<PAGE>
MAS Funds
Supplement dated April 30, 1999 to the MAS Funds' Adviser Class Prospectus
dated January 31, 1999, as revised March 24, 1999.
This supplement provides new and additional information beyond that contained in
the Prospectus and should be read in conjunction with the Prospectus.
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT TEAM CHANGES
Page 11 of the Prospectus is hereby amended to include Gordon W. Loery
as a member of the portfolio management team of the High Yield Portfolio.
Page 30 of the Prospectus is hereby amended to include the following
description of Gordon W. Loery's business experience during the last five years:
Gordon W. Loery, Principal, MSDW, joined MAS in 1996. He served as a Fixed
Income Analyst at Morgan Stanley Asset Management Inc. from 1990 to 1996. He
joined the management team for the High Yield Portfolio in 1999.
- --------------------------------------------------------------------------------
Ann D. Thivierge has resigned from her position as a member of the
portfolio management team of the Multi-Asset-Class Portfolio and will focus her
efforts on other products offered by Morgan Stanley Dean Witter Investment
Management. Therefore, pages 15 and 30 of the Prospectus are hereby amended to
reflect this change.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>
MAS Funds
Supplement dated April 30, 1999 to the Statement of Additional Information
dated January 31, 1999
This supplement to the Statement of Additional Information dated January 31,
1999 provides new and additional information and should be retained and read in
conjunction with the Statement of Additional Information. Unless otherwise
indicated, defined terms have the same meaning as in the Statement of Additional
Information.
- --------------------------------------------------------------------------------
The following language supplements the information located in the "Investment
Adviser" section on pages 44-47 of the Statement of Additional Information.
Effective May 3, 1999, Morgan Stanley Dean Witter Advisors Inc. ("MSDW
Advisors") will serve as Sub-Adviser to the Cash Reserves Portfolio. MSDW
Advisors, located at Two World Trade Center, New York, New York 10048, is a
wholly-owned subsidiary of MSDW. Under an Investment Sub-Advisory Agreement with
the Adviser, MSDW Advisors, subject to the control and supervision of the Fund,
its officers and Trustees and the Adviser, and in accordance with the investment
objectives, policies and restrictions of the Cash Reserves Portfolio, will make
day-to-day investment decisions for the Cash Reserves Portfolio and place the
Portfolio's purchase and sales orders. The Adviser will pay MSDW Advisors 40% of
the fee the Adviser receives from the Cash Reserves Portfolio as compensation
for sub-advisory services. The Investment Sub-Advisory Agreement will continue
in effect for an initial term of two years, and thereafter for successive annual
periods as long as such continuance is approved in accordance with the 1940 Act.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>
[LOGO] INSTITUTIONAL CLASS PROSPECTUS
JANUARY 31, 1999
(AS REVISED APRIL 30, 1999)
- --------------------------------------------------------------------------------
Client Services: 1-800-354-8185 Prices and Investment Results: 1-800-522-1525
- --------------------------------------------------------------------------------
MAS FUNDS (the "Fund") is a no-load mutual fund consisting of 27 different
investment portfolios, 21 of which are described in this prospectus. Miller
Anderson & Sherrerd, LLP (the "Adviser"), a division of Morgan Stanley Dean
Witter Investment Management, is the Fund's investment adviser. This prospectus
offers Institutional Class Shares of the following portfolios (each a"Portfolio"
and collectively the "Portfolios"):
EQUITY PORTFOLIOS
EQUITY SMALL CAP GROWTH
MID CAP GROWTH SMALL CAP VALUE
MID CAP VALUE VALUE
FIXED INCOME PORTFOLIOS
CASH RESERVES INTERNATIONAL FIXED INCOME
DOMESTIC FIXED INCOME LIMITED DURATION
FIXED INCOME MULTI-MARKET FIXED INCOME
FIXED INCOME II MUNICIPAL
GLOBAL FIXED INCOME SPECIAL PURPOSE FIXED INCOME
HIGH YIELD TARGETED DURATION
INTERMEDIATE DURATION
BALANCED PORTFOLIOS
BALANCED
MULTI-ASSET-CLASS
INVESTMENT ADVISER
MILLER ANDERSON & SHERRERD, LLP
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
MORGAN STANLEY DEAN WITTER
- -------------------------- ONE TOWER BRIDGE O WEST CONSHOHOCKEN, PA 19428
INVESTMENT MANAGEMENT
<PAGE>
TABLE OF CONTENTS
INVESTMENT SUMMARY
INVESTOR SUITABILITY, INVESTMENT OBJECTIVES, PRINCIPAL
INVESTMENT STRATEGIES,
