<PAGE> 1
[MAS FRONT COVER]
1999 SEMI-ANNUAL REPORT
ADVISORY PORTFOLIOS
MAS Funds [MAS FUNDS LOGO]
<PAGE> 2
We are pleased to present the Semi-Annual Report for the Advisory Foreign Fixed
Income and Advisory Mortgage Portfolios of MAS Funds as of March 31, 1999.
TABLE OF CONTENTS
<TABLE>
<S> <C>
MAS Overview and Statement of Net Assets
Advisory Foreign Fixed Income
Portfolio............................. 1
Advisory Mortgage Portfolio.............. 3
Statement of Operations..................... 13
Statement of Changes in Net Assets.......... 14
Financial Highlights........................ 15
Notes to Financial Statements............... 17
</TABLE>
THIS SEMI-ANNUAL REPORT CONTAINS CERTAIN INVESTMENT RETURN INFORMATION. PAST
PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS AND THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES,
WHEN REDEEMED, MAY BE WORTH EITHER MORE OR LESS THAN THEIR ORIGINAL COST.
THIS REPORT HAS BEEN PREPARED FOR SHAREHOLDERS AND MAY BE DISTRIBUTED TO OTHERS
ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE> 3
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
ADVISORY FOREIGN FIXED
INCOME PORTFOLIO (UNAUDITED)
MAS OVERVIEW
- ---------------------------------------------------------
The Advisory Foreign Fixed Income Portfolio is used as a vehicle for making
opportunistic foreign bond investments in core fixed-income portfolios managed
by Miller Anderson & Sherrerd. This strategy concentrates on enhancing total
returns through investments in foreign fixed-income securities and is managed as
one component of a diversified portfolio. All securities held in the Portfolio
have a credit quality of A or better. Derivatives may be used to represent
country investments or otherwise pursue portfolio strategy.
Investment results for this fund should not be analyzed on a stand-alone basis,
but as part of the total return for a diversified fixed-income investment.
Returns are presented here in compliance with reporting requirements for mutual
funds. The Portfolio is available only to private advisory clients of Morgan
Stanley Dean Witter Investment Management.
AVERAGE ANNUAL TOTAL RETURNS ENDED 3/31/99*
<TABLE>
<CAPTION>
MAS ADVISORY SALOMON BROAD
FOREIGN INDEX
----------------------------
<S> <C> <C>
SIX MONTHS 2.87% (0.06)%
ONE YEAR 9.40 6.50
SINCE INCEPTION 12.41 8.95
</TABLE>
Total returns are net of all fees. Total returns represent past performance and
are not indicative of future results. Foreign investments are subject to certain
risks such as currency fluctuations, economic instability, and political
developments.
The investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth either more or less than
their original cost.
Total returns for the Portfolio reflect expenses waived and/or reimbursed by the
Adviser for certain periods. Without such waivers and/or reimbursements, total
returns would have been lower.
* The Advisory Foreign Fixed Income Portfolio commenced operations on 10/7/94.
Total returns are compared to the Salomon Broad Investment Grade Index, an
unmanaged market index. Returns for periods less than one year are cumulative.
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (48.4%)
<TABLE>
<CAPTION>
- ------------------------------------------------------
RATINGS FACE
(STANDARD AMOUNT VALUE
MARCH 31, 1999 & POOR'S) (000) (000)!
- ------------------------------------------------------
<S> <C> <C> <C>
DANISH KRONE (3.2%)
Kingdom of Denmark
6.00%, 11/15/02 AAA DKK 3,000 $ 472
- ------------------------------------------------------
EURO (45.2%)
Deutsche Pfandbriefe &
Hypothebank AG
5.63%, 2/7/03 AAA EUR 511 596
Government of France O.A.T.
8.50%, 4/25/03 AAA 1,906 2,464
Government of Germany
7.38%, 12/2/02 AAA 2,096 2,584
Netherlands Government
6.50%, 4/15/03 AAA 454 549
Spanish Government
5.25%, 1/31/03 AAA 343 397
- ------------------------------------------------------
GROUP TOTAL 6,590
- ------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost $6,876) 7,062
- ------------------------------------------------------
CASH EQUIVALENTS (45.2%)
- ------------------------------------------------------
DISCOUNT NOTES (28.7%)
Federal Home Loan Bank
4.76%, 4/23/99 $1,400 1,396
Federal Home Loan Mortgage
Corporation
4.80%, 4/6/99 1,400 1,399
Federal National Mortgage
Association
4.77%, 4/6/99 1,400 1,399
- ------------------------------------------------------
GROUP TOTAL 4,194
- ------------------------------------------------------
REPURCHASE AGREEMENTS (9.7%)
Chase Securities, Inc.
4.80%, dated 3/31/99, due 4/1/99,
to be repurchased at $471,
collateralized by various U.S.
Government Obligations, due
4/1/99-2/28/01, valued at $475 471 471
Goldman Sachs & Co.
4.78%, dated 3/31/99, due 4/1/99,
to be repurchased at $470,
collateralized by U.S. Treasury
Bonds, 10.75%, due 5/15/03, valued
at $602 470 470
Merill Lynch & Co., Inc.
4.70%, dated 3/31/99, due 4/1/99,
to be repurchased at $470,
collateralized by U.S. Treasury
Notes, 6.875%, due 3/31/00, valued
at $479 470 470
- ------------------------------------------------------
GROUP TOTAL 1,411
- ------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
1
<PAGE> 4
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
ADVISORY FOREIGN FIXED INCOME
PORTFOLIO (UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(CONT'D) (000) (000)!
- ------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER (6.8%)
Coca Cola Co.
4.85%, 4/8/99 $500 $ 499
Ford Motor Credit Corp.
4.85%, 4/9/99 500 500
- ------------------------------------------------------
GROUP TOTAL 999
- ------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $6,604) 6,604
- ------------------------------------------------------
FOREIGN CURRENCY (0.0%)
- ------------------------------------------------------
Swedish Krona (Cost $1) SEK 8 1
- ------------------------------------------------------
TOTAL INVESTMENTS (93.6%) (Cost $13,481) 13,667
- ------------------------------------------------------
OTHER ASSETS AND LIABILITIES (6.4%)
Foreign Currency Held as Collateral on
Futures Contracts (Cost $215) 215
Interest Receivable 268
Unrealized Gain on Forward Foreign Currency
Contracts 428
Unrealized Gain on Futures Contracts 50
Receivable from Investment Adviser 5
Other Assets 14
Payable for Administrative Fees (1)
Payable for Trustees' Deferred Compensation
Plan-Note F (14)
Other Liabilities (34)
-------
931
- ------------------------------------------------------
NET ASSETS (100%) $14,598
- ------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)!
- ------------------------------------------------------
- ------------------------------------------------------
<S> <C> <C> <C>
INSTITUTIONAL CLASS
- ------------------------------------------------------
NET ASSETS
Applicable to 3,796,270 outstanding shares
of beneficial interest (unlimited
authorization, no par value) $14,598
- ------------------------------------------------------
NET ASSET VALUE PER SHARE $ 3.85
- ------------------------------------------------------
NET ASSETS CONSIST OF:
Paid in Capital $13,930
Undistributed Net Investment Income (Loss) (456)
Undistributed Realized Net Gain (Loss) 475
Unrealized Appreciation (Depreciation) on:
Investment Securities 186
Foreign Currency Transactions 413
Futures 50
- ------------------------------------------------------
NET ASSETS $14,598
- ------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
! See Note A1 to Financial Statements.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
2
<PAGE> 5
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
ADVISORY MORTGAGE
PORTFOLIO (UNAUDITED)
MAS OVERVIEW
- ---------------------------------------------------------
The Advisory Mortgage Portfolio is used as a vehicle for making mortgage
investments in core fixed-income portfolios managed by Miller Anderson &
Sherrerd. The Advisory Mortgage Portfolio invests in a broad range of mortgage
securities, collateralized mortgage obligations (CMOs), asset-backed securities,
U.S. Government and other fixed-income securities and is managed as one
component of a diversified portfolio. Miller Anderson & Sherrerd selects
mortgages that appear most attractively priced, while managing the Portfolio's
prepayment sensitivity. Derivatives may be used to pursue portfolio strategy.
Investment results for this fund should not be analyzed on a stand-alone basis,
but as part of the total return for a diversified fixed-income investment.
Returns are presented here in compliance with reporting requirements for mutual
funds. The Portfolio is available only to private advisory clients of Morgan
Stanley Dean Witter Investment Management.
AVERAGE ANNUAL TOTAL RETURNS ENDED 3/31/99*
<TABLE>
<CAPTION>
MAS ADVISORY LEHMAN MORTGAGE
MORTGAGE INDEX
------------------------------
<S> <C> <C>
SIX MONTHS 0.44% 1.79%
ONE YEAR 6.04 6.27
SINCE INCEPTION 8.67 8.25
</TABLE>
Total returns are net of all fees. Total returns represent past performance and
are not indicative of future results.
The investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth either more or less than
their original cost.
Total returns for the Portfolio reflect expenses waived and/or reimbursed by the
Adviser for certain periods. Without such waivers and/or reimbursements, total
returns would have been lower.
* The Advisory Mortgage Portfolio commenced operations on 4/12/95. Total returns
are compared to the Lehman Mortgage Index, an unmanaged market index. Returns
for periods less than one year are cumulative.
