely be impaired by adverse business conditions."
CCC-rated bonds have a currently identifiable "vulnerability to
default" and, without favorable business conditions, will be "unable to
repay interest and principal." The rating C is reserved for income
bonds on which "no interest is being paid." Debt rated D is in
"default", and "payment of interest and/or repayment of principal is in
arrears."
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Terms in bold type are defined in the Prospectus Glossary MAS Fund - 27
<PAGE>
While these securities offer high yields, they also normally carry with them a
greater degree of risk than securities with higher ratings. Lower-rated bonds
are considered speculative by traditional investment standards. High yield
securities may be issued as a consequence of corporate restructuring or similar
events. Also, high yield securities are often issued by smaller, less credit
worthy companies, or by highly leveraged (indebted) firms, which are generally
less able than more established or less leveraged firms to make scheduled
payments of interest and principal. The price movement of these securities is
influenced less by changes in interest rates and more by the financial and
business position of the issuing corporation when compared to investment grade
bonds.
The risks posed by securities issued under such circumstances are substantial.
If a security held by a portfolio is down-graded, the portfolio may retain the
security.
Inverse Floaters--Inverse Floating Rate Obligations: are Fixed-Income
Securities, which have coupon rates that vary inversely at a multiple of a
designated floating rate, such as LIBOR (London Inter-Bank Offered Rate). Any
rise in the reference rate of an Inverse Floater (as a consequence of an
increase in interest rates) causes a drop in the coupon rate while any drop in
the reference rate of an Inverse Floater causes an increase in the coupon rate.
Inverse Floaters may exhibit substantially greater price volatility than fixed
rate obligations having similar credit quality, redemption provisions and
maturity, and Inverse Floater CMOs exhibit greater price volatility than the
majority of mortgage pass-through securities or CMOs. In addition, some Inverse
Floater CMOs exhibit extreme sensitivity to changes in prepayments. As a result,
the yield to maturity of an Inverse Floater CMO is sensitive not only to changes
in interest rates but also to changes in prepayment rates on the related
underlying mortgage assets.
Investment Companies: The portfolios are permitted to invest in shares of other
open-end or closed-end investment companies. The Investment Company Act of 1940
(the "1940 Act") generally prohibits the portfolios from acquiring more than 3%
of the outstanding voting shares of an investment company and limits such
investments to no more than 5% of the portfolio's total assets in any one
investment company and no more than 10% in any combination of investment
companies. The 1940 Act also prohibits the portfolios from acquiring in the
aggregate more than 10% of the outstanding voting shares of any registered
closed-end investment company.
To the extent a portfolio invests a portion of its assets in Investment
Companies, those assets will be subject to the expenses of the investment
company as well as to the expenses of the portfolio itself. The portfolios may
not purchase shares of any affiliated investment company except as permitted by
SEC rule or order.
Investment Funds: Some emerging market countries have laws and regulations that
currently preclude or limit direct foreign investment in the securities of their
companies. However, indirect foreign investment in the securities of companies
listed and traded on the stock exchanges in these countries is permitted by
certain emerging market countries through investment funds. Portfolios that may
invest in these Investment Funds are subject to applicable law as discussed
under Investment Restrictions and will invest in such Investment Funds only
where appropriate given that the portfolio's shareholders will bear indirectly
the layer of expenses of the underlying investment funds in addition to their
proportionate share of the expenses of the portfolio. Under certain
circumstances, an investment in an investment fund will be subject to the
additional limitations that apply to investments in Investment Companies.
Investment Grade Securities: are those (a) rated by one or more nationally
recognized statistical rating organization (NRSRO) in one of the four highest
rating categories at the time of purchase (e.g., AAA, AA, A or BBB by Standard &
Poor's Corporation (Standard & Poor's) or Fitch Investors Service, Inc., (Fitch)
or Aaa, Aa, A or Baa by Moody's Investors Service, Inc. (Moody's)); (b)
guaranteed by the U.S. Government or a private organization; or (c) considered
by the Adviser to be investment grade quality. Securities rated BBB or Baa
represent the lowest of four levels of Investment Grade Securities and are
regarded as borderline between definitely sound obligations and those in which
the speculative element begins to predominate. Mortgage Securities, including
mortgage pass-throughs and CMOs, deemed investment grade by the Adviser, will
either carry a guarantee from an agency of the U.S. Government or a private
issuer of the timely payment of principal and interest (such guarantees do not
extend to the market value of such securities or the net asset value per share
of the portfolio) or, in the case of unrated securities, be sufficiently
seasoned that they are considered by the Adviser to be investment grade quality.
The Adviser may retain securities if their ratings fall below investment grade
if it deems retention of the security to be in the best interests of the
portfolio. Any portfolio permitted to hold Investment Grade Securities may hold
unrated securities if the Adviser considers the risks involved in owning that
security to be equivalent to the risks involved in holding an Investment Grade
Security.
Loan Participations: are loans or other direct debt instruments which are
interests in amounts owed by a corporate,
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MAS Fund - 28 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
governmental or other borrower to another party. They may represent amounts owed
to lenders or lending syndicates, to suppliers of goods or services (trade
claims or other receivables), or to other parties. Direct debt instruments
involve the risk of loss in case of default or insolvency of the borrower.
Direct debt instruments may offer less legal protection to the portfolio in the
event of fraud or misrepresentation. In addition, loan participations involve a
risk of insolvency of the lending bank or other financial intermediary. Direct
debt instruments may also include standby financing commitments that obligate
the investing portfolio to supply additional cash to the borrower on demand.
Loan participations involving Emerging Markets Issuers may relate to loans as to
which there has been or currently exists an event of default or other failure to
make payment when due, and may represent amounts owed to financial institutions
that are themselves subject to political and economic risks, including the risk
of currency devaluation, expropriation, or failure. Such loan participations
present additional risks of default or loss.
Mortgage Securities--Mortgage-backed securities represent an ownership interest
in a pool of residential and commercial mortgage loans. Generally, these
securities are designed to provide monthly payments of interest and principal to
the investor. The mortgagee's monthly payments to his/her lending institution
are passed through to investors such as the portfolio. Most issuers or poolers
provide guarantees of payments, regardless of whether the mortgagor actually
makes the payment. The guarantees made by issuers or poolers are supported by
various forms of credit, collateral, guarantees or insurance, including
individual loan, title, pool and hazard insurance purchased by the issuer. The
pools are assembled by various governmental, government-related and private
organizations. Portfolios may invest in securities issued or guaranteed by the
government National Mortgage Association (GNMA), Federal Home Loan Mortgage
Corporation (FHLMC), Fannie Mae, private issuers and other government agencies.