RISKS AND PERFORMANCE .................................. 1
EQUITY PORTFOLIOS
EQUITY ................................................. 2
MID CAP GROWTH ......................................... 3
MID CAP VALUE .......................................... 4
SMALL CAP GROWTH ....................................... 5
SMALL CAP VALUE ........................................ 6
VALUE .................................................. 7
FIXED INCOME PORTFOLIOS
CASH RESERVES .......................................... 8
DOMESTIC FIXED INCOME .................................. 9
FIXED INCOME ........................................... 10
FIXED INCOME II ........................................ 11
GLOBAL FIXED INCOME .................................... 12
HIGH YIELD ............................................. 13
INTERMEDIATE DURATION .................................. 14
INTERNATIONAL FIXED INCOME ............................. 15
LIMITED DURATION ....................................... 16
MULTI-MARKET FIXED INCOME .............................. 17
MUNICIPAL .............................................. 19
SPECIAL PURPOSE FIXED INCOME ........................... 20
TARGETED DURATION ...................................... 21
BALANCED PORTFOLIOS
BALANCED ............................................... 22
MULTI-ASSET-CLASS ...................................... 24
IMPORTANT INVESTMENT INFORMATION
DESCRIPTION OF PRINCIPAL INVESTMENTS ................... 26
FEES AND EXPENSES OF THE PORTFOLIOS
SHAREHOLDER FEES AND ANNUAL PORTFOLIO OPERATING EXPENSES 30
PURCHASING SHARES ......................................... 34
REDEEMING SHARES .......................................... 35
VALUATION OF SHARES ....................................... 36
GENERAL SHAREHOLDER INFORMATION
EXCHANGE PRIVILEGE, TAXES, DIVIDENDS AND DISTRIBUTIONS . 36
FUND MANAGEMENT
INFORMATION ABOUT THE ADVISER, THE SUB-ADVISER,
THE PORTFOLIO MANAGERS AND THE DISTRIBUTOR ........... 38
YEAR 2000 DISCLOSURE STATEMENT ............................ 41
FINANCIAL HIGHLIGHTS ...................................... 42
<PAGE>
INVESTMENT SUMMARY
This section explains each Portfolio's:
[ ] Investment Objective
[ ] Principal Investment Strategy
[ ] Principal Risks
The discussions on the following pages use a number of important investment
terms. These terms, printed in BOLD, are explained in the section entitled
"Important Investment Information," which follows the individual Portfolio
summaries.
There is more information about the Portfolios in the Statement of Additional
Information ("SAI"), which legally is a part of this prospectus. For details
about how to obtain the SAI, and other reports and information, see the back
cover of this prospectus.
INVESTOR SUITABILITY
[ ] The Portfolios may be suitable for you if you are a long-term investor who
can accept the risks of investing in the stock and bond markets. In fact,
some of the Portfolios strive to meet their investment objectives over an
extended period. These Portfolios focus on a market cycle of three to five
years. This means that the Portfolios will strive to meet their respective
investment objectives within that period without regard to interim market
fluctuations.
[ ] The Portfolios are designed principally for investment by fiduciary
investors who are entrusted with the responsibility of investing assets held
for the benefit of others.
[ ] While the Portfolios consider whether their securities transactions will
generate distributions taxable at capital gain or ordinary income rates,
minimizing such taxes is not a principal investment strategy. The Municipal
Portfolio may be a suitable investment for persons who would benefit from
tax-exempt income.
1
<PAGE>
EQUITY PORTFOLIO
OBJECTIVE
The Equity Portfolio seeks above-average total return over a market cycle of
three to five years.
APPROACH
The Portfolio invests primarily in common stocks and other EQUITY SECURITIES of
large companies. The Portfolio also makes targeted investments in stocks of
small companies and invests to a limited extent in FOREIGN EQUITY SECURITIES.
The Adviser may use DERIVATIVES in managing the Portfolio.
PROCESS
A team of portfolio managers, organized into "value" and "growth" units, manages
the Portfolio. While the Portfolio's overall sector allocation is driven by
bottom-up stock selection, the Adviser tries to diversify the Portfolio's
investments across market sectors, seeking the best values within each sector.
In determining whether securities should be sold, the Adviser considers factors
such as high price/earnings ratios and relative valuations.