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (145.4%)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
RATINGS FACE
(STANDARD AMOUNT VALUE
MARCH 31, 1999 & POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
AGENCY FIXED RATE MORTGAGES (93.5%)
Federal Home Loan Mortgage
Corporation
Conventional Pools:
6.75%, 12/01/05 Agy $ 88 $ 89
8.00%,
3/1/07-9/1/08 Agy 817 854
8.25%,
11/1/07-7/1/08 Agy 129 134
8.50%, 6/1/18 Agy 33,819 35,643
8.75%, 4/1/08 Agy 141 150
9.00%, 10/1/16 Agy 516 550
9.50%,
10/1/19-3/1/20 Agy 18,039 19,497
10.00%,
10/1/04-12/1/20 Agy 28,167 30,725
10.25%,
1/1/09-9/1/16 Agy 119 130
10.50%,
7/1/00-3/1/27 Agy 11,310 12,443
11.00%,
2/1/10-9/1/20 Agy 7,382 8,259
11.25%,
6/1/10-12/1/15 Agy 76 85
11.50%,
1/1/07-9/1/19 Agy 4,146 4,689
11.75%,
3/1/11-8/1/14 Agy 325 370
12.00%,
10/1/09-7/1/20 Agy 3,970 4,523
12.50%,
10/1/09-6/1/15 Agy 569 647
13.00%,
9/1/10-11/1/13 Agy 63 72
13.50%,
12/1/09-2/1/10 Agy 76 86
Gold Pools:
9.50%,
11/1/16-12/1/22 Agy 17,985 19,560
10.00%,
6/1/17-4/1/25 Agy 12,856 14,097
10.50%,
6/1/11-3/1/21 Agy 5,818 6,424
11.00%,
5/1/12-9/1/20 Agy 3,578 4,017
11.50%,
8/1/15-6/1/20 Agy 1,253 1,405
12.00%,
8/1/14-6/1/20 Agy 4,181 4,699
12.50%, 7/1/19 Agy 99 112
April TBA
6.00%, 4/15/29 Agy 938,450 912,643
May TBA
6.00%, 5/15/29 Agy 282,725 274,641
Federal National Mortgage
Association
Conventional Pools:
7.00%, 3/1/11 Agy 2,857 2,919
7.50%,
6/1/24-8/1/24 Agy 2,158 2,218
8.00%, 10/1/07 Agy 160 168
8.50%, 4/1/09 Agy 558 592
9.00%,
6/1/18-12/1/21 Agy 22,082 23,682
9.50%,
7/1/16-5/1/28 Agy 30,430 33,040
10.00%,
3/1/06-4/1/27 Agy 75,694 82,860
10.50%,
7/1/09-2/1/28 Agy 19,775 21,631
10.75%,
10/1/11-6/1/13 Agy 147 164
11.00%,
5/1/11-11/1/20 Agy 6,139 6,888
11.25%,
1/1/11-1/1/16 Agy 192 216
11.50%,
2/1/11-9/1/25 Agy 3,049 3,458
12.00%,
10/1/10-5/1/20 Agy 4,817 5,509
12.50%,
9/1/09-9/1/15 Agy 3,976 4,557
14.00%, 9/1/11 Agy 32 37
April TBA
6.00%, 4/25/29 Agy 3,453,350 3,355,686
6.50%, 4/25/29 Agy 294,500 286,171
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
3
<PAGE> 6
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
ADVISORY MORTGAGE
PORTFOLIO (UNAUDITED)
<TABLE>
<CAPTION>
RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
Government National Mortgage
Association:
Adjustable Rate
Mortgages:
6.00%,
2/20/27-9/20/27 Tsy $ 82,039 $ 83,253
6.50%, 10/20/27 Tsy 55,062 55,817
6.625%, 9/20/27 Tsy 29,727 30,167
6.875%,
1/20/25-6/20/26 Tsy 174,137 177,184
6.875%, 4/20/25
TBA Tsy 66,455 67,605
7.00%,
2/20/25-11/20/25 Tsy 61,298 62,310
7.00%, 7/20/25 TBA Tsy 30,179 30,704
7.125%, 7/20/25 Tsy 11,873 12,080
7.375%,
6/20/25-6/20/26 Tsy 4,419 4,515
7.50%, 1/20/25 Tsy 4,372 4,448
Various Pools:
6.50%,
12/20/27-1/20/28 Tsy 164,775 167,048
7.00%, 3/20/25 Tsy 15,107 15,371
8.50%,
7/15/08-3/15/20 Tsy 23,788 25,350
9.00%,
10/15/17-11/15/24 Tsy 116,117 124,683
9.50%,
7/15/09-9/15/28 Tsy 265,372 288,340
10.00%,
10/15/09-10/15/28 Tsy 367,357 402,477
10.50%,
1/15/01-4/15/25 Tsy 58,561 64,889
11.00%,
12/15/99-1/15/29 Tsy 99,531 112,025
11.50%,
12/15/09-8/15/18 Tsy 4,041 4,578
12.00%,
11/15/12-11/15/15 Tsy 8,942 10,241
12.50%,
11/15/10-7/15/15 Tsy 538 617
13.00%,
1/15/11-9/15/14 Tsy 249 287
13.50%,
5/15/10-9/15/14 Tsy 165 190
- ---------------------------------------------------------
GROUP TOTAL 6,930,519
- ---------------------------------------------------------
ASSET BACKED CORPORATES (24.7%)
Advanta Mortgage
Loan Trust,
Series:
97-3 A2
6.61%, 4/25/12 AAA 7,981 7,974
97-4 A2
6.53%, 9/25/12 AAA 13,778 13,779
AFG Receivables Trust, Series
97-A A
6.35%, 10/15/02 AAA 154 154
Americredit
Automobile
Receivables Trust,
Series:
96-B A
6.50%, 1/12/02 AAA 401 403
## 98-B A2
4.987%, 6/12/01 AAA 48,592 48,534
Arcadia Automobile
Receivables Trust,
Series:
97-D A3
6.20%, 5/15/03 AAA 31,160 31,324
98-A A3
5.90%, 11/15/02 AAA 18,070 18,098
</TABLE>
<TABLE>
<CAPTION>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
Associates Manufactured Housing
Pass Through Certificates,
Series 97-1 A3
6.60%, 6/15/28 AAA $ 482 $ 483
Bank One Corp.,
Series 99-A1
6.06%, 1/25/12 AAA 250 250
BankBoston Home
Equity Loan Trust,
Series 98-2 A1
6.28%, 11/25/10 AAA 507 507
Block Mortgage Finance Co.,
Series 99-1 A1
5.94%, 8/26/13 AAA 441 441
Case Equipment Loan
Trust,
Series 95-A A
7.30%, 3/15/02 AAA 544 544
Centex Home Equity,
Series A1
6.07%, 3/25/18 AAA 222 221
Chevy Chase Auto
Receivables Trust,
Series 97-4 A
6.25%, 6/15/04 AAA 15,205 15,271
CIT Group Home Equity
Loan Trust, Series
97-1 A3
6.25%, 9/15/11 AAA 284 285
+## Citibank Credit
Card Master Trust
I, Series 98-7 A
4.949%, 5/15/02 Aaa 69,925 69,884
COMED Transitional
Funding Trust,
Series 98-1 A1
5.38%, 3/25/02 AAA 73,725 73,741
## Contimortgage Home
Equity Loan Trust,
Series 98-2 A2B PAC (11)
4.966%, 3/15/13 AAA 40,606 40,549
CPS Auto Grantor
Trust,
Series:
96-3 A
6.30%, 8/15/02 AAA 1,469 1,476
97-2 A
6.65%, 10/15/02 AAA 4,830 4,876
Daimler Benz Auto
Grantor Trust,
Series 97-A A
6.05%, 3/31/05 AAA 15,550 15,632
Daimler Benz Vehicle
Trust,
Series 98-A A2
5.23%, 12/20/01 AAA 70,750 70,669
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
4
<PAGE> 7
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
Delta Funding Home
Equity Loan Trust,
Series:
98-4 A1F
6.16%, 2/15/16 AAA $ 37,552 $ 37,604
99-1 A1F
5.81%, 11/15/15 AAA 72,200 72,203
EQCC Home Equity Loan
Trust,
Series:
98-1 A1F
6.21%, 12/15/07 AAA 92 92
98-2 A1F
6.235%, 4/15/08 AAA 204 204
99-1 A1F
5.77%, 3/20/29 AAA 74,700 74,633
First Merchants Auto
Receivables Corp.,
Series:
96-C A2
6.15%, 7/15/01 AAA 575 575
(+) 97-2 A1
6.85%, 11/15/02 AAA 3,262 3,268
First Security Auto
Grantor Trust,
Series:
97-B A
6.14%, 4/15/03 AAA 30,265 30,419
98-A A
5.97%, 4/15/04 AAA 28,648 28,781
First Security Auto
Owner Trust,
Series:
98-1 A2
5.182%, 6/15/01 AAA 73,200 73,204
99-1 A2
5.311%, 9/15/00 AAA 74,800 74,789
## First USA Credit
Card Master Trust,
Series 97-10 A
5.026%, 9/17/03 AAA 52,460 52,476
Fleetwood Credit
Corp., Series 92-A
A
7.10%, 2/15/07 AAA 59 59
Ford Credit Auto
Owner Trust, Series