There can be no assurance that the private issuers can meet their obligations
under the policies. Mortgage Securities issued by non-agency issuers, whether or
not such securities are subject to guarantees, may entail greater risk. If there
is no guarantee provided by the issuer, mortgage-backed securities purchased by
the portfolio will be those which at time of purchase are rated investment grade
by one or more NRSRO, or, if unrated, are deemed by the Adviser to be of
investment grade quality.
There are two methods of trading Mortgage Securities. A specified pool
transaction is a trade in which the pool number of the security to be delivered
on the settlement date is known at the time the trade is made. This is in
contrast with the typical Mortgage Security transaction, called a TBA (to be
announced) transaction, in which the type of Mortgage Securities to be delivered
is specified at the time of trade but the actual pool numbers of the securities
that will be delivered are not known at the time of the trade. The pool numbers
of the pools to be delivered at settlement will be announced shortly before
settlement takes place. The terms of the TBA trade may be made more specific if
desired. Generally, agency pass-through Mortgage Securities are traded on a TBA
basis.
A mortgage-backed bond is a collateralized debt security issued by a thrift or
financial institution. The bondholder has a first priority perfected security
interest in collateral, usually consisting of agency mortgage pass-through
securities, although other assets, including U.S. Treasuries (including Zero
Coupon U.S. Treasuries), agencies, cash equivalent securities, whole loans and
corporate bonds, may qualify. The amount of collateral must be continuously
maintained at levels from 115% to 150% of the principal amount of the bonds
issued, depending on the specific issue structure and collateral type.
Possible Risks: Due to the possibility that prepayments on home mortgages will
alter cash flow on Mortgage Securities, it is not possible to determine in
advance the actual final maturity date or average life. Like bonds in general,
mortgage-backed securities will generally decline in price when interest rates
rise. Rising interest rates also tend to discourage refinancings of home
mortgages, with the result that the average life of Mortgage Securities held by
a portfolio may be lengthened. This extension of average life causes the market
price of the securities to decrease further than if their average lives were
fixed. However, when interest rates fall, mortgages may not enjoy as large a
gain in market value due to prepayment risk because additional mortgage
prepayments must be reinvested at lower interest rates. Faster prepayment will
shorten the average life and slower prepayments will lengthen it. However, it is
possible to determine what the range of that movement could be and to calculate
the effect that it will have on the price of the security. In selecting these
securities, the Adviser will look for those securities that offer a higher yield
to compensate for any variation in average maturity.
Municipals--Municipal Securities: are debt obligations issued by local, state
and regional governments that provide interest income which is exempt from
federal income taxes. Municipal Securities include both municipal bonds (those
securities with maturities of five years or more) and municipal notes (those
with maturities of less than five years).
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Terms in bold type are defined in the Prospectus Glossary MAS Fund - 29
<PAGE>
Municipal bonds are issued for a wide variety of reasons: to construct public
facilities, such as airports, highways, bridges, schools, hospitals, mass
transportation, streets, water and sewer works; to obtain funds for operating
expenses; to refund outstanding municipal obligations; and to loan funds to
various public institutions and facilities. Certain industrial development bonds
are also considered municipal bonds if their interest is exempt from federal
income tax. Industrial development bonds are issued by or on behalf of public
authorities to obtain funds for various privately-operated manufacturing
facilities, housing, sports arenas, convention centers, airports, mass
transportation systems and water, gas or sewage works. Industrial development
bonds are ordinarily dependent on the credit quality of a private user, not the
public issuer.
General obligation municipal bonds are secured by the issuer's pledge of full
faith, credit and taxing power. Revenue or special tax bonds are payable from
the revenues derived from a particular facility or, in some cases, from a
special excise or other tax, but not from general tax revenue.
Municipal notes are issued to meet the short-term funding requirements of local,
regional and state governments. Municipal notes include bond anticipation notes,
revenue anticipation notes and tax and revenue anticipation notes. These are
short-term debt obligations issued by state and local governments to aid cash
flows while waiting for taxes or revenue to be collected, at which time the debt
is retired. Other types of municipal notes in which the portfolio may invest are
construction loan notes, short-term discount notes, tax-exempt commercial paper,
demand notes, and similar instruments. Demand notes permit an investor (such as
the portfolio) to demand from the issuer payment of principal plus accrued
interest upon a specified number of days' notice. The portfolios eligible to
purchase municipal bonds may also purchase AMT bonds. AMT bonds are tax-exempt
private activity bonds issued after August 7, 1986, the proceeds of which are
directed, at least in part, to private, for-profit organizations. While the
income from AMT bonds is exempt from regular federal income tax, it is a tax
preference item in the calculation of the alternative minimum tax. The
alternative minimum tax is a special separate tax that applies to a limited
number of taxpayers who have certain adjustments to income or tax preference
items.
Preferred Stock: are non-voting ownership shares in a corporation which pay a
fixed or variable stream of dividends.
Repurchase Agreements: are transactions by which a portfolio purchases a
security and simultaneously commits to resell that security to the seller (a
bank or securities dealer) at an agreed upon price on an agreed upon date
(usually within seven days of purchase). The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or date of maturity of the purchased security. Such agreements
permit the portfolio to keep all its assets at work while retaining overnight
flexibility in pursuit of investments of a longer term nature. The Adviser will
continually monitor the value of the underlying collateral to ensure that its
value, including accrued interest, always equals or exceeds the repurchase
price.
Pursuant to an order issued by the SEC, the Fund's portfolios may pool their
daily uninvested cash balances in order to invest in Repurchase Agreements on a
joint basis. By entering into Repurchase Agreements on a joint basis, it is
expected that the portfolios will incur lower transaction costs and potentially
obtain higher rates of interest on such Repurchase Agreements. Each portfolio's
participation in the income from jointly purchased Repurchase Agreements will be
based on that portfolio's percentage share in the total Repurchase Agreement.
Rights: represent a preemptive right of stockholders to purchase additional
shares of a stock at the time of a new issuance, before the stock is offered to
the general public, allowing the stockholder to retain the same ownership
percentage after the new stock offering.
SMBS--Stripped Mortgage-Backed Securities: are Derivatives in the form of
multi-class mortgage securities. SMBS may be issued by agencies or
instrumentalities of the U.S. Government and private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose entities of the
foregoing.
SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of mortgage assets. One
type of SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the
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MAS Fund - 30 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
principal. In some cases, one class will receive all of the interest (the
interest-only or IO class), while the other class will receive all of the
principal (the principal-only or PO class). The yield to maturity on IOs and POs
is extremely sensitive to the rate of principal payments (including prepayments)
on the related underlying mortgage assets, and a rapid rate of principal
payments may have a material adverse effect on a portfolio yield to maturity. If
the underlying mortgage assets experience greater than anticipated prepayments
of principal, a portfolio may fail to fully recoup its initial investment in
these securities, even if the security is in one of the highest rating
categories.