PRINCIPAL RISKS
The prices of common stocks and other equity securities will rise and fall in
response to events that affect entire financial markets or industries, and to
events that affect a particular issuer. Investments in smaller companies may
involve greater risk than investments in larger, more established companies, and
smaller companies' securities may be subject to more abrupt or erratic price
movements. The Portfolio also may be subject to the risks associated with
derivatives. The Portfolio's investments in foreign securities are subject to
certain risks, including the risks associated with fluctuating currency exchange
rates. Please read the section entitled "Important Investment Information" for
more information about these risks.
GENERALLY AT LEAST 65% INVESTED
IN EQUITY SECURITIES
- ----------------------------------------------------
EQUITY CAPITALIZATION GENERALLY
GREATER THAN $1 BILLION
- ----------------------------------------------------
BENCHMARK: S&P 500 INDEX
- ----------------------------------------------------
TICKER SYMBOL: MPEQX
- ----------------------------------------------------
CUSIP NO.: 552-913-105
PORTFOLIO MANAGERS
- ----------------------------------------------------
ARDEN C. ARMSTRONG, JAMES J. JOLINGER,
NICHOLAS J. KOVICH, BRIAN KRAMP,
ROBERT J. MARCIN AND
GARY G. SCHLARBAUM
- --------------------------------------------------------------------------------
EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
COMMENCED OPERATIONS ON NOVEMBER 14, 1984
1989 - 28.28%
1990 - -0.09%
1991 - 39.96%
1992 - 7.78%
1993 - 6.66%
1994 - 0.50%
1995 - 33.02%
1996 - 20.59%
1997 - 25.84%
1998 - 19.67%
- --------------------------------------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
- --------------------------------------------------------------------------------
QUARTER ENDED 12/31/98 QUARTER ENDED 9/30/90
21.34% -15.00%
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (AS OF 12/31/98)
- --------------------------------------------------------------------------------
EQUITY PORTFOLIO S&P 500 INDEX
- --------------------------------------------------------------------------------
ONE YEAR 19.67 28.57
- --------------------------------------------------------------------------------
FIVE YEARS 19.41 24.06
- --------------------------------------------------------------------------------
TEN YEARS 17.48 19.21
- --------------------------------------------------------------------------------
SINCE INCEPTION
11/14/84 17.26 18.70
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1, 5 and 10 year periods and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The variability of
performance over time provides an indication of the risks of investing in the
Portfolio. How the Portfolio has performed in the past does not necessarily
indicate how the Portfolio will perform in the future.
2
<PAGE>
MID CAP GROWTH PORTFOLIO
OBJECTIVE
The Mid Cap Growth Portfolio seeks long-term capital growth.
APPROACH
The Portfolio invests primarily in common stocks and other EQUITY SECURITIES
having capitalizations in the range of companies included in the S&P MidCap 400
Index. The Adviser particularly focuses on the expectations of stock analysts
and invests the Portfolio in stocks of companies that it believes will report
earnings growth exceeding analysts' expectations. The Portfolio may invest to a
limited extent in FOREIGN EQUITY SECURITIES. The Adviser may use DERIVATIVES in
managing the Portfolio.
PROCESS
The Adviser uses a quantitative screen to sort stocks based on revisions to
analysts' earnings predictions. The Adviser then conducts extensive fundamental
research into those companies with the most attractive earnings revisions.
Finally, the Adviser evaluates the valuation of the stocks to eliminate from
consideration the most overvalued stocks. The Adviser also follows a strict sell
discipline. The Portfolio sells stocks when their earnings revision scores fall
to unacceptable levels, fundamental research reveals unfavorable trends, or
their valuations exceed levels that are reasonable in relation to the stocks'
growth prospects.
PRINCIPAL RISKS
The prices of common stocks and other equity securities will rise and fall in
response to events that affect entire financial markets or industries, and
events that affect a particular issuer. Investments in smaller companies may
involve greater risk than investments in larger, more established companies, and
smaller companies' securities may be subject to more abrupt or erratic price
movements. Certain market conditions may favor growth stocks or stocks of
mid-sized companies, while other conditions may favor value stocks or stocks of
larger or smaller companies. Accordingly, a portfolio of mid cap growth stocks
may, over certain periods of time, underperform a portfolio of value stocks or
stocks of larger or smaller companies. The Portfolio also may be subject to the
risks associated with derivatives. The Portfolio's investments in foreign
securities are subject to certain risks, including the risks associated with
fluctuating currency exchange rates. Please read the section entitled "Important
Investment Information" for more information about these risks.