97-B A3
6.05%, 3/15/01 AAA 27,465 27,566
General Motors
Acceptance Corp.,
Series 97-A A
6.50%, 4/15/02 AAA 14,565 14,664
Green Tree Home
Equity Loan Trust,
Series:
97-7 A3
6.18%, 9/15/09 AAA 15,252 15,291
97-D A3
6.39%, 9/15/28 AAA 23,076 23,135
</TABLE>
<TABLE>
<CAPTION>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
+ 98-1 A2
5.85%, 11/1/29 Aaa $ 19,930 $ 19,969
98-A A2
6.04%, 6/15/29 AAA 225 226
98-C A1
5.95%, 7/15/29 AAA 714 714
98-C A2
6.03%, 7/15/29 AAA 43,295 43,460
+ 98-E A1
5.907%, 08/15/07 Aaa 192 192
+ 98-E A2
5.829%, 11/15/29 Aaa 64,912 65,180
99-A A1
5.59%, 2/15/13 AAA 81,000 80,976
Greenpoint Manufactured Housing,
Series 99-1 A1
5.78%, 12/15/09 AAA 72,289 72,184
Greenwich Capital
Acceptance, Inc.,
Series 95-B A1
6.00%, 8/10/20 AAA 3 3
Harley-Davidson
Eaglemark
Motorcycle Trust,
Series 98-3 A1
5.41%, 3/15/03 AAA 42,452 42,453
Honda Auto
Receivables Grantor
Trust,
Series:
97-A A
5.85%, 2/15/03 AAA 25,331 25,395
97-B A
5.95%, 5/15/03 AAA 26,056 26,144
IMC Home Equity Loan
Trust,
Series:
96-4 A3
6.81%, 7/25/11 AAA 4,146 4,158
98-1 A2
6.31%, 12/20/12 AAA 22,550 22,596
## IndyMac Home
Equity Loan,
Series 98-A AF1
5.724%, 9/25/20 AAA 57,151 57,085
(+) Long Beach
Acceptance Auto
Grantor Trust,
Series:
97-2 A
6.69%, 9/25/04 AAA 11,090 11,142
98-1 A
6.19%, 1/25/04 AAA 12,137 12,148
MMCA Automobile
Trust,
Series 97-1 A3
6.06%, 5/15/01 AAA 18,175 18,212
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
5
<PAGE> 8
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
ADVISORY MORTGAGE
PORTFOLIO (UNAUDITED)
<TABLE>
<CAPTION>
RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
Money Store (The)
Home Equity Trust,
Series:
96-B A5
7.18%, 12/15/14 AAA $ 18,391 $ 18,397
98-A AF2
6.205%, 3/15/12 AAA 39,700 39,714
Navistar Financial
Corp. Owner Trust,
Series 97-B A3
6.20%, 3/15/01 AAA 549 550
Nissan Auto
Receivables Grantor
Trust, Series 97-A
A
6.15%, 2/15/03 AAA 42,798 43,082
Onyx Acceptance
Grantor Trust,
Series:
97-2 A
6.35%, 10/15/02 AAA 44 44
97-3 A
6.35%, 1/15/04 AAA 217 219
Premier Auto Trust,
Series 95-4 A4
6.00%, 5/6/00 AAA 1 1
Provident Bank Home
Equity Loan Trust,
Series 98-4 A1
6.28%, 11/25/13 AAA 211 211
Residential Funding
Mortgage Securities
Co., Inc.,
Series:
+98-4 A1
5.696%, 2/25/10 Aaa 2,106 2,104
99-HI1 A2
6.05%, 9/25/08 AAA 46,200 46,171
Salomon Brothers
Mortgage
Securities, Series
98-NC7 A1
6.063%, 12/25/28 AAA 65,203 65,083
(+) Textron Financial
Corporation
Receivables, Series
98-A A1
5.82%, 2/15/02 AAA 38,642 38,718
UCFC Home Equity Loan,
Series:
97-D A2
6.475%, 6/15/12 AAA 14,375 14,408
98-A A1
5.016%, 7/15/11 AAA 104 104
## 98-A1
5.06%, 12/15/12 AAA 53,529 53,479
Union Acceptance Corp., Series
96-B A
6.45%, 7/9/03 AAA 178 180
</TABLE>
<TABLE>
<CAPTION>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
USAA Auto Loan Grantor Trust,
Series 97-1 A
6.00%, 5/15/04 AAA $ 338 $ 339
WFS Financial Owner Trust,
Series:
97-C A3
6.01%, 3/20/02 AAA 24,397 24,491
98-A A2
5.783%, 11/20/00 AAA 80 80
World Omni Automobile Lease
Securitization Corp., Series
97-B A2
6.08%, 11/15/03 AAA 36,421 36,547
- ---------------------------------------------------------
GROUP TOTAL 1,830,217
- ---------------------------------------------------------
ASSET BACKED MORTGAGES (0.0%)
Contimortgage Home
Equity Loan Trust,
Series:
96-3 A9 IO
1.30%, 9/15/27 AAA 99,599 2,898
96-3 10 IO
0.90%, 9/15/27 AAA 24,913 528
(+) 96-3A YMA
9/15/27 N/R 99,599 166
(+) 96-3B YMA
9/15/27 N/R 24,913 36
- ---------------------------------------------------------
GROUP TOTAL 3,628
- ---------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS- AGENCY COLLATERAL
SERIES (8.3%)
Collateralized
Mortgage Obligation
Trust, Series 86-13
Q Inv Fl
15.546%, 1/20/03 AAA 101 108
Federal Home Loan
Mortgage
Corporation,
Series:
13-B IO REMIC
10.00%, 6/1/20 Agy 1,263 312
16-B IO REMIC
10.00%, 6/1/20 Agy 660 163
18-B IO REMIC
10.00%, 5/1/20 Agy 350 87
63-SA IO
1.50%, 6/17/27 Agy 1,195 41
88-17 I PAC-1 (11)
9.90%, 10/15/19 Agy 4,339 4,589
88-22 C PAC (11)
9.50%, 4/15/20 Agy 818 862
88-23 F PAC-1 (11)
9.60%, 4/15/20 Agy 1,473 1,550
89-39 F PAC-2 (11)
10.00%, 5/15/20 Agy 2,459 2,606
89-47 F PAC-1 (12) REMIC
10.00%, 6/15/20 Agy 1,305 1,379
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
6
<PAGE> 9
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
89-110 F PAC
8.55%, 1/15/21 Agy $ 753 $ 783
90-164 B12 REMIC
9.50%, 7/15/21 Agy 3,000 3,356
93-C A11
8.00%, 8/1/27 Agy 77,741 15,220
1364-B Inv Fl IO REMIC
6.857%, 9/15/07 Agy 6,823 859
1364-E Inv Fl IO
10.453%, 9/15/07 Agy 8,196 1,594
1369-S Inv Fl IO REMIC
4.50%, 9/15/07 Agy 6,727 556
## 1377-F REMIC
5.50%, 9/15/07 Agy 6,113 6,142
1381-SB Inv Fl IO
11.211%, 10/15/07 Agy 3,012 637
1395-S Inv Fl IO
4.742%, 10/15/22 Agy 21,372 2,291
1415-S Inv Fl IO
22.25%, 11/15/07 Agy 202 84
1463-B Inv Fl IO
3.35%, 1/15/23 Agy 23,315 1,532
1476-S Inv Fl IO REMIC PAC
4.595%, 2/15/08 Agy 2,110 205
1485-S Inv Fl IO REMIC
4.60%, 3/15/08 Agy 2,332 184
1506-SD IO
3.50%, 5/15/08 Agy 983 45
1546-FC Inv Fl IO
5.50%, 12/15/21 Agy 107 107
## 1591-FG REMIC
5.50%, 10/15/23 Agy 1,254 1,255
1600-SA Inv Fl IO REMIC
3.00%, 10/15/08 Agy 16,159 889
1603-QA PO REMIC
10/15/23 Agy 15,266 10,520
1621-SD Inv Fl
8.299%, 11/15/23 Agy 1,100 957
1632-SA Inv Fl REMIC
6.514%, 11/15/23 Agy 3,750 3,423
1634-SC Inv Fl
8.144%, 12/15/23 Agy 4,000 3,408
## 1710-D REMIC
5.45%, 6/15/20 Agy 21,467 21,521
1809-SC IO
2.942%, 12/15/23 Agy 102,000 10,139
## 1890-F REMIC
5.50%, 6/15/24 Agy 21,034 21,098
1911-C PO
11/15/23 Agy 6,466 4,855
## 1933-FM REMIC
5.75%, 3/15/25 Agy 360 361
## 1933-FO REMIC
5.75%, 3/15/25 Agy 502 503
## 1933-FQ REMIC
5.75%, 3/15/25 Agy 156 156
1936-A IO PAC
1.00%, 2/15/27 Agy 120,155 2,908
</TABLE>
<TABLE>
<CAPTION>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
1983-IB IO
8.00%, 8/15/27 Agy $ 127,416 $ 33,472
1985-PR IO
8.00%, 7/15/27 Agy 74,078 17,660
## 1987-FO REMIC
5.35%, 11/15/24 Agy 5,641 5,642
## 2006-FA REMIC
5.40%, 10/15/23 Agy 3,047 3,053
2006-I IO
8.00%, 10/15/12 Agy 583 99