Although SMBS are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, these securities were
only recently developed. As a result, established trading markets have not yet
developed and, accordingly, certain of these securities may be deemed illiquid
and subject to a portfolio's limitations on investment in illiquid securities.
Structured Investments: are Derivatives in the form of a unit or units
representing an undivided interest(s) in assets held in a trust that is not an
investment company as defined in the 1940 Act. A trust unit pays a return based
on the total return of securities and other investments held by the trust and
the trust may enter into one or more Swaps to achieve its objective. For
example, a trust may purchase a basket of securities and agree to exchange the
return generated by those securities for the return generated by another basket
or index of securities. A portfolio will purchase Structured Investments in
trusts that engage in such Swaps only where the counterparties are approved by
the Adviser in accordance with credit-risk guidelines established by the Board
of Trustees.
Structured Notes: are Derivatives on which the amount of principal repayment and
or interest payments is based upon the movement of one or more factors. These
factors include, but are not limited to, currency exchange rates, interest rates
(such as the prime lending rate and LIBOR) and stock indices such as the S&P 500
Index. In some cases, the impact of the movements of these factors may increase
or decrease through the use of multipliers or deflators. The use of Structured
Notes allows a portfolio to tailor its investments to the specific risks and
returns the Adviser wishes to accept while avoiding or reducing certain other
risks.
Swaps--Swap Contracts: are Derivatives in the form of a contract or other
similar instrument which is an agreement to exchange the return generated by one
instrument for the return generated by another instrument. The payment streams
are calculated by reference to a specified index and agreed upon notional
amount. The term specified index includes, but is not limited to, currencies,
fixed interest rates, prices and total return on interest rate indices,
fixed-income indices, stock indices and commodity indices (as well as amounts
derived from arithmetic operations on these indices). For example, a portfolio
may agree to swap the return generated by a fixed-income index for the return
generated by a second fixed-income index. The currency Swaps in which the
portfolios may enter will generally involve an agreement to pay interest streams
in one currency based on a specified index in exchange for receiving interest
streams denominated in another currency. Such Swaps may involve initial and
final exchanges that correspond to the agreed upon notional amount.
A portfolio will usually enter into Swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a portfolio receiving or paying, as the case
may be, only the net amount of the two returns. A portfolio's obligations under
a swap agreement will be accrued daily (offset against any amounts owing to the
portfolio) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash or
liquid securities. A portfolio will not enter into any swap agreement unless the
counterparty meets the rating requirements set forth in guidelines established
by the Board of Trustees.
Possible Risks: Interest rate and total rate of return Swaps do not involve the
delivery of securities, other underlying assets, or principal. Accordingly, the
risk of loss with respect to interest rate and total rate of return Swaps is
limited to the net amount of interest payments that a portfolio is contractually
obligated to make. If the other party to an interest rate or total rate of
return swap defaults, a portfolio's risk of loss consists of the net amount of
interest payments that a portfolio is contractually entitled to receive. In
contrast, currency swaps may involve the delivery of the entire principal value
of one designated currency in exchange for the other designated currency.
Therefore, the entire principal value of a currency swap may be subject to the
risk that the other party to the swap will default on its contractual delivery
obligations. If there is a default by the counterparty, a portfolio may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large
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Terms in bold type are defined in the Prospectus Glossary MAS Fund - 31
<PAGE>
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. As a result, the swap market
has become relatively liquid. Swaps that include caps, floors, and collars are
more recent innovations for which standardized documentation has not yet been
fully developed and, accordingly, they are less liquid than Swaps.
The use of Swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the portfolios would be less favorable than it would have been if this
investment technique were not used.
U.S. Governments--U.S. Treasury securities: are Fixed-Income Securities which
are backed by the full faith and credit of the U.S. Government as to the payment
of both principal and interest.
Warrants: are options issued by a corporation which give the holder the option
to purchase stock.
When-Issued Securities: are securities purchased at a certain price even though
the securities may not be delivered for up to 90 days. No payment or delivery is
made by a portfolio in a when-issued transaction until the portfolio receives
payment or delivery from the other party to the transaction. Although a
portfolio receives no income from the above described securities prior to
delivery, the market value of such securities is still subject to change. As a
consequence, it is possible that the market price of the securities at the time
of delivery may be higher or lower than the purchase price. A portfolio will
maintain with the custodian a segregated account consisting of cash or liquid
securities in an amount at least equal to these commitments.
Yankees: are U.S. dollar-denominated Fixed-Income Securities issued by a foreign
government and sold in the U.S.
Zero Coupons--Zero Coupon Obligations: are Fixed-Income Securities that do not
make regular interest payments. Instead, zero coupon obligations are sold at
substantial discounts from their face value. The difference between a zero
coupon obligation's issue or purchase price and its face value represents the
imputed interest an investor will earn if the obligation is held until maturity.
Zero Coupons may offer investors the opportunity to earn higher yields than
those available on ordinary interest-paying obligations of similar credit
quality and maturity. However, zero coupon obligation prices may also exhibit
greater price volatility than ordinary Fixed-Income Securities because of the
manner in which their principal and interest are returned to the investor.
GENERAL SHAREHOLDER INFORMATION
PURCHASE OF SHARES
Investment Class Shares are available to clients of the Adviser with combined
investments of $1,000,000 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.
Investment Class Shares of each portfolio may be purchased at the net asset
value per share next determined after receipt of the purchase order. Such
portfolios determine net asset value as described under General Shareholder
Information-Valuation of Shares each day that the portfolios are 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, PA 19428-0868 together with
a check ($1,000,000 minimum) payable to MAS Funds.
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MAS Fund - 32 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
The portfolios requested should be designated on the Account Registration Form.
Subject to acceptance by the Fund, payment for the purchase of shares received
by mail will be credited at the net asset value per share of the portfolio next
determined after receipt. Such payment need not be converted into Federal Funds
(monies credited to the Fund's Custodian Bank by a Federal Reserve Bank) before
acceptance by the Fund, Please note that 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, Investment Class
Shares of each portfolio may also be purchased by wiring Federal Funds to the
Fund's Custodian Bank, The Chase Manhattan Bank (see instructions below). A
completed Account Registration Form should be forwarded to MAS Funds' Client
Services Group in advance of the wire. For all portfolios notification must be
given to MAS Funds' Client Services Group at 1-800-354-8185 prior to the
determination of net asset value. Investment Class Shares will be purchased at
the net asset value per share next determined after receipt of the purchase
order. (Prior notification must also be received from investors with existing
accounts.) Instruct your bank to send a Federal Funds Wire in a specified amount
to the Fund's Custodian Bank using the following wiring instructions:
The Chase Manhattan Bank
1 Chase Manhattan Plaza
New York, NY 10081
ABA #021000021
DDA #910-2-734143
Attn: MAS Funds Subscription Account
Ref: (Portfolio Name, Account Number, Account Name)
Additional Investments: Additional investments of Investment 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. For all
portfolios, notification must be given to MAS Funds' Client Services Group at
1-800-354-8185 prior to the determination of net asset value.