GENERALLY 65% INVESTED IN EQUITY
SECURITIES OF MID CAP COMPANIES
- ----------------------------------------------------------------
EQUITY CAPITALIZATION GENERALLY
MATCHING THE BENCHMARK (CURRENTLY
$500 MILLION TO $6 BILLION)
- ----------------------------------------------------------------
FOCUS ON GROWTH SECURITIES
- ----------------------------------------------------------------
BENCHMARK: S&P MIDCAP 400 INDEX
- ----------------------------------------------------------------
TICKER SYMBOL: MPEGX
- ----------------------------------------------------------------
CUSIP NO.: 552-913-782
PORTFOLIO MANAGERS
- ----------------------------------------------------------------
Arden C. Armstrong and David P. Chu
- --------------------------------------------------------------------------------
MID CAP GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
COMMENCED OPERATIONS ON MARCH 30, 1990
1991 - 59.39%
1992 - 2.91%
1993 - 18.23%
1994 - -5.39%
1995 - 36.25%
1996 - 18.79%
1997 - 33.13%
1998 - 37.36%
- --------------------------------------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
- --------------------------------------------------------------------------------
QUARTER ENDED 12/31/98 QUARTER ENDED 9/30/98
36.03% -19.18%
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- --------------------------------------------------------------------------------
MID CAP S&P MIDCAP
GROWTH PORTFOLIO 400 INDEX
- --------------------------------------------------------------------------------
ONE YEAR 37.36 19.12
- --------------------------------------------------------------------------------
FIVE YEARS 22.87 18.84
- --------------------------------------------------------------------------------
SINCE INCEPTION
3/30/90 22.61 18.57
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1 and 5 year periods and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The variability of
performance over time provides an indication of the risks of investing in the
Portfolio. How the Portfolio has performed in the past does not necessarily
indicate how the Portfolio will perform in the future.
3
<PAGE>
MID CAP VALUE PORTFOLIO
OBJECTIVE
The Mid Cap Value Portfolio seeks above-average total return over a market cycle
of three to five years.
APPROACH
The Portfolio invests primarily in common stocks and other EQUITY SECURITIES
having capitalizations in the range of companies included in the S&P MidCap 400
Index. The Portfolio focuses on stocks that are undervalued based on the
Adviser's proprietary measures of value. While VALUE STOCKS typically pay
dividends, the Portfolio may purchase stocks that do not pay dividends based on
other value characteristics. The Portfolio may invest to a limited extent in
FOREIGN EQUITY SECURITIES. The Adviser may use DERIVATIVES in managing the
Portfolio.
PROCESS
The Adviser continually measures the relative attractiveness of the Portfolio's
current holdings against potential purchases, analyzing each security on a
fundamental basis. The Portfolio's holdings typically will have lower
price/earnings ratios than the average stock included in the S&P MidCap 400
Index. In determining whether securities should be sold, the Adviser considers
factors such as high valuations relative to other investment opportunities, and
deteriorating short or long-term earnings growth projections. Sector weightings
normally are kept within 5% of those of the S&P MidCap 400 Index.
PRINCIPAL RISKS
The prices of common stocks and other equity securities will rise and fall in
response to events that affect entire financial markets or industries, and to
events that affect a particular issuer. Investments in smaller companies may
involve greater risk than investments in larger, more established companies, and
smaller companies' securities may be subject to more abrupt or erratic price
movements. Certain market conditions may favor value stocks or stocks of
mid-sized companies, while other conditions may favor growth stocks or stocks of
larger or smaller companies. Accordingly, a portfolio of mid cap value stocks
may, over certain periods of time, underperform a portfolio of growth stocks or
stocks of larger or smaller companies. The Portfolio also may be subject to the
risks associated with derivatives. The Portfolio's investments in foreign
securities are subject to certain risks, including the risks associated with
fluctuating currency exchange rates. Please read the section entitled "Important
Investment Information" for more information about these risks.