## 2027-F REMIC
5.339%, 3/15/27 Agy 16,668 16,661
## 2027-FA
5.339%, 3/15/27 Agy 16,682 16,674
## 2040-FC
5.289%, 2/15/23 Agy 27,492 27,530
## 2054-FC
6.025%, 5/15/28 Agy 35,711 35,568
## E2 F
5.988%, 2/15/24 Agy 17,856 17,799
Federal National
Mortgage
Association,
Series:
43-2 IO
9.50%, 9/1/18 Agy 23 5
89-22 G PAC (11)
10.00%, 5/25/19 Agy 4,725 5,062
89-86 E PAC (11)
8.75%, 11/25/19 Agy 135 140
89-92 G PAC (11)
8.60%, 12/25/04 Agy 750 783
90-106 J PAC
8.50%, 9/25/20 Agy 1,080 1,139
90-118 S Inv Fl REMIC
33.329%, 9/25/20 Agy 275 422
90-126 S Inv Fl
22.466%, 10/25/20 Agy 3,382 4,321
## 92-43 FC REMIC
5.538%, 10/25/21 Agy 1,083 1,088
92-73 SQ Inv Fl IO
4112.50%, 5/25/22 Agy 1 63
92-89 SQ Inv Fl IO PAC (11)
4071.956%, 6/25/22 Agy 4 316
92-186 S Inv Fl IO REMIC
3.642%, 10/25/07 Agy 3,415 263
93-9 SB Inv Fl IO
8.546%, 1/25/23 Agy 6,177 2,247
93-46 SD Inv Fl
6.534%, 4/25/23 Agy 6,127 5,678
93-205 H PO REMIC
9/25/23 Agy 18,027 10,924
## 94-50 FD REMIC
5.388%, 3/25/24 Agy 6,502 6,511
## 94-73 F
5.438%, 7/18/27 Agy 177 178
## 94-97 FC
5.638%, 3/25/24 Agy 15,759 15,880
95-21 C PO REMIC
5/25/24 Agy 9,896 6,169
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
7
<PAGE> 10
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
ADVISORY MORTGAGE
PORTFOLIO (UNAUDITED)
<TABLE>
<CAPTION>
RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
96-14 PC PO
12/25/23 Agy $ 4,662 $ 3,636
96-20 E PO
11/25/22 Agy 1,217 855
96-34 C PO
3/25/23 Agy 5,861 4,048
96-54 O PO
11/25/23 Agy 3,993 3,026
96-68 SC Inv Fl IO REMIC
3.163%, 1/25/24 Agy 6,607 812
97-30 SP Inv Fl REMIC
4178.187%, 4/25/22 Agy 8 912
## 97-43 FM REMIC
5.438%, 7/18/27 Agy 6,810 6,822
97-53 PI IO PAC
8.00%, 8/18/27 Agy 760 175
97-57 PJ IO
7.50%, 10/18/26 Agy 23,525 4,820
97-57 PV IO
8.00%, 9/18/27 Agy 56,700 18,977
97-59 JA IO
8.00%, 7/18/27 Agy 7,000 3,048
97-61 PK IO REMIC
8.00%, 8/18/27 Agy 15,000 5,731
## 97-70 FA REMIC
5.388%, 7/18/20 Agy 4,580 4,584
## 97-76 FM
5.388%, 9/17/27 Agy 9,005 9,016
## 97-76 FN
5.338%, 9/17/27 Agy 8,915 8,912
## 98-22 FA
5.336%, 4/18/22 Agy 83,326 83,245
98-22 SA Inv Fl IO
3.664%, 4/18/28 Agy 107,747 6,950
G92-52 SQ Inv IO REMIC
8650.699%, 9/25/22 Agy 26 4,592
G92-53 S Inv Fl IO REMIC
38.813%, 9/25/22 Agy 2,977 2,314
G93-11 FA REMIC
5.338%, 12/25/08 Agy 11,199 11,264
191 IO
8.00%, 1/1/28 Agy 70,785 14,544
207 2 IO
8.00%, 2/1/23 Agy 13,163 2,962
267 2 IO
8.50%, 10/1/24 Agy 44,531 9,505
270 2 IO
8.50%, 9/1/23 Agy 25,318 5,519
274 2 IO
8.50%, 10/1/25 Agy 57,011 12,168
281 2 IO
9.00%, 11/1/26 Agy 25,484 5,523
291 2 IO
8.00%, 11/1/27 Agy 12,368 2,475
</TABLE>
<TABLE>
<CAPTION>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
First Boston Mortgage
Securities Corp.,
Series 87-B2 IO
8.985%, 4/25/17 AAA $ 150 $ 32
Government National
Mortgage
Association,
Series:
96-12 S Inv Fl IO REMIC
3.50%, 6/16/26 Tsy 27,461 1,881
96-13 S Inv Fl IO REMIC
4.15%, 7/16/11 Tsy 15,621 1,329
97-13 SB IO
3.00%, 9/16/27 Tsy 1,700 168
+ Kidder Peabody
Mortgage Assets Trust, Series
87 B IO
9.50%, 4/22/18 Aaa 211 44
## Salomon Brothers Mortgage
Securities VII, Series 96-6E
A1
5.463%, 3/30/25 AAA 6,764 6,750
- ---------------------------------------------------------
GROUP TOTAL 609,271
- ---------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS- NON-AGENCY
COLLATERAL SERIES (0.8%)
American Housing Trust,
Series:
IV 2 C
9.553%, 9/25/20 A 2,323 2,431
V 1G
9.125%, 4/25/21 AAA 5,805 6,161
sec. Chase Mortgage Finance
Corp.,
Series 93-1 B2
7.911%, 3/28/24
(acquired 4/28/95-
8/27/98, cost
$5,484) N/R 4,490 4,515
Countrywide Funding
Corp.,
Series 95-4 M
7.50%, 9/25/25 AA 6,369 6,378
Countrywide Mortgage Backed
Securities, Inc., Series 93-C
A11
6.50%, 1/25/24 AAA 898 898
GE Capital Mortgage Services,
Inc., Series 95-4 M
7.50%, 4/25/24 AAA 4,000 3,996
Mid-State Trust II,
Series 88-2 A4
9.625%, 4/1/03 AAA 24,353 25,916
Rural Housing Trust, Series 87-1
B1 REMIC
3.33%, 10/1/28 A- 5,686 5,601
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
8
<PAGE> 11
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
## Ryland Mortgage
Securities Corp.
III, Series 92-A 1A
8.255%, 3/29/30 A- $ 3,694 $ 3,730
Securitized Multiple
Asset Rated Trust,
Series 89-A 1
9.00%, 9/25/19 N/R 100 100
- ---------------------------------------------------------
GROUP TOTAL 59,726
- ---------------------------------------------------------
COMMERCIAL MORTGAGES (4.3%)
American Southwest Financial
Securities Corp.,
Series:
93-2 A1
7.30%, 1/18/09 N/R 6,977 7,158
93-2 S2 IO
0.70%, 1/18/09 N/R 10,337 194
## 93-2 S1 IO
1.091%, 1/18/09 N/R 65,144 2,117
+ 95-C1 A1B
7.40%, 11/17/04 Aaa 22,120 22,529
Asset Securitization Corp.,
Series:
95-D1 A1
7.59%, 8/11/27 AAA 16,611 17,292
95-MD4 A1
7.10%, 8/13/29 AAA 4,590 4,715
## 95-MD4 ACS2 IO
2.247%, 8/13/29 N/R 33,259 4,814
96-MD6 A1B
6.88%, 11/13/26 AAA 17,825 18,169
96-MD6 A1C
7.04%, 11/13/26 AAA 20,220 20,710
+## 97-D5 PS1 IO
1.574%, 2/14/41 Aaa 140,939 13,128
97-MD7 A1B
7.41%, 1/13/30 AAA 29,325 30,655
(+) Beverly Finance
Corp., Series 94-1
8.36%, 7/15/04 AA- 11,840 12,624
(+) Carousel Center
Finance, Inc.,
Series:
1 A1
6.828%, 11/15/07 AA 4,925 4,945
1 B
7.188%, 10/15/07 A 16,900 17,184
CBM Funding Corp.,
Series 96-1 A1
7.55%, 7/1/99 AA 9 9
(+) Creekwood Capital Corp.,
Series 95-1A
8.47%, 3/16/15 AA 5,172 5,715
(+) Crystal Run Properties,
Inc., Series 1-A
7.393%, 8/15/06 AA 15,900 16,373
</TABLE>
<TABLE>
<CAPTION>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
(+) CVM Finance
Corp., Series 1-A
7.19%, 3/1/04 AA $ 901 $ 919
DLJ Mortgage Acceptance Corp.,
Series:
93-MF10 A2
7.20%, 7/15/03 AAA 1 1
(+) 96-CF2 A1B
7.29%, 11/12/21 AAA 7,100 7,358
(+) 97-CF1 S IO
1.097%, 5/15/30 AAA 101,948 5,085
## Federal National
Mortgage
Association, Series
93-M2 B IO
2.68%, 11/25/23 Agy 35,511 401
Forum Finance Corp.,
Series 1 A1
7.125%, 5/15/04 AA 7,000 7,042
+## GMAC Commercial Mortgage
Securities, Inc., Series:
96-C1 X2 IO
1.874%, 3/15/21 Aaa 91,741 6,103
97-C2 X IO
1.26%, 4/15/29 Aaa 346,484 22,221
+## GS Mortgage
Securities Corp.