Other Purchase Information: The Fund reserves the right, in its sole discretion,
to suspend the offering of any of its portfolios or to reject any purchase
orders when, in the judgment of management, such suspension or rejection is in
the best interest of the Fund. The Fund also reserves the right, in its sole
discretion, to waive the minimum initial and additional investment amounts.
Purchases of a portfolio's shares will be made in full and fractional shares of
the portfolio calculated to three decimal places. In the interest of economy and
convenience, certificates for shares will not be issued except at the written
request of the shareholder. Certificates for fractional shares, however, will
not be issued.
Investment Class Shares of the Fund's portfolios are also sold to corporations
or other institutions such as trusts, foundations or broker-dealers purchasing
for the accounts of others (Shareholder Organizations). Investors purchasing and
redeeming shares of the portfolios through a Shareholder Organization may be
charged a transaction-based fee or other fee for the services of such
organization. Each Shareholder Organization is responsible for transmitting to
its customers a schedule of any such fees and information regarding any
additional or different conditions regarding purchases and redemptions.
Customers of Shareholder Organizations should read this Prospectus in light of
the terms governing accounts with their organization. The Fund does not pay
compensation to or receive compensation from Shareholder Organizations for the
sale of Investment Class Shares though Shareholder Organizations may receive a
fee for providing shareholder services to their clients who hold Investment
Class Shares.
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Terms in bold type are defined in the Prospectus Glossary MAS Fund - 33
<PAGE>
REDEMPTION OF SHARES
Shares of each 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: Each portfolio will redeem shares at the net asset value next
determined after the request is received in good order. Requests should be
addressed to MAS Funds, c/o Miller Anderson & Sherrerd, LLP, One Tower Bridge,
West Conshohocken, PA 19428-0868.
To be in good order, redemption requests must include the following
documentation:
(a) The share certificates, if issued;
(b) A letter of instruction, if required, or a stock assignment specifying the
number of shares or dollar amount to be redeemed, signed by all registered
owners of the shares in the exact names in which the shares are registered;
(c) Any required signature guarantees (see Signature Guarantees); and
(d) Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit sharing
plans and other organizations.
Signature Guarantees: To protect your account, the Fund and the Administrator
from fraud, signature guarantees are required to enable the Fund to verify the
identity of the person who has authorized a redemption from an account.
Signature guarantees are required for (1) redemptions where the proceeds are to
be sent to someone other than the registered shareholder(s) and the registered
address, and (2) share transfer requests. Please contact MAS Funds' Client
Services Group for further details.
By Telephone: Provided the Telephone Redemption Option has been authorized by
the shareholder on the Account Registration Form, a redemption of shares may be
requested by calling MAS Funds' Client Services Group and requesting that the
redemption proceeds be mailed to the primary registration address or wired per
the authorized instructions. Shares cannot be redeemed by telephone if share
certificates are held for those shares.
By Facsimile: Written requests in good order (see above) for redemptions,
exchanges, and transfers may be forwarded to the Fund via facsimile. All
requests sent to the Fund via facsimile must be followed by a telephone call to
MAS Funds' Client Services Group to ensure that the instructions have been
properly received by the Fund. The original request must be promptly mailed to
MAS Funds, c/o Miller Anderson & Sherrerd, LLP, One Tower Bridge, West
Conshohocken, PA 19428-0868.
Neither the Distributor nor the Fund will be responsible for any loss,
liability, cost, or expense for acting upon facsimile instructions or upon
telephone instructions that they reasonably believe to be genuine. In order to
confirm that telephone instructions in connection with redemptions are genuine,
the Fund and Distributor will provide written confirmation of transactions
initiated by telephone.
Payment of the redemption proceeds will ordinarily be made within three business
days after receipt of an order for a redemption. The Fund may suspend the right
of redemption or postpone the date of redemption at times when the New York
Stock Exchange ("NYSE"), the Custodian, or the Fund is closed (see Other
Information-Closed Holidays) or under any emergency circumstances as determined
by the SEC.
If the Board of Trustees determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay the redemption proceeds in whole or in part by
a distribution in-kind of readily marketable securities held by a portfolio in
lieu of cash in conformity with applicable rules of the SEC. Investors may incur
brokerage charges on the sale of portfolio securities received in such payments
of redemptions.
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MAS Fund - 34 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
SHAREHOLDER SERVICES
Exchange Privilege: Each portfolio's Investment Class Shares may be exchanged
for shares of the Fund's other portfolios offering Investment 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
Equity, International Equity, Mid Cap Value and Value Portfolios:
Net asset value per share is determined by dividing the total market value of
each portfolio's investments and other assets, less any liabilities, by the
total outstanding shares of that portfolio. Net asset value per share is
determined as of the close of the NYSE (normally 4:00 p.m. Eastern Time) on each
day the portfolio is open for business (See Other Information-Closed Holidays).
Equity Securities listed on a U.S. securities exchange or Nasdaq for which
market quotations are available are valued at the last quoted sale price on the
day the valuation is made. Price information on listed Equity Securities is
taken from the exchange where the security is primarily traded. Equity
Securities listed on a foreign exchange are valued at the latest quoted sales
price available before the time when assets are valued. For purposes of net
asset value per share, all assets and liabilities initially expressed in foreign
currencies are converted into U.S. dollars at the bid price of such currencies
against U.S. dollars. Unlisted Equity Securities and listed U.S. Equity
Securities not traded on the valuation date for which market quotations are
readily available are valued at the mean of the most recent quoted bid and asked
price. The values of other assets and securities for which no quotations are
readily available (including restricted securities), and, to the extent
permitted by the SEC, securities for which the value has been materially
affected by events occurring after the close of the market on which they
principally trade, are determined in good faith at fair value using methods
approved by the Trustees.