GENERALLY AT LEAST 65% INVESTED IN EQUITY SECURITIES OF MID CAP COMPANIES
- --------------------------------------------------------------------------------
EQUITY CAPITALIZATION GENERALLY MATCHING THE BENCHMARK (CURRENTLY $500 MILLION
TO $6 BILLION)
- --------------------------------------------------------------------------------
FOCUS ON VALUE SECURITIES
- --------------------------------------------------------------------------------
BENCHMARK: S&P MIDCAP 400 INDEX
- --------------------------------------------------------------------------------
TICKER SYMBOL: MPMVX
- --------------------------------------------------------------------------------
CUSIP NO.: 552-913-618
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
BRADLEY S. DANIELS, WILLIAM B. GERLACH, CHRIS LEAVY AND GARY G. SCHLARBAUM
<PAGE>
- --------------------------------------------------------------------------------
MID CAP VALUE PORTFOLIO
- --------------------------------------------------------------------------------
COMMENCED OPERATIONS ON DECEMBER 30, 1994
1995 - 32.71%
1996 - 40.77%
1997 - 39.58%
1998 - 16.05%
- --------------------------------------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
- --------------------------------------------------------------------------------
QUARTER ENDED 12/31/98 QUARTER ENDED 9/30/98
22.46% -13.80%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- --------------------------------------------------------------------------------
MID CAP S&P MIDCAP
VALUE PORTFOLIO 400 INDEX
- --------------------------------------------------------------------------------
ONE YEAR 16.05 19.12
- --------------------------------------------------------------------------------
SINCE INCEPTION
12/30/94 31.87 25.20
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1 year period and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The variability of
performance over time provides an indication of the risks of investing in the
Portfolio. How the Portfolio has performed in the past does not necessarily
indicate how the Portfolio will perform in the future.
4
<PAGE>
- --------------------------------------------------------------------------------
SMALL CAP GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE
The Small Cap Growth Portfolio seeks long-term capital growth.
APPROACH
The Portfolio invests primarily in common stocks and other EQUITY SECURITIES
with equity capitalizations in the range of companies included in the Russell
2000 Index. The Adviser particularly focuses on companies that demonstrate high
earnings growth rates, growth stability, and rising profitability. In
particular, the Portfolio invests in companies that appear to be capable of
producing earnings that consistently beat market expectations. The Portfolio may
invest to a limited extent in FOREIGN EQUITY SECURITIES. The Adviser may use
DERIVATIVES in managing the Portfolio.
PROCESS
The Adviser uses a quantitative screen to sort stocks based on revisions to
analysts' earnings predictions. The Adviser then conducts extensive fundamental
research into those companies with the most attractive earnings revisions.
Finally, the Adviser evaluates the valuation of the stocks to eliminate the most
overvalued stocks from consideration. The Adviser also follows a strict sell
discipline. The Portfolio sells stocks when their earnings revision scores fall
to unacceptable levels, fundamental research reveals unfavorable trends, or
their valuations exceed levels that are reasonable in relation to the stocks'
growth prospects.
PRINCIPAL RISKS
The prices of common stocks and other equity securities will rise and fall in
response to events that affect entire financial markets or industries, and to
events that affect a particular issuer. Investments in smaller companies may
involve greater risk than investments in larger, more established companies, and
smaller companies' securities may be subject to more abrupt or erratic price
movements. Certain market conditions may favor growth stocks or stocks of small
companies, while other conditions may favor value stocks or stocks of larger
companies. Accordingly, a portfolio of small cap growth stocks may, over certain
periods of time, underperform a portfolio of value stocks or stocks of larger
companies. The Portfolio also may be subject to the risks associated with
derivatives. The Portfolio's investments in foreign securities are subject to
certain risks, including the risks associated with fluctuating currency exchange
rates. Please read the section entitled "Important Investment Information" for
more information about these risks.
GENERALLY AT LEAST 65% INVESTED IN EQUITIES OF SMALL CAP COMPANIES
- --------------------------------------------------------------------------------
EQUITY CAPITALIZATION RANGE: $250 MILLION TO $2.5 BILLION
- --------------------------------------------------------------------------------
FOCUS ON GROWTH SECURITIES
- --------------------------------------------------------------------------------
BENCHMARK: RUSSELL 2000 INDEX
- --------------------------------------------------------------------------------
TICKER SYMBOL: NOT AVAILABLE
- --------------------------------------------------------------------------------
CUSIP NO.: 552-913-253
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
ARDEN C. ARMSTRONG AND DAVID P. CHU
No performance information is provided because the Small Cap Growth Portfolio
had been in operation for less than a year as of 12/31/98.
5
<PAGE>
- --------------------------------------------------------------------------------
SMALL CAP VALUE PORTFOLIO (Not currently being offered to new investors)
- --------------------------------------------------------------------------------
OBJECTIVE
The Small Cap Value Portfolio seeks above-average total return over a market
cycle of three to five years.