II, Series:
97-GL X1A IO
0.651%, 7/13/30 Aaa 49,871 335
97-GL X2 IO
1.038%, 7/13/30 Aaa 57,803 2,536
## Merrill Lynch
Mortgage Investors,
Inc., Series 96-C2
IO
1.547%, 11/21/28 AAA 98,591 7,061
+ Midland Realty
Acceptance Corp.,
Series 96-C2 A1
7.02%, 1/25/29 Aaa 1,431 1,457
Mortgage Capital
Funding, Inc.,
Series 95-MC1 A1B
7.60%, 5/25/27 AAA 7,793 7,894
Nomura Asset
Securities Corp.,
Series:
94-MD1 A1B
7.526%, 3/15/18 N/R 3,346 3,360
## 94-MD1 A2
7.666%, 3/15/18 N/R 4,735 4,847
94-MD1 A3
8.026%, 3/15/18 N/R 5,015 5,188
Park Avenue Finance Corp.,
Series 97-C1 A1
7.58%, 5/12/07 N/R 8,618 9,054
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
9
<PAGE> 12
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
ADVISORY MORTGAGE
PORTFOLIO (UNAUDITED)
<TABLE>
<CAPTION>
RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
(+) Prime Property Funding,
Series 1A
6.633%, 7/23/03 AA $ 14,985 $ 14,970
(+)!! Stratford Finance Corp.
6.776%, 2/1/04 AA 7,125 7,115
## Structured Asset
Securities Corp.,
Series:
96-CFL X1 IO
1.219%, 2/25/28 N/R 147,602 5,246
96-CFL X2 IO
1.152%, 2/25/28 N/R 23,161 521
- ---------------------------------------------------------
GROUP TOTAL 317,045
- ---------------------------------------------------------
NON-AGENCY FIXED RATE MORTGAGES (0.1%)
Bank of America,
Series A
8.375%, 5/1/07 AAA 601 601
California Federal Savings &
Loan,
Series 86-1A
8.80%, 1/1/14 AA 52 52
sec. Coast Federal,
Series 84-3
7.941%, 3/1/06
(acquired 4/28/95,
cost $402) N/R 184 185
sec.## Dedham Savings
Participation Certificate
8.198%, 5/1/01
(acquired 7/30/96,
cost $449) N/R 145 145
sec. First Federal
Savings & Loan
Association, Series
92-C
8.75%, 6/1/06
(acquired 4/28/95-
8/28/97, cost
$590) AA 54 54
sec. Fortune Mortgage Corp.
Participation Certificate
7.80%, 8/1/99
(acquired 7/30/96-
2/10/98, cost
$434) N/R 113 113
Gemsco Mortgage Pass
Through
Certificate, Series
87-A
8.701%, 11/25/10 AA 607 620
Great American
Federal Savings &
Loan, Series 84-2
8.595%, 4/1/99 N/R 6 6
</TABLE>
<TABLE>
<CAPTION>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
sec. Household Bank,
Series 85-1 CMO
7.94%, 5/1/02
(acquired 5/31/95,
cost $462) N/R $ 142 $ 142
Residential Funding Mortgage
Securities Co., Inc., Series
90-2 A
10.50%, 3/25/20 AA 10 10
## Resolution Trust
Corp., Series 92-5
C
8.611%, 1/25/26 AA 4,630 4,602
Ryland Acceptance Corp. IV,
Series 79-A
6.65%, 7/1/11 AA 2,739 2,463
Sears Mortgage Securities,
Series 82-3
10.00%, 11/1/12 AA 306 306
sec. Shearson American Express,
Series A CMO
9.625%, 12/1/12
(acquired 4/28/95-
6/29/98, cost
$675) AA 279 279
sec. Virginia Beach Federal
Savings & Loan Participation
Certificate
6.90%, 3/1/01
(acquired 3/27/97,
cost $387) N/R 202 202
- ---------------------------------------------------------
GROUP TOTAL 9,780
- ---------------------------------------------------------
U.S. TREASURY SECURITIES (13.7%)
U.S. Treasury Bond
8.75%, 8/15/20 Tsy 78,700 105,507
U.S. Treasury Note
4.50%, 1/31/01 Tsy 192,800 191,113
4.75%, 11/15/08 Tsy 120,700 116,268
6.625%, 5/15/07 Tsy 83,500 90,036
7.50%, 2/15/05 Tsy 461,900 512,058
- ---------------------------------------------------------
GROUP TOTAL 1,014,982
- ---------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost
$10,752,317) 10,775,168
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
10
<PAGE> 13
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(STANDARD VALUE
& POOR'S) SHARES (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK (1.4%)
- ---------------------------------------------------------
MORTGAGES-OTHER (1.4%)
(+)+ Home Ownership
Funding Corp.
13.331% (Cost $96,276) Aaa 110,775 $ 100,035
- ---------------------------------------------------------
STRUCTURED INVESTMENT (0.0%)-SEE NOTE A7
- ---------------------------------------------------------
FACE
AMOUNT
(000)
--------
Morgan Guaranty
Trust Co.,
11/20/05; monthly
payments equal to
1% per annum of the
outstanding
notional balance,
indexed to GNMA ARM
pools (Cost
$10,275) N/R $ 171,226 1,904
- ---------------------------------------------------------
CASH EQUIVALENTS (16.2%)
- ---------------------------------------------------------
COMMERCIAL PAPER (11.3%)
American Express Credit Corp.
4.80%, 4/6/99 50,000 49,967
Associated Corp. of North
America
4.80%, 4/9/99 50,000 49,947
4.80%, 4/13/99 50,000 49,920
Banc One Corp.
4.83%, 4/23/99 50,000 49,852
CIT Group Holdings
4.81%, 4/16/99 50,000 49,900
Daimler Benz
4.81%, 4/16/99 34,200 34,131
First Chicago Finance
4.81%, 4/1/99 25,000 25,000
Ford Motor Credit Corp.
4.83%, 4/19/99 50,000 49,879
4.83%, 4/23/99 50,000 49,852
General Electric Capital Corp.
4.82%, 4/9/99 50,000 49,946
4.82%, 4/14/99 50,000 49,913
General Motors Acceptance Corp.
4.83%, 4/20/99 50,000 49,873
H.J. Heinz Corp.
4.80%, 04/21/99 26,500 26,429
IBM Credit Corp.
4.81%, 4/1/99 35,700 35,700
J.P. Morgan
4.78%, 4/6/99 50,000 49,967
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
National Rural Utilities
4.80%, 4/22/99 $ 26,500 $ 26,426
4.80%, 5/3/99 50,000 49,787
Prudential, Inc.
4.80%, 4/14/99 50,000 49,913
Wachovia Corp.
4.80%, 4/9/99 45,000 44,952
- ---------------------------------------------------------
GROUP TOTAL 841,354
- ---------------------------------------------------------
REPURCHASE AGREEMENT (4.8%)
Chase Securities, Inc. 4.80%,
dated 3/31/99, due 4/1/99, to
be repurchased at $357,822,
collateralized by various U.S.
Government Obligations, due
4/1/99-2/28/01, valued at
$360,983 357,774 357,774
- ---------------------------------------------------------
U.S. TREASURY SECURITY (0.1%)
!! U.S. Treasury Bill
4.51%, 9/9/99 5,000 4,902
- ---------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $1,204,027) 1,204,030
- ---------------------------------------------------------
TOTAL INVESTMENTS (163.0%)
(Cost $12,062,895) 12,081,137
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-63.0%)
Cash 767
Dividends Receivable 43
Interest Receivable 60,016
Receivable for Investments Sold 112,172
Receivable for Forward Commitments 411,706
Receivable from Investment Adviser 222
Other Assets 231
Payable for Investments Purchased (752)
Payable for Forward Commitments (5,238,022)
Payable for Fund Shares Redeemed (12,059)
Payable for Administrative Fees (504)
Payable for Daily Variation on Futures
Contracts (677)
Payable for Trustees' Deferred Compensation
Plan-Note F (189)
Unrealized Loss on Swap Agreements (1,148)
Other Liabilities (2,243)
----------
(4,670,437)
- ---------------------------------------------------------
NET ASSETS (100%) $7,410,700
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
11
<PAGE> 14
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
ADVISORY MORTGAGE
PORTFOLIO (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
(CONT'D) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
INSTITUTIONAL CLASS
- ---------------------------------------------------------
NET ASSETS
Applicable to 713,086,124 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $7,410,700
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 10.39
- ---------------------------------------------------------
NET ASSETS CONSIST OF:
Paid in Capital $7,475,216
Undistributed Net Investment Income (Loss) 55,357
Undistributed Realized Net Gain (Loss) (135,697)
Unrealized Appreciation (Depreciation) on:
Investment Securities 18,242
Futures and Swaps (2,418)
- ---------------------------------------------------------
NET ASSETS $7,410,700
- ---------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
sec. Restricted Security-Total market value of
restricted securities owned at March 31, 1999 was
$5,635 or 0.1% of net assets.
! See Note A1 to Financial Statements.