Domestic Fixed Income, Fixed Income and High Yield Portfolios:
Net asset value per share is computed by dividing the total value of the
investments and other assets of the portfolio, less any liabilities, by the
total outstanding shares of the portfolio. The net asset value per share is
determined as of one hour after the close of the bond markets (normally 4:00
p.m. Eastern Time) on each day the portfolio is open for business (See Other
Information-Closed Holidays). Bonds and other Fixed-Income Securities listed on
a foreign exchange are valued at the latest quoted sales price available before
the time when assets are valued. For purposes of net asset value per share, all
assets and liabilities initially expressed in foreign currencies will be
converted into U.S. dollars at the bid price of such currencies against U.S.
dollars. Net asset value includes interest on bonds and other Fixed-Income
Securities which is accrued daily. Bonds and
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Terms in bold type are defined in the Prospectus Glossary MAS Fund - 35
<PAGE>
other Fixed-Income Securities which are traded over the counter and on an
exchange will be valued according to the broadest and most representative
market, and it is expected that for bonds and other Fixed-Income Securities this
ordinarily will be the over-the-counter market.
However, bonds and other Fixed-Income Securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. The prices provided by a pricing
service are determined without regard to bid or last sale prices but take into
account institutional size trading in similar groups of securities and any
developments related to specific securities. Bonds and other Fixed-Income
Securities not priced in this manner are valued at the most recent quoted bid
price, or when stock exchange valuations are used, at the latest quoted sale
price on the day of valuation. If there is no such reported sale, the latest
quoted bid price will be used. Securities purchased with remaining maturities of
60 days or less are valued at amortized cost when the Board of Trustees
determines that amortized cost reflects fair value. In the event that amortized
cost does not approximate market, market prices as determined above will be
used. Other assets and securities, for which no quotations are readily available
(including restricted securities), and, to the extent permitted by the SEC,
securities for which the value has been materially affected by events occurring
after the close of the market on which they principally trade, will be valued in
good faith at fair value using methods approved by the Board of Trustees.
Balanced and Multi-Asset-Class Portfolios: Net asset value per share is computed
by dividing the total value of the investments and other assets of the
portfolio, less any liabilities, by the total outstanding shares of the
portfolio. The net asset value per share of the Balanced and Multi-Asset-Class
Portfolios is determined as of the later of the close of the NYSE or one hour
after the close of the bond markets on each day the portfolios are open for
business. Equity, fixed-income and other securities held by the portfolios will
be valued using the policies described above.
All Portfolios: Net asset value per share for Investment Class Shares,
Institutional Class Shares and Adviser Class Shares may differ due to
class-specific expenses paid by each class, and the shareholder servicing fees
charged to Investment Class Shares and distribution fees charged to Adviser
Class Shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES: Dividends and Distributions: The Fund
maintains different dividend and capital gain distribution policies for each
portfolio. These are:
o The Equity, Value, Domestic Fixed Income, Fixed Income, High Yield, Balanced
and Multi-Asset-Class Portfolios normally distribute substantially all of
their net investment income to shareholders on a quarterly basis.
o The International Equity and Mid Cap Value Portfolios normally distribute
substantially all of their net investment income on an annual basis.
If any portfolio does not have income available to distribute, as determined in
compliance with the appropriate tax laws, no distribution will be made.
If any net gains are realized from the sale of underlying securities, the
portfolios normally distribute such gains with the last distributions 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.
In all portfolios undistributed net investment income is included in the
portfolio's net assets for the purpose of calculating net asset value per share.
Therefore, on the ex-dividend date, the net asset value per share excludes the
dividend (i.e., is reduced by the per share amount of the dividend). Dividends
paid shortly after the purchase of shares by an investor, although in effect a
return of capital, are taxable as ordinary income.
Certain Mortgage Securities may provide for periodic or unscheduled payments of
principal and interest as the mortgages underlying the securities are paid or
prepaid. However, such principal payments (not otherwise characterized
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MAS Fund - 36 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
as ordinary discount income or bond premium expense) will not normally be
considered as income to the portfolio and therefore will not be distributed as
dividends. Rather, these payments on mortgage-backed securities will be
reinvested on behalf of the shareholders by the portfolio in accordance with its
investment objectives and policies.
TAXES: The following is a summary of some important tax issues that affect the
portfolios of the Fund and their 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 each portfolio or its shareholders. More
information about taxes is in the Statement of Additional Information.
Shareholders are urged to consult their tax advisors regarding specific
questions as to federal, state and local income taxes.
Federal Taxes: Each portfolio of the Fund is treated as a separate entity for
federal income tax purposes and intends to qualify for the special tax treatment
afforded regulated investment companies. As such, each portfolio will not be
subject to federal income tax to the extent it distributes net investment
company taxable income and net capital gains to shareholders. The Fund will
notify shareholders annually as to the tax classification of all distributions.
Income dividends received by shareholders will be taxable as ordinary income,
whether received in cash or in additional shares. In the case of the Equity,
Value, Balanced, Multi-Asset-Class and Mid Cap Value Portfolios, 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
portfolios from U.S. corporations. Capital gains distributions are taxable to
shareholders at capital gains rates. Each portfolio will designate capital gains
distributions to individual shareholders as either subject to the federal
capital gains rate imposed on property held for more than 18 months or on
property held for more than 1 year but not more than 18 months.
Distributions paid in January but declared by a portfolio in October, November
or December of the previous year are taxable to shareholders in the previous
year.
Each portfolio intends to declare and pay dividends and distributions so as to
avoid imposition of the federal excise tax applicable to regulated investment
companies. Further discussion is included in the Statement of Additional
Information.
The Fund is required by federal law to withhold 31% of reportable payments
(which may include dividends and capital gains distributions) paid to
shareholders. In order to avoid this withholding requirement, shareholders must
certify on their Account Registration Forms that their Social Security Number or
Taxpayer Identification Number is correct, and that they are not subject to
backup withholding.
Exchanges and redemptions of shares in a portfolio are taxable events.
Foreign Income Taxes: Investment income received by the portfolios from sources
within foreign countries may be subject to foreign income taxes withheld at
source. The International Equity and Multi-Asset-Class Portfolios may be able to
file an election with the Internal Revenue Service to pass through to their
shareholders for foreign tax credit purposes the amount of foreign income taxes
paid by each portfolio. Further discussion is included in the Statement of
Additional Information. The other portfolios of the Fund will not be able to
make this election.
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 & Co., and is located at One Tower Bridge, West Conshohocken, PA 19428.
The Adviser pro-
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Fund - 37
<PAGE>
vides investment services to employee benefit plans, endowment funds,
foundations and other institutional investors and as of June 30,1998 had in
excess of $67 billion in assets under management. On May 31, 1997, Morgan
Stanley Group Inc., then the indirect parent of the Adviser, merged with Dean
Witter, Discover & Co. to form Morgan Stanley, Dean Witter, Discover & Co. In
connection with this transaction, the Adviser entered into a new Investment
Management Agreement ("Agreement") with MAS Funds dated May 31, 1997, which
Agreement was approved by the shareholders of each portfolio at a special
meeting held on May 1, 1997 or at an adjournment of such meeting held on May 12,
1997. The Adviser will retain its name and remain at its current location, One
Tower Bridge, West Conshohocken, PA 19428. The Adviser will continue to provide
investment counseling services to employee benefit plans, endowments,
foundations and other institutional investors.