APPROACH
The Portfolio invests primarily in common stocks and other EQUITY SECURITIES
with equity capitalizations in the range of companies included in the Russell
2000 Index. The Portfolio focuses on stocks that are undervalued based on the
Adviser's proprietary measures of value. While VALUE STOCKS typically pay
dividends, the Portfolio may purchase stocks that do not pay dividends based on
other value characteristics. The Portfolio may invest to a limited extent in
FOREIGN EQUITY SECURITIES. The Adviser may use DERIVATIVES in managing the
Portfolio.
PROCESS
The Adviser continually measures the relative attractiveness of the Portfolio's
current holdings against potential purchases, analyzing each security on a
fundamental basis. The Portfolio's holdings typically have lower price/earnings
and price/book ratios than the stocks in the Russell 2000 Index. In determining
whether securities should be sold, the Adviser considers factors such as high
valuations relative to other investment opportunities, and deteriorating short
or long-term earnings growth projections. The Portfolio will normally keep its
sector weightings within 5% of those of the index.
PRINCIPAL RISKS
The prices of common stocks and other equity securities will rise and fall in
response to events that affect entire financial markets or industries, and to
events that affect a particular issuer. Investments in smaller companies may
involve greater risk than investments in larger, more established companies, and
smaller companies' securities may be subject to more abrupt or erratic price
movements. Certain market conditions may favor value stocks or stocks of small
companies, while other conditions may favor growth stocks or stocks of larger
companies. Accordingly, a portfolio of small cap value stocks may, over certain
periods of time, underperform a portfolio of growth stocks or stocks of larger
companies. The Portfolio also may be subject to the risks associated with
derivatives. The Portfolio's investments in foreign securities are subject to
certain risks, including the risks associated with fluctuating currency exchange
rates. Please read the section entitled "Important Investment Information" for
more information about these risks.
GENERALLY AT LEAST 65% INVESTED IN EQUITIES OF SMALL CAP COMPANIES
- --------------------------------------------------------------------------------
EQUITY CAPITALIZATION GENERALLY MATCHING THE BENCHMARK (CURRENTLY $100 MILLION
TO $2 BILLION)
- --------------------------------------------------------------------------------
FOCUS ON VALUE SECURITIES
- --------------------------------------------------------------------------------
BENCHMARK: RUSSELL 2000 INDEX
- --------------------------------------------------------------------------------
TICKER SYMBOL: MPSCX
- --------------------------------------------------------------------------------
CUSIP NO.: 552-913-501
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
BRADLEY S. DANIELS, WILLIAM B. GERLACH, CHRIS LEAVY AND GARY G. SCHLARBAUM
<PAGE>
- --------------------------------------------------------------------------------
SMALL CAP VALUE PORTFOLIO
- --------------------------------------------------------------------------------
COMMENCED OPERATIONS ON JULY 1, 1986
1989 - 17.61%
1990 - -16.55%
1991 - 63.78%
1992 - 22.77%
1993 - 21.16%
1994 - 2.18%
1995 - 21.04%
1996 - 35.15%
1997 - 30.63%
1998 - -1.42%
- --------------------------------------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
- --------------------------------------------------------------------------------
QUARTER ENDED 3/31/91 QUARTER ENDED 9/30/90
31.89% -27.20%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- --------------------------------------------------------------------------------
SMALL CAP RUSSELL 2000
VALUE PORTFOLIO INDEX
- --------------------------------------------------------------------------------
ONE YEAR -1.42 -2.55
- --------------------------------------------------------------------------------
FIVE YEARS 16.57 11.87
- --------------------------------------------------------------------------------
TEN YEARS 17.80 12.92
- --------------------------------------------------------------------------------
SINCE INCEPTION
7/1/86 13.25 10.23
- --------------------------------------------------------------------------------
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1, 5 and 10 year periods and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The variability of
performance over time provides an indication of the risks of investing in the
Portfolio. How the Portfolio has performed in the past does not necessarily
indicate how the Portfolio will perform in the future.
6
<PAGE>
- --------------------------------------------------------------------------------
VALUE PORTFOLIO
- --------------------------------------------------------------------------------
OBJECTIVE
The Value Portfolio seeks above-average total return over a market cycle of
three to five years.