(+) 144A security. Certain conditions for public sale
may exist.
!! A portion of these securities was pledged to cover
margin requirements for futures contracts.
+ Moody's Investors Service, Inc. rating. Security is
not rated by Standard & Poor's Corporation.
## Variable or floating rate security-rate disclosed
is as of March 31, 1999.
CMO Collateralized Mortgage Obligation
Inv Fl Inverse Floating Rate-Interest rate fluctuates with
an inverse relationship to an associated interest
rate. Indicated rate is the effective rate at
March 31, 1999.
IO Interest Only
N/R Not rated by Moody's Investors Service, Inc. or
Standard & Poor's Corporation.
PAC Planned Amortization Class
PO Principal Only
REMIC Real Estate Mortgage Investment Conduit
TBA Security is subject to delayed delivery.
See Note A8 to Financial Statements.
YMA Yield Maintenance Agreement
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
12
<PAGE> 15
STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADVISORY
FOREIGN ADVISORY
FIXED INCOME MORTGAGE
PORTFOLIO PORTFOLIO
----------------------------------------------------
(In Thousands) Six Months Ended March 31, 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 334 $ 229,383
Dividends -- 3,314
- -----------------------------------------------------------------------------------------------------------------------
Total Income 334 232,697
- -----------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Services--Note B $ 29 $ 13,071
Less: Waived Fees (29) -- (13,071) --
Administrative Fee--Note C 6 2,788
Custodian Fee--Note E 5 213
Audit Fee 9 26
Legal Fee -- 56
Filing & Registration Fees 1 84
Other Expenses 2 150
Reimbursement of Expenses--Note B (11) (317)
- -----------------------------------------------------------------------------------------------------------------------
Total Expenses 12 3,000
- -----------------------------------------------------------------------------------------------------------------------
Expense Offset--Note H (1) (213)
- -----------------------------------------------------------------------------------------------------------------------
Net Expenses 11 2,787
- -----------------------------------------------------------------------------------------------------------------------
Net Investment Income 323 229,910
- -----------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities (1) (109,296)
Foreign Currency Transactions 465 --
Futures 20 (13,730)
- -----------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) 484 (123,026)
- -----------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities (500) (59,703)
Foreign Currency Transactions 121 --
Futures and Swaps 4 (11,737)
- -----------------------------------------------------------------------------------------------------------------------
Unrealized Appreciation (Depreciation) (375) (71,440)
- -----------------------------------------------------------------------------------------------------------------------
Net Gain (Loss) 109 (194,466)
- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 432 $ 35,444
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
13
<PAGE> 16
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(Amounts for the six months ended March 31, 1999 are unaudited)
<TABLE>
<CAPTION>
ADVISORY
FOREIGN ADVISORY
FIXED INCOME MORTGAGE
PORTFOLIO PORTFOLIO
---------------------------------------------------------------------
Six Months Six Months
Year Ended Ended Year Ended Ended
September 30, March 31, September 30, March 31,
(In Thousands) 1998 1999 1998 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ 9,012 $ 323 $ 303,099 $ 229,910
Realized Net Gain (Loss) 9,480 484 110,081 (123,026)
Change in Unrealized Appreciation (Depreciation) 589 (375) 34,164 (71,440)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting
from Operations 19,081 432 447,344 35,444
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:--Note A10
Net Investment Income (24,773) (9,526) (270,978) (192,113)
Realized Net Gain -- (1,724) (35,687) (140,602)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (24,773) (11,250) (306,665) (332,715)
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
Issued 245,094 -- 3,594,760 1,357,254
In Lieu of Cash Distributions 19,123 9,223 244,268 290,874
Redeemed (334,781) (1,490) (654,370) (336,921)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share
Transactions (70,564) 7,733 3,184,658 1,311,207
- ---------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (76,256) (3,085) 3,325,337 1,013,936
NET ASSETS:
Beginning of Period 93,939 17,683 3,071,427 6,396,764
- ---------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $ 17,683 $ 14,598 $ 6,396,764 $7,410,700
- ---------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) included
in end of period net assets $ 8,747 $ (456) $ 17,560 $ 55,357
- ---------------------------------------------------------------------------------------------------------------------------------
(1) Shares Issued and Redeemed
Shares Issued 24,440 -- 337,613 127,972
In Lieu of Cash Distributions 1,981 2,232 23,087 27,809
Shares Redeemed (33,786) (173) (61,395) (31,903)
- ---------------------------------------------------------------------------------------------------------------------------------
(7,365) 2,059 299,305 123,878
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
14
<PAGE> 17
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period
(Amounts for the six months ended March 31, 1999 are unaudited)
<TABLE>
<CAPTION>
Institutional Class
------------------------------------------------------------------
October 7, Year Ended September 30, Six Months
1994** to ------------------------- Ended
September 30, 1996 1997++ 1998++ March 31,
ADVISORY FOREIGN FIXED INCOME PORTFOLIO 1995 1999++
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.80 $ 11.73 $ 10.32 $ 10.18
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.74 0.68 0.58 0.48 0.11
Net Realized and Unrealized Gain (Loss) on Investments 0.44 1.02 0.80 0.48 0.08
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.18 1.70 1.38 0.96 0.19
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.38) (0.66) (1.88) (1.10) (5.52)
Realized Net Gain -- (0.11) (0.88) -- (1.00)
In Excess of Realized Net Gain -- -- (0.03) -- --
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.38) (0.77) (2.79) (1.10) (6.52)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.80 $ 11.73 $ 10.32 $ 10.18 $ 3.85
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 12.12% 16.47% 14.08% 10.19% 2.87%
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $ 537,133 $236,092 $93,939 $17,683 $ 14,598
Ratio of Expenses to Average Net Assets (1) 0.16%* 0.12% 0.14% 0.12% 0.16%*
Ratio of Net Investment Income to Average Net Assets 7.44%* 6.06% 5.68% 4.84% 4.16%*
Portfolio Turnover Rate 96% 170% 208% 318% 0%
- -------------------------------------------------------------------------------------------------------------------------------
(1) SUPPLEMENTAL INFORMATION ON THE RATIO OF EXPENSES TO
AVERAGE NET ASSETS:
Reduction in Ratio due to Expense Reimbursement/Waiver 0.38%* 0.38% 0.38% 0.38% 0.52%*
Ratio Including Expense Offsets 0.15%* 0.12% 0.14% 0.12% 0.15%*
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* Annualized
** Commencement of Operations
++ Per share amounts for the years ended September 30, 1997 and
September 30, 1998 and for the six months ended March 31,
1999 are based on average outstanding shares.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
15
<PAGE> 18
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period
(Amounts for the six months ended March 31, 1999 are unaudited)
<TABLE>
<CAPTION>
Institutional Class
---------------------------------------------------
April 12, Year Ended September 30, Six Months
1995** to -------------------------------- Ended
September 30, March 31,
ADVISORY MORTGAGE PORTFOLIO 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.41 $ 10.29 $ 10.59 $ 10.86
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.25 0.72 0.75 0.69 0.34
Net Realized and Unrealized Gain (Loss) on
Investments 0.35 (0.06) 0.34 0.36 (0.29)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.60 0.66 1.09 1.05 0.05
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.19) (0.72) (0.71) (0.67) (0.30)
Realized Net Gain -- (0.03) (0.08) (0.11) (0.22)
In Excess of Realized Net Gain -- (0.03) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.19) (0.78) (0.79) (0.78) (0.52)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.41 $ 10.29 $ 10.59 $ 10.86 $ 10.39
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 6.03% 6.56% 11.03% 10.36% 0.44%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $ 1,443,038 $1,974,592 $3,071,427 $6,396,764 $7,410,700
Ratio of Expenses to Average Net Assets (1) 0.10%* 0.09% 0.09% 0.09% 0.09%*
Ratio of Net Investment Income to Average Net
Assets 6.72%* 7.17% 7.55% 6.83% 6.69%*
Portfolio Turnover Rate 110% 139% 144% 126% 59%
- ---------------------------------------------------------------------------------------------------------------------------------
(1) SUPPLEMENTAL INFORMATION ON THE RATIO OF
EXPENSES TO AVERAGE NET ASSETS:
Reduction in Ratio due to Expense
Reimbursement/Waiver 0.49%* 0.39% 0.40% 0.40% 0.39%*
Ratio Including Expense Offsets 0.08%* 0.08% 0.08% 0.08% 0.08%*
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* Annualized
** Commencement of Operations
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
16
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
MAS Funds (the "Fund") is registered under the Investment Company Act of 1940
as an open-end investment company. At March 31, 1999, the Fund was comprised of
twenty-three active portfolios. The accompanying financial statements and
financial highlights are those of the Advisory Foreign Fixed Income and
Advisory Mortgage Portfolios (each referred to as a "Portfolio") only. The
financial statements of the remaining portfolios are presented separately.
A. SIGNIFICANT ACCOUNTING POLICIES. The following significant accounting
policies are in conformity with generally accepted accounting principles for
investment companies. Such policies are consistently followed by the Fund in
the preparation of its financial statements. Generally accepted accounting
principles may require management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual
results may differ from those estimates.