Under the Agreement with the Fund, the Adviser, subject to the control and
supervision of the Fund's Board of Trustees and in conformance with the stated
investment objectives and policies of each portfolio of the Fund, manages the
investment and reinvestment of the assets of each portfolio of the Fund. In this
regard, it is the responsibility of the Adviser to make investment decisions for
the Fund's portfolios and to place each portfolio's purchase and sales orders.
As compensation for the services rendered by the Adviser under the Agreement,
each portfolio pays the Adviser an advisory fee calculated by applying a
quarterly rate. The following table shows the Adviser's contractual rate
(annualized) along with the Adviser's actual rate of compensation for the Fund's
1997 fiscal year.
FY 1997
-------
Contractual Actual
----------- ------
Rate Compensation Rate
---- -----------------
Equity Portfolio .500% .500%
International Equity Portfolio .500 .500
Mid Cap Value Portfolio .750 .727
Value Portfolio .500 .500
Domestic Fixed Income Portfolio .375 .364
Fixed Income Portfolio .375 .375
High Yield Portfolio .375 .375
Balanced Portfolio .450 .450
Multi-Asset-Class Portfolio .650 .528
The Adviser is, on a voluntary basis, waiving a portion of its fee and/or
reimbursing certain expenses for the Multi-Asset-Class Portfolio. Absent such
waivers and/or reimbursements by the Adviser, Total Operating Expenses would be
0.986%. These fee waivers and expense reimbursements are voluntary and may be
discontinued at any time at the Adviser's discretion.
PORTFOLIO MANAGEMENT
A description of the business experience during the past five years for each of
the investment professionals who are primarily responsible for the day-to-day
management of the Fund's portfolios is as follows:
Robert E. Angevine, Principal, Morgan Stanley, joined Morgan Stanley Asset
Management in 1988. He assumed responsibility for the High Yield Portfolio in
1996.
Arden C. Armstrong, Managing Director, Morgan Stanley, joined MAS in 1986. She
assumed responsibility for the Mid Cap Growth Portfolio in 1990, the Growth
Portfolio in 1993 and the Equity Portfolio in 1994.
Richard M. Behler, Principal, Morgan Stanley, joined MAS in 1995. He served as a
Portfolio Manager from 1992 through 1995 for Moore Capital Management. He
assumed responsibility for the Value Portfolio in 1996.
- --------------------------------------------------------------------------------
MAS Fund - 38 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Thomas L. Bennett, Managing Director, Morgan Stanley, joined MAS in 1984. He
assumed responsibility for the Fixed Income Portfolio in 1984, the Domestic
Fixed Income Portfolio 1987, the High Yield Portfolio in 1985, the Fixed Income
Portfolio II in 1990, the Special Purpose Fixed Income and Balanced Portfolio in
1992, the Balanced Plus Portfolio in 1996, the Multi-Asset-Class Portfolio in
1994 and the Multi-Market Fixed Income Portfolio in 1997.
Bradley S. Daniels, Vice President, Morgan Stanley, joined MAS in 1985. He
assumed responsibility for the Small Cap Value Portfolio in 1986 and the Mid Cap
Value Portfolio in 1994.
Kenneth B. Dunn, Managing Director, Morgan Stanley, joined MAS in 1987. He
assumed responsibility for the Fixed Income and the Domestic Fixed Income
Portfolios in 1987, the Fixed Income II Portfolio in 1990, the Mortgage-Backed
Securities and Special Purpose Fixed Income Portfolios in 1992, and the
Municipal, PA Municipal Portfolios in 1994 and the Multi-Market Fixed Income
Portfolio in 1997.
Hassan Elmasry, Principal, Morgan Stanley, joined MAS in 1995. He served as
First Vice President & International Equity Portfolio Manager from 1987 through
1995 for Mitchell Hutchins Asset Management. He assumed responsibility for the
International Equity Portfolio in 1996.
Stephen F. Esser, Managing Director, Morgan Stanley, joined MAS in 1988. He
assumed responsibility for the High Yield Portfolio in 1989 and the Multi-Market
Fixed Income Portfolio in 1997.
William B. Gerlach, Principal, Morgan Stanley, joined MAS in 1991. He assumed
responsibility for the Small Cap Value and Mid Cap Value Portfolios in 1996.
J. David Germany, Managing Director, Morgan Stanley, joined MAS in 1991. He
assumed responsibility for the Global Fixed Income and International Fixed
Income Portfolios in 1993, the Balanced Plus Portfolio in 1996, the
Multi-Asset-Class Portfolio in 1994 and the Multi-Market Fixed Income Portfolio
in 1997.
James J. Jolinger, Principal, Morgan Stanley, joined MAS in 1994. He served as
Equity Analyst for Oppenheimer Capital from 1987-1994. He assumed responsibility
for the Equity Portfolio in 1997.
Nicholas J. Kovich, Managing Director, Morgan Stanley, joined MAS in 1988. He
assumed responsibility for the Equity Portfolio in 1994 and the Value Portfolio
in 1997.
Brian Kramp, Vice President, Morgan Stanley, joined MAS in 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 Equity Portfolio in 1998.
Chris Leavy joined Mas in 1997. He served as a Portfolio Manager for Capitoline
Investment Services from 1995-1997; a Portfolio Manager for Premium Trust
Company from 1994-1995; and as a Research Analyst for Leavy Investment
Management from 1993-1994. He assumed responsibility for the Mid Cap Value and
Small Cap Value Portfolios in 1998.
Robert J. Marcin, Managing Director, Morgan Stanley, joined MAS in 1988. He
assumed responsibility for the Value Portfolio in 1990 and the Equity Portfolio
in 1994.
Gary G. Schlarbaum, Managing Director, Morgan Stanley; Director, MAS Fund
Distribution, Inc.; joined MAS in 1987. He assumed responsibility for the Equity
and Small Cap Value Portfolios in 1987, the Growth Portfolio in 1993, the
Balanced Portfolio in 1992 and the Multi-Asset-Class and Mid Cap Value
Portfolios in 1994.