APPROACH
The Portfolio invests primarily in common stocks and other EQUITY SECURITIES
with equity capitalizations greater than $1.5 billion. The Portfolio focuses on
stocks that are undervalued in comparison with the stock market as a whole, as
measured by the S&P 500 Index. While VALUE STOCKS typically pay dividends, the
Portfolio may purchase stocks that do not pay dividends based on other value
characteristics. The Portfolio may invest in FOREIGN EQUITY SECURITIES to a
limited extent. The Adviser may use DERIVATIVES in managing the Portfolio.
PROCESS
The Adviser narrows the Portfolio's universe of possible investments through a
three part analysis. The Adviser selects stocks having the lowest price/earnings
ratios. The Adviser applies fundamental analysis and its investment judgment to
determine which of those securities are the most attractive. The Adviser also
may favor securities of companies that are in undervalued industries. The
Adviser employs a formal sell discipline, under which the Portfolio sells
securities when their price/earnings ratios rise.
PRINCIPAL RISKS
The prices of common stocks and other equity securities will rise and fall in
response to events that affect entire financial markets or industries, and to
events that affect a particular issuer. Investments in smaller companies may
involve greater risk than investments in larger, more established companies, and
smaller companies' securities may be subject to more abrupt or erratic price
movements. Certain market conditions may favor value stocks, while other
conditions may favor growth stocks. Accordingly, a portfolio of value stocks
may, over certain periods of time, underperform a portfolio of growth stocks.
The Portfolio also may be subject to the risks associated with derivatives. The
Portfolio's investments in foreign securities are subject to certain risks,
including the risks associated with fluctuating currency exchange rates. Please
read the section entitled "Important Investment Information" for more
information about these risks.
GENERALLY AT LEAST 65% INVESTED IN EQUITIES
- --------------------------------------------------------------------------------
EQUITY CAPITALIZATION GENERALLY GREATER THAN $1.5 BILLION
- --------------------------------------------------------------------------------
FOCUS ON VALUE SECURITIES
- --------------------------------------------------------------------------------
BENCHMARK: S&P 500 INDEX
- --------------------------------------------------------------------------------
TICKER SYMBOL: MPVLX
- --------------------------------------------------------------------------------
CUSIP NO.: 552-913-204
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
RICHARD M. BEHLER, NICHOLAS J. KOVICH AND ROBERT J. MARCIN
<PAGE>
- --------------------------------------------------------------------------------
VALUE PORTFOLIO
- --------------------------------------------------------------------------------
COMMENCED OPERATIONS ON NOVEMBER 5, 1984
1989 - 20.73%
1990 - -6.16%
1991 - 37.65%
1992 - 14.61%
1993 - 14.34%
1994 - 3.48%
1995 - 38.75%
1996 - 27.63%
1997 - 23.38%
1998 - -2.88%
- --------------------------------------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
- --------------------------------------------------------------------------------
QUARTER ENDED 3/31/91 QUARTER ENDED 9/30/98
17.05% -19.02%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- --------------------------------------------------------------------------------
VALUE S&P 500
PORTFOLIO INDEX
- --------------------------------------------------------------------------------
ONE YEAR -2.88 28.57
- --------------------------------------------------------------------------------
FIVE YEARS 17.03 24.06
- --------------------------------------------------------------------------------
TEN YEARS 16.20 19.21
- --------------------------------------------------------------------------------
SINCE INCEPTION
11/5/84 16.39 18.55
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1, 5 and 10 year periods and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The variability of
performance over time provides an indication of the risks of investing in the
Portfolio. How the Portfolio has performed in the past does not necessarily
indicate how the Portfolio will perform in the future.
7
<PAGE>
CASH RESERVES PORTFOLIO
OBJECTIVE
The Cash Reserves Portfolio seeks to realize maximum current income, consistent
with the preservation of capital and liquidity.
APPROACH
The Portfolio tries to maintain a stable net asset value of $1.00 per share by
investing exclusively in liquid, high quality money market instruments. Money
market instruments consist of certain types of FIXED INCOME SECURITIES including
commercial paper, certificates of deposit, U.S. Treasury bills, floating rate
notes and repurchase agreements, among others. The Portfolio's average weighted
maturity will not exceed 90 days, and no individual security will have an
expected maturity in excess of 397 days.
PROCESS
The Portfolio's Sub-Adviser, Morgan Stanley Dean Witter Advisors Inc.,
determines the appropriate average maturity for the Portfolio based on the shape
of the money market yield curve and its view of the direction of short term
interest rates over the next one to six months. The Sub-Adviser invests in a
variety of securities in order to diversify credit risk, as well as interest
rate risk. Securities are selected on the basis of their value, adjusted for
risk. The Sub-Adviser may sell securities when it believes that expected risk
adjusted return is low compared to other investment opportunities, when a
security is downgraded or for liquidity needs.