1. SECURITY VALUATION: Market values for equity securities listed on the New
York Stock Exchange ("NYSE") or other U.S. exchanges or NASDAQ are based on
the latest quoted sales prices as of the close of the NYSE (normally 4:00
p.m. Eastern Time) on the valuation date; securities not traded on the
valuation date are valued at the mean of the most recent quoted bid and
asked prices. Equity securities not listed are valued at the mean of the
most recent bid and asked prices. Securities listed on foreign exchanges
are valued at the latest quoted sales prices. Bonds and other fixed income
securities are valued using brokers' quotations or on the basis of prices,
provided by a pricing service, which are based primarily on institutional
size trading in similar groups of securities. Mortgage-backed securities
issued by certain government-related organizations are valued using
brokers' quotations which are based on a matrix system which considers such
factors as other security prices, yields and maturities. Short term
securities are valued using the amortized cost method of valuation, which
in the opinion of the Board of Trustees reflects fair value. Securities for
which no quotations are readily available are valued at their fair value as
determined in good faith using methods approved by the Board of Trustees.
2. FEDERAL INCOME TAXES: It is each Portfolio's intention to continue to
qualify as a regulated investment company and distribute all of its taxable
income. Accordingly, no provision for Federal income taxes is required in
the financial statements.
3. REPURCHASE AGREEMENTS: Securities pledged as collateral for repurchase
agreements are held by the Portfolios' custodian bank until maturity of the
repurchase agreements. Provisions of the agreements ensure that the market
value of the collateral is at least equal to the repurchase value in the
event of a default; however, in the event of default or bankruptcy by the
other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings.
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, the Portfolios may transfer their uninvested cash balances into
a joint trading account with other Portfolios of the Fund which invests in
one or more repurchase agreements. This joint repurchase agreement is
covered by the same collateral requirements as discussed above.
4. FUTURES: Futures contracts (secured by cash and securities deposited with
brokers as "initial margin") are valued based upon their quoted daily
settlement prices; changes in initial settlement value (represented by cash
paid to or received from brokers as ("variation margin") are accounted for
as unrealized appreciation (depreciation). When futures contracts are
closed, the difference between the opening value at the date of purchase
and the value at closing is recorded as realized gains or losses in the
Statement of Operations.
- --------------------------------------------------------------------------------
17
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
Futures contracts may be used by each Portfolio in order to hedge against
unfavorable changes in the value of securities or to attempt to realize
profits from the value of the underlying securities. Futures contracts
involve market risk in excess of the amounts recognized in the Statement of
Net Assets. Risks arise from the possible movements in security values
underlying these instruments. The change in value of futures contracts
primarily corresponds with the value of their underlying instruments, which
may not correlate with the change in value of the hedged investments. In
addition, there is the risk that a Portfolio may not be able to enter into
a closing transaction because of an illiquid secondary market.
5. SWAP AGREEMENTS: Each Portfolio may enter into swap agreements to exchange
the return generated by one instrument for the return generated by another
instrument. The following summarizes swaps entered into by the Portfolios:
Interest Rate Swaps: Interest rate swaps involve the exchange of
commitments to pay and receive interest based on a notional principal
amount. Net periodic interest payments to be received or paid are accrued
daily and are recorded in the Statement of Operations as an adjustment to
interest income. Interest rate swaps are marked-to-market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized appreciation or depreciation in the Statement of Operations.
Total Return Swaps: Total return swaps involve commitments to pay interest
in exchange for a market-linked return based on a notional amount. To the
extent the total return of the security or index underlying the transaction
exceeds or falls short of the offsetting interest obligation, the Portfolio
will receive a payment from or make a payment to the counterparty,
respectively. Total return swaps are marked-to-market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized appreciation or depreciation in the Statement of Operations.
Periodic payments received or made at the end of each measurement period,
but prior to termination, are recorded as realized gains or losses in the
Statement of Operations.
Realized gains or losses on maturity or termination of interest rate and
total return swaps are presented in the Statement of Operations. Because
there is no organized market for these swap agreements, the value reported
in the Statement of Net Assets may differ from that which would be realized
in the event the Portfolio terminated its position in the agreement. Risks
may arise upon entering into these agreements from the potential inability
of the counterparties to meet the terms of the agreements and are generally
limited to the amount of net interest payments to be received, if any, at
the date of default.
6. INTEREST RATE FLOOR AND CAP AGREEMENTS: A Portfolio may hold or write
interest rate floors or caps to protect itself against fluctuation in
interest rates. When a Portfolio writes an interest rate floor, it agrees
to make periodic interest payments to the holder of the interest rate floor
based on a notional principal amount to the extent that a specified
interest index falls below a specified interest rate. When a Portfolio
writes an interest rate cap, it agrees to make periodic interest payments
to the holder of the interest rate cap based on a notional principal amount
to the extent that a specified interest index rises above a specified
interest rate. Any premium received by a Portfolio is recorded as a
liability. Any premium paid by a Portfolio is recorded as an asset.
Interest rate caps and floors are marked-to-market daily based on
quotations from market makers and the change, if any, is recorded as
unrealized appreciation or depreciation in the Statement of Operations.
Periodic receipts or payments of interest, if any, are recorded in the
interest income account on the Statement of Operations.
- --------------------------------------------------------------------------------
18
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
Realized gains or losses from these agreements are disclosed in the
Statement of Operations.
Because there is no organized market for these agreements, the value
reported in the Statement of Net Assets may differ from that which would be
realized in the event the Portfolio terminated its position in the
agreement. Entering into these agreements involves, to varying degrees,
elements of interest rate and market risk in excess of the amount
recognized in the Statement of Net Assets. Such risks involve the
possibility that there may be no liquid market for these agreements and
that there may be adverse changes in interest rates or the index underlying
these transactions. Risk may arise upon entering into these agreements from
the potential inability of the counterparties to meet the terms of the
agreements and are generally limited to the amount of net interest payments
to be received.
7. STRUCTURED INVESTMENTS: Each Portfolio may invest in structured investments
whose values are linked either directly or inversely to changes in foreign
currencies, interest rates, commodities, indices, or other underlying
instruments. A Portfolio uses these securities to increase or decrease its
exposure to different underlying instruments and to gain exposure to
markets that might be difficult to invest in through conventional
securities. Structured investments may be more volatile than their
underlying instruments, but any loss is limited to the amount of the
original investment.
8. DELAYED DELIVERY COMMITMENTS: Each Portfolio may purchase or sell
securities on a when-issued or forward commitment basis. Payment and
delivery may take place a month or more after the date of the transaction.
The price of the underlying securities and the date when the securities
will be delivered and paid for are fixed at the time the transaction is
negotiated. Collateral consisting of liquid securities or cash is
maintained in an amount at least equal to these commitments.
9. FOREIGN EXCHANGE AND FORWARD CURRENCY CONTRACTS: The books and records of
the Fund are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars at the bid prices of such currencies against
U.S. dollars quoted by a bank. Net realized gains (losses) on foreign
currency transactions represent net foreign exchange gains (losses) from
forward foreign currency contracts, disposition of foreign currencies,
currency gains or losses realized between the trade and settlement dates on
securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on a Portfolio's
books and the U.S. dollar equivalent of amounts actually received or paid.
A forward foreign currency contract is an agreement between two parties to
buy or sell currency at a set price on a future date. Each Portfolio may
enter into forward foreign currency contracts to protect securities and
related receivables and payables against future changes in foreign exchange
rates. Fluctuations in the value of such contracts are recorded as
unrealized appreciation or depreciation; realized gains or losses, which
are disclosed in the Statement of Operations, include net gains or losses
on contracts which have been terminated by settlements. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and are generally
limited to the amount of unrealized gain on the contract, if any, at the
date of default. Risks may also arise from unanticipated movements in the
value of the foreign currency relative to the U.S. dollar.
At March 31, 1999, the Advisory Foreign Fixed Income Portfolio's net assets
included foreign denominated securities and currency. The net assets of the
Portfolio are presented at the foreign exchange rates and market values at
the close of the period. The
- --------------------------------------------------------------------------------
19
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
Portfolio does not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from the
fluctuations arising from changes in the market prices of the securities
held at period end. Similarly, the Portfolio does not isolate the effect of
changes in foreign exchange rates from the fluctuations arising from
changes in the market prices of securities sold during the period.
Accordingly, the component of realized and unrealized foreign currency
gains (losses) representing foreign exchange changes on investments is
included in the reported net realized and unrealized gains (losses) on
investment transactions and balances. Changes in currency exchange rates
will affect the value of and investment income from such securities and
currency.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of U.S. dollar
denominated transactions as a result of, among other factors, the possibly
lower level of governmental supervision and regulation of foreign
securities markets and the possibility of political or economic
instability.
10. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment
income, if any, are declared and paid quarterly for the Advisory Foreign
Fixed Income Portfolio and monthly for the Advisory Mortgage Portfolio. Net
realized capital gains are distributed at least annually. The amount and
character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing book and tax treatments for foreign currency transactions.
Permanent book and tax differences relating to shareholder distributions
may result in reclassifications to undistributed net investment income
(loss), undistributed realized net gain (loss) and paid in capital.
Permanent book-tax differences, if any, are not included in ending
undistributed net investment income (loss) for the purpose of calculating
net investment income (loss) per share in the Financial Highlights.
11. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and losses
on the sale of investment securities are those of specific securities sold.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recognized on the accrual basis.