Horacio A. Valeiras, Managing Director, Morgan Stanley, joined MAS in 1992. He
assumed responsibility for the International Equity Portfolio in 1992, the
Emerging Markets Value Portfolio in 1993, the Multi-Asset-Class Portfolio in
1994 and the Balanced Portfolio in 1996.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Fund - 39
<PAGE>
Richard B. Worley, Managing Director, Morgan Stanley, joined MAS in 1978. He
assumed responsibility for the Fixed Income Portfolio in 1984, the Domestic
Fixed Income Portfolio in 1987, the Fixed Income Portfolio II in 1990, the
Balanced and Special Purpose Fixed Income Portfolios in 1992, the Balanced Plus
Portfolio in 1996, the Global Fixed Income and International Fixed Income
Portfolios in 1993, the Multi-Asset-Class Portfolio in 1994 and the Multi-Market
Fixed Income Portfolio in 1997.
ADMINISTRATIVE SERVICES: MAS serves as Administrator to the Fund pursuant to an
Administration Agreement dated as of November 18, 1993. Under its Administration
Agreement with the Fund, MAS receives an annual fee, accrued daily and payable
monthly, of 0.08% of the Fund's average daily net assets, and is responsible for
all fees payable under any sub-administration agreements. Chase Global Funds
Services Company, a subsidiary of The Chase Manhattan Bank, 73 Tremont Street,
Boston MA 02108-3913, serves as Transfer Agent to the Fund pursuant to an
agreement also dated as of November 18, 1993, and provides fund accounting and
other services pursuant to a sub-administration agreement with MAS as
Administrator.
GENERAL DISTRIBUTION AGENT: Shares of the Fund are distributed exclusively
through MAS Fund Distribution, Inc., a wholly-owned subsidiary of the Adviser.
SERVICE PLAN: The Board of Trustees of the Fund has approved a Service Plan (the
"Service Plan") pursuant to which the Distributor may compensate Service
Providers for providing shareholder support services to clients who purchase
Investment Class Shares. For this service, such Service Providers are
compensated at an annual rate of .15% of the average net assets of the
Investment Class Shares of each portfolio. Fees paid pursuant to the Service
Plan are separate fees of the Investment Class Shares of each portfolio and will
reduce the net investment income and total return of the Investment Class Shares
of these portfolios.
PORTFOLIO TRANSACTIONS: The investment advisory agreement authorizes the Adviser
to select the brokers or dealers that will execute the purchases and sales of
investment securities for each of the Fund's portfolios and directs the Adviser
to use its best efforts to obtain the best execution with respect to all
transactions for the portfolios. In doing so, a portfolio may pay higher
commission rates or markups on principal transactions than the lowest available
when the Adviser believes it is reasonable to do so in light of the value of the
research, statistical, and pricing services provided by the broker or dealer
effecting the transaction.
It is not the Fund's practice to allocate brokerage or principal business on the
basis of sales of shares which may be made through intermediary brokers or
dealers. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Fund's Portfolios or who act as agents in the
purchase of shares of the portfolios for their clients.
Some securities considered for investment by each of the Fund's portfolios may
also be appropriate for other clients served by the Adviser. The Adviser may
place a combined order for two or more accounts or portfolios for the purchase
or sale of one same security if, in its judgement, joint execution is in the
best interest of each participant and will result in best price and excution. 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 & 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.
- --------------------------------------------------------------------------------
MAS Fund - 40 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
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 thirty-one portfolios.
The shares of each portfolio of the Fund are fully paid and non-assessable, and
have no preference as to conversion, exchange, dividends, retirement or other
features. The shares of each portfolio of the Fund have no preemptive rights.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Trustees can
elect 100% of the Trustees if they choose to do so. Shareholders are entitled to
one vote for each full share held (and a fractional vote for each fractional
share held), then standing in their name on the books of the Fund.
Meetings of shareholders will not be held except as required by the 1940 Act and
other applicable law. A meeting will be held to vote on the removal of a Trustee
or Trustees of the Fund if requested in writing by the holders of not less than
10% of the outstanding shares of the Fund. The Fund will assist in shareholder
communication in such matters to the extent required by law.
As of January 5, 1998 Northern Trust Company (Chicago, IL) owned a controlling
interest (as that term is defined by the 1940 Act) of the Balanced Portfolio.
Custodians: The Chase Manhattan Bank, New York, NY and Morgan Stanley Trust
Company (NY), Brooklyn, NY serve as custodians for the Fund. The custodians hold
cash, securities and other assets as required by the 1940 Act.
Transfer and Dividend Disbursing Agent: Chase Global Funds Services Company, a
subsidiary of The Chase Manhattan Bank, 73 Tremont Street, Boston, MA
02108-3913, serves as the Funds' Transfer Agent and dividend disbursing agent.
Reports: Shareholders receive semi-annual and annual financial statements.
Annual financial statements are audited by PricewaterhouseCoopers 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.
Year 2000: The management and distribution services provided to the Fund by the
Adviser and the Distributor depend on the smooth functioning of their computer
systems. Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or 1980, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact on the handling of
security trades, pricing and account services. The Adviser and the Distributor
have been actively working on necessary changes to their own computer systems to
deal with the year 2000 problem and expect that their systems will be adapted
before that date. There can be no assurance, however, that they will be
successful. In addition, other unaffiliated service providers may be faced with
similar problems. The Adviser and the Distributor are monitoring their remedial
efforts, however, there can be no assurance that they and the services they
provide will not be adversely affected.
In addition, it is possible that the markets for securities in which the
portfolios invest may be detrimentally affected by computer failures throughout
the financial services industry beginning January 1, 2000. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies and overall economic
uncertainties. Earnings of individual issuers will be affected by remediation
costs, which may be substantial and may be reported inconsistently in U.S. and
foreign financial statements. Accordingly, the portfolios' investments may be
adversely affected.
- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Fund - 41
<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, IKON Office Solutions, Inc.; Director, Knight-Ridder, Inc.; formerly,
Director, Union Carbide Corporation.
Joseph P. Healey, Trustee; Headmaster, Haverford School; formerly, Dean, Hobart
College; Associate Dean, William & Mary College.
Joseph J. Kearns, Trustee; Investment Consultant; Chief Financial Officer, The
J. Paul Getty Trust; Director, Electro Rent Corporation; Trustee, Southern
California Edison Nuclear Decommissioning Trust; Director, The Ford Family
Foundation.
Vincent R. McLean, Trustee; Director, Legal and General America, Inc., Director,
William Penn Life Insurance Company of New York; formerly, Executive Vice
President, Chief Financial Officer, Director and Member of the Executive
Committee of Sperry Corporation (now part of Unisys Corporation).
C. Oscar Morong, Jr., Trustee; Managing Director, Morong Capital Management;
Director, Ministers and Missionaries Benefit Board of American Baptist Churches,
The Indonesia Fund, The Landmark Funds; formerly, Senior Vice President and
Investment Manager for CREF, TIAA-CREF Investment Management, Inc.
*Trustee Bennett is deemed to be an "interested person" of the Fund as that term
is defined in the Investment Company Act of 1940, as amended.
- --------------------------------------------------------------------------------
James D. Schmid, President, MAS Funds; Principal, Morgan Stanley; Head of Mutual
Funds, Miller Anderson & Sherrerd, LLP; Director, MAS Fund Distribution, Inc.;
Chairman of the Board of Directors, The Minerva Fund, Inc.; formerly, Vice
President, The Chase Manhattan Bank.
Lorraine Truten, CFA, Vice President, MAS Funds; Principal, Morgan Stanley; Head
of Mutual Fund Services, Miller Anderson & Sherrerd, LLP; President, MAS Fund
Distribution, Inc.
James A. Gallo, Treasurer, MAS Funds; Head of Fund Administration, Miller,
Anderson & Sherrerd, LLP; formerly, Manager, Investment Accounting and then Vice
President and Director of Investment Accounting, PFPC, Inc.
John H. Grady, Jr., Secretary, MAS Funds; Partner, Morgan, Lewis & Bockius LLP.
Richard J. Shoch, Assistant Secretary, MAS Funds; Fund Compliance Officer,
Miller, Anderson & Sherrerd, LLP; formerly, Fund Legal Administrator and then
Counsel, Vice President and Assistant Secretary, SEI Corporation.
- --------------------------------------------------------------------------------
MAS Fund - 42 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
<TABLE>
<S> <C>
- --MAS---------------------------------------------------------------------------------ACCOUNT REGISTRATION FORM---------------------
MAS FUNDS
MAS Fund Distribution, Inc.
General Distribution Agent
- ------------------------------------------------------------------------------------------------------------------------------------
(1) |
REGISTRATION/PRIMARY ||_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
MAILING ADDRESS ||_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
|
| Attention |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Confirmations and |
month-end statements | Street or P.O. Box |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
will be mailed |
to this address. | 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 |Attention |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
registered address, | Company
the Fund is | (If Applicable) |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
authorized to mail |
duplicate statements | Street or P.O. Box |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
to the name and |
address provided | City |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| State |_|_| Zip |_|_|_|_|_|-|_|_|_|_|
at right. |
| Telephone No. |_|_|_|-|_|_|_|-|_|_|_|_|_|
For additional |
interested party |
mailings, please |
attach a separate |
sheet. |
- ------------------------------------------------------------------------------------------------------------------------------------
(3) INVESTMENT
For Purchase of:
[ ] Equity Portfolio $_________________
[ ] International Equity Portfolio $_________________
[ ] Mid Cap Value Portfolio $_________________
[ ] Value Portfolio $_________________
[ ] Domestic Fixed Income Portfolio $_________________
[ ] Fixed Income Portfolio $_________________
[ ] High Yield Portfolio $_________________
[ ] Balanced Portfolio $_________________
[ ] Multi-Asset-Class Portfolio $_________________
- ------------------------------------------------------------------------------------------------------------------------------------
(4) TAXPAYER IDENTIFICATION NUMBER
Part 1.
Social Security Number 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
or taxpayer identification number will be or subject to backup withholding at a 31%
Employer Identification Number 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.
Part 2. BACKUP WITHHOLDING You may be notified that you are subject to backup withholding under section
3406(a)(1)(C) because you have underreported interest or dividends or you were
[ ] Check the box if the account required to, but failed to, file a return which would have included a reportable
Backup Withholding under the provisions interest or dividend payment. If you have been is subject to so notified, check
of Section 3406(a)(1)(C) of the the box in PART 2 at left.
Internal Revenue Code.
- ------------------------------------------------------------------------------------------------------------------------------------
MILLER
ANDERSON
__& SHERRERD, LLP __ ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428 o 800-354-8185 ________________________________________________
SIDE ONE OF TWO +
</TABLE>
<PAGE>
<TABLE>
<S> <C>
- --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 | (8) WIRING
any) will be reinvested in additional shares if no box is checked below. The | INSTRUCTIONS
instructions provided below may only be changed by written notification. | For purchasing Shares by wire,
| please send a Fedwire payment to:
|
[ ] Income dividends and capital gains to be paid in cash. | The Chase Manhattan Bank
| 1 Chase Manhattan Plaza
[ ] Income dividends to be paid in cash and capital gains distribution in | New York, NY 10081
additional shares. | ABA# 021000021
| DDA# 910-2-734143
[ ] Income dividends and capital gains to be reinvested in | Attn: MAS Funds Subscription Account
additional shares. | Ref. (NY Municipal Portfolio, your
| Account number,
If cash option is chosen, please indicate instructions below: | your Account name)
|
[ ] 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. |
|
- ------------------------------------------------------------------------------------------------------------------------------------
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)__________________________________________________________ | FOR INTERNAL USE ONLY |
Signature Date | |
| (X)________________________________________________________ |
(X)__________________________________________________________ | Signature Date |
Signature Date | |
| __________________________________________________________ |
(X)__________________________________________________________ | |
Signature Date | O [ ] F [ ] |
| |
This application is separate from the prospectus. | |
|______________________________________________________________|
MILLER
ANDERSON
__& SHERRERD, LLP __ ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428 o 800-354-8185 ________________________________________________
SIDE TWO OF TWO
</TABLE>
<PAGE>
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- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Fund - 45
<PAGE>
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- --------------------------------------------------------------------------------
MAS Fund - 46 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
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- --------------------------------------------------------------------------------
Terms in bold type are defined in the Prospectus Glossary MAS Fund - 47
<PAGE>
MAS
- ---------
MAS FUNDS
INVESTMENT CLASS PROSPECTUS
January 31, 1998
As Revised October 15, 1998
Investment Adviser and Adminstrator: Transfer Agent:
Miller Anderson & Sherrerd, LLP Chase Global Fund 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
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Table of Contents
Page Page
Fund Expenses 2 General Shareholder Information
Prospectus Summary 4 Purchase of Shares 32
Financial Highlights 6 Redemption of Shares 34
Yield and Total Return 9 Shareholder Services 35
Suitability 9 Valuation of Shares 35
Investment Limitations 10 Dividends, Distributions and Taxes 36
Portfolio Summaries 11 Investment Adviser 37
Equity Investments 11 Portfolio Management 38
Fixed-Income Investments 14 Administrative Services 40
Propectus Glossary General Distribution Agent 40
Strategies 19 Portfolio Transactions 40
Investments 22 Other Information 41
Trustees and Officers 42
MILLER
ANDERSON
& SHERRERD, LLP
ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428 o 800-354-8185