Discounts and premiums on securities purchased are amortized over their
respective lives. Most expenses of the Fund can be directly attributed to a
particular Portfolio. Expenses which can not be directly attributed are
apportioned among the Portfolios on the basis of their relative net assets.
B. INVESTMENT ADVISORY FEE: Under the terms of an Investment Advisory
Agreement, each Portfolio pays Miller Anderson & Sherrerd, LLP ("MAS" or the
"Adviser"), wholly owned by indirect subsidiaries of Morgan Stanley Dean Witter
& Co., for investment advisory services performed at a fee calculated by
applying a quarterly rate based on an annual percentage rate of 0.375% of the
Portfolio's average daily net assets for the quarter.
The Adviser has voluntarily agreed to reduce the fees payable to it and, if
necessary, reimburse the Portfolios if annual operating expenses exceed 0.15%
and 0.08% of average daily net assets of the Advisory Foreign Fixed Income and
Advisory Mortgage Portfolios, respectively.
C. ADMINISTRATION FEE: MAS serves as Administrator to the Fund pursuant to an
Administration Agreement. Under the Agreement, MAS receives an annual fee
accrued daily and payable monthly, of 0.08% of each Portfolio's average daily
net assets. Chase Global Funds Services Company ("CGFSC") serves as Transfer
Agent to the Fund and provides fund accounting and
- --------------------------------------------------------------------------------
20
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
other services pursuant to a sub-administration agreement with MAS and receives
compensation from MAS for these services.
D. DISTRIBUTOR: MAS Funds Distribution, Inc. ("MASDI" or the "Distributor"), a
wholly owned subsidiary of the Adviser, is the distributor for the Fund. MASDI
is a limited-purpose broker/dealer whose only function is to distribute
open-end mutual fund shares.
E. CUSTODY: The Chase Manhattan Bank serves as custodian for the Fund in
accordance with a custodian agreement.
F. TRUSTEES' FEES: The Fund pays each Trustee, who is not also an officer or
affiliated person, an annual fee plus travel and other expenses incurred in
attending Board meetings. Trustees who are also officers or affiliated persons
receive no remuneration for their service as Trustees.
Each eligible Trustee of the Fund who is not an officer or affiliated person,
as defined under the Investment Company Act of 1940, as amended, participates
in the Trustees' Deferred Compensation Plan. Under the Trustees' Deferred
Compensation Plan, such Trustees must defer at least 25% of their fees and may
elect to defer payment up to 100% of their total fees earned as a Trustee of
the Fund. These deferred amounts are invested in the Portfolios selected by the
Trustee. Total Trustees fees incurred, for the six months ended March 31, 1999
by the Portfolios were $52,000.
Expenses for the six months ended March 31, 1999 include legal fees paid to
Morgan, Lewis & Bockius, LLP. A partner of that firm is secretary to the Fund.
G. PORTFOLIO INVESTMENT ACTIVITY:
1. PURCHASES AND SALES OF SECURITIES. For the six months ended March 31, 1999,
purchases and sales of investment securities other than temporary cash
investments were:
<TABLE>
<CAPTION>
(000)
-----------------------
Portfolio Purchases Sales
- ---------------------------------- ---------- ----------
<S> <C> <C>
Advisory Foreign Fixed Income $ -- $ --
Advisory Mortgage 8,123,309 6,113,853
</TABLE>
2. FEDERAL INCOME TAX COST AND UNREALIZED APPRECIATION (DEPRECIATION). At March
31, 1999, cost, unrealized appreciation, unrealized depreciation and net
unrealized appreciation (depreciation) of securities for Federal income tax
purposes were:
<TABLE>
<CAPTION>
(000)
---------------------------------------------------
Portfolio Cost Appreciation Depreciation Net
--------- ----------- ------------ ------------ -------
<S> <C> <C> <C> <C>
Advisory Foreign
Fixed Income $ 13,480 $ 186 $ -- $ 186
Advisory Mortgage 12,062,895 74,437 (56,195) 18,242
</TABLE>
3. FORWARD FOREIGN CURRENCY CONTRACTS. Under the terms of the forward foreign
currency contracts open at March 31, 1999, the Advisory Foreign Fixed Income
Portfolio is obligated to deliver or receive currency in exchange for U.S.
dollars as indicated in the following table:
<TABLE>
<CAPTION>
(000)
- -------------------------------------------------------------------------------------
Net
Currency In Unrealized
to Exchange Settlement Appreciation
Deliver For Date Value (Depreciation)
- ------------------------------- --------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
ADVISORY FOREIGN FIXED INCOME
Sales
EUR 3,215 US$ 3,648 4/26/99 US$ 3,481 US$ 167
EUR 3,060 3,552 4/27/99 3,314 238
DKK 3,300 504 5/5/99 481 23
-------
US$ 428
=======
</TABLE>
<TABLE>
<S> <C> <C>
DKK -- Danish Krone
EUR -- Euro
US$ -- U.S. Dollar
</TABLE>
4. FUTURES CONTRACTS. At March 31, 1999, the Portfolios had the following
futures contracts open:
<TABLE>
<CAPTION>
Unrealized
Number Aggregate Appreciation
of Face Value Expiration (Depreciation)
Portfolio Contracts (000) Date (000)
--------- --------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
Purchases:
ADVISORY FOREIGN FIXED INCOME
5 yr. Euro 47 EUR 4,908 Jun-99 US$ 50
ADVISORY MORTGAGE
U.S. Treasury 10
yr. Note 2,475 US$ 283,851 Jun-99 (524)
Sales:
ADVISORY MORTGAGE
90 day Euro 303 US$ 71,666 Jun-99- (746)
Mar-01
</TABLE>
<TABLE>
<S> <C> <C>
EUR -- Euro
US$ -- U.S. Dollar
</TABLE>
- --------------------------------------------------------------------------------
21
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
5. SWAP AGREEMENTS. At March 31, 1999, the Advisory Mortgage Portfolio had the
following open Interest Rate Swap Agreements:
<TABLE>
<CAPTION>
Unrealized
Notional Appreciation
Amount (Depreciation)
(000) Description (000)
- ------------------------------------------------------------
<S> <C> <C>
ADVISORY MORTGAGE
$230,000 Agreement with Bankers Trust
Company terminating July 21,
1999 to pay 1 month LIBOR
monthly and to receive fixed
rate at 6.12% semiannually. $ 1,122
$115,000 Agreement with Bankers Trust
Company terminating August 25,
2008 to pay 3 month LIBOR
monthly and to receive fixed
rate at 6.04% semiannually. 259
$50,000 Agreement with Bankers Trust
Company terminating August 27,
2008 to pay 3 month LIBOR
quarterly and to receive fixed
rate at 6.08% semiannually. 274
$116,000 Agreement with Bankers Trust
Company terminating August 27,
2008 to pay 3 month LIBOR
quarterly and to receive fixed
rate at 6.10% semiannually. 761
$29,000 Agreement with Bankers Trust
Company terminating August 28,
2008 to pay 3 month LIBOR
monthly and to receive fixed
rate at 6.03% semiannually. 52
$47,500 Agreement with Bankers Trust
Company terminating September
17, 2008 to pay 3 month LIBOR
quarterly and to receive fixed
rate at 6.19% semiannually. (1,259)
$78,000 Agreement with Bankers Trust
Company terminating September
21, 2008 to pay 3 month LIBOR
quarterly and to receive fixed
rate at 5.59% semiannually. (2,357)
--------
$ (1,148)
========
</TABLE>
LIBOR -- London Interbank Offer Rate
H. EXPENSE OFFSETS. Custodian fees appearing in the Statement of Operations
have been adjusted to include expense offsets for custodian balance credits of
$1,000 and $213,000 for the Advisory Foreign Fixed Income and the Advisory
Mortgage Portfolios, respectively.
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MAS FUNDS TRUSTEES AND OFFICERS
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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*, CFA
Chairman of the Board of Trustees; Managing Director, Morgan Stanley Dean Witter
& Co. ("MSDW"); 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. HEALY
Trustee; Headmaster, Ethical Culture Fieldston School; Trustee, Springside
School; formerly Headmaster, Haverford School; 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.
JAMES D. SCHMID
President, MAS Funds; Principal, MSDW; Head of Mutual Funds, Miller Anderson &
Sherrerd, LLP; Director, MAS Fund Distribution, Inc.
LORRAINE TRUTEN, CFA
Vice President, MAS Funds; Principal, MSDW; Head of Mutual Fund Services, Miller
Anderson & Sherrerd, LLP; President, MAS Fund Distribution, Inc.
JAMES A. GALLO
Treasurer, MAS Funds; Vice-President, MSDW; 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; Vice President, MSDW; Fund Compliance Officer,
Miller Anderson & Sherrerd, LLP; formerly Fund Legal Administrator and then
Counsel, Vice President and Assistant Secretary, SEI Corporation.
*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.
MAS Fund Distribution, Inc. serves as General Distribution Agent for MAS Funds.
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23
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[MAS BACK COVER]
[MAS FUNDS LOGO]
MILLER ANDERSON & SHERRERD, LLP
One Tower Bridge, West Conshohocken, PA 19428-2899
Investment Adviser: (610) 940-5000
MAS Funds: (800) 354-8185
Printed in U.S.A.
This Report has been prepared for
shareholders and may be distributed to
others only if preceded or accompanied by a
current prospectus.