PRINCIPAL RISKS
The market prices of fixed income securities generally rise and fall in response
to changes in interest rates and the credit quality of individual issuers. The
Portfolio invests in the money market obligations of private financial and
non-financial corporations, as well as obligations of the U.S. Government and
its agencies and instrumentalities. If an issuer's credit rating is downgraded,
the market value of its money market obligations may fall. Repurchase agreements
are subject to additional risks associated with the possibility of default by
the seller at a time when the collateral has declined in value, or insolvency of
the seller, which may affect the Portfolio's right to control the collateral.
Please read the section entitled "Important Investment Information" for more
information about these risks. An investment in the Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Portfolio.
DOLLAR WEIGHTED AVERAGE MATURITY
LESS THAN 90 DAYS
- ----------------------------------------------
100% OF NON-U.S. GOVERNMENT
SECURITIES RATED A-1/P-1 OR BETTER BY
MOODY'S OR STANDARD & POOR'S
- ----------------------------------------------
INDIVIDUAL MATURITIES 397 DAYS OR LESS
- ----------------------------------------------
BENCHMARK: SALOMON 1-MONTH
TREASURY BILL INDEX;
LIPPER MONEY
MARKET AVERAGE
- ----------------------------------------------
TICKER SYMBOL: MPCXX
- ----------------------------------------------
CUSIP NO.: 552-913-758
<PAGE>
PORTFOLIO MANAGERS
- ----------------------------------------------
DALE R. ALBRIGHT AND JONATHAN R. PAGE
- --------------------------------------------------------------------------------
CASH RESERVES PORTFOLIO
- --------------------------------------------------------------------------------
COMMENCED OPERATIONS ON AUGUST 29, 1990
1991 - 5.81%
1992 - 3.46%
1993 - 2.80%
1994 - 3.93%
1995 - 5.75%
1996 - 5.24%
1997 - 5.39%
1998 - 5.36%
- --------------------------------------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
- --------------------------------------------------------------------------------
QUARTER ENDED 3/31/91 QUARTER ENDED 3/31/93
1.64% 0.66%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- --------------------------------------------------------------------------------
CASH SALOMON LIPPER MONEY
RESERVES 1-MONTH TREASURY MARKET
PORTFOLIO BILL INDEX AVERAGE
- --------------------------------------------------------------------------------
ONE YEAR 5.36 4.56 5.26
- --------------------------------------------------------------------------------
FIVE YEARS 5.13 4.70 4.86
- --------------------------------------------------------------------------------
SINCE INCEPTION
8/29/90 4.85 4.43 4.58
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1 and 5 year periods and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The Lipper Money
Market Average is an index that shows the performance of other money market
funds. The variability of performance over time provides an indication of the
risks of investing in the Portfolio. How the Portfolio has performed in the past
does not necessarily indicate how the Portfolio will perform in the future. You
may obtain the Portfolio's SEC 7-day current yield by calling 1-800-522-1525.
8
<PAGE>
DOMESTIC FIXED INCOME PORTFOLIO
OBJECTIVE
The Domestic Fixed Income Portfolio seeks above-average total return over a
market cycle of three to five years.
APPROACH
The Portfolio invests exclusively in U.S. Government securities and other
investment grade FIXED INCOME SECURITIES of U.S. issuers, including corporate
bonds and MORTGAGE SECURITIES. The Adviser will use futures, swaps and other
DERIVATIVES in managing the Portfolio.
PROCESS
The Adviser actively manages the maturity and DURATION of the Portfolio in
anticipation of long-term trends in interest rates and inflation. Depending on
the Adviser's outlook for the economy, interest rates and inflation, the Adviser
may lengthen or shorten the Portfolio's average maturity or duration. The
portfolio managers as a team determine the Portfolio's overall maturity and
duration targets and sector allocations. The portfolio managers then
individually select particular securities for the Portfolio in various sectors
within those overall guidelines. The Adviser alters the Portfolio's weightings
in various sectors based on its perception of value. The Adviser may sell
securities when it believes that expected risk-adjusted return is low compared
to other investment opportunities.
PRINCIPAL RISKS
Market prices of the Portfolio's holdings respond to economic developments,
especially changes in interest rates, as well as to perceptions of the
creditworthiness of individual issuers. Generally, fixed income securities
decrease in value as interest rates rise and vice versa. Prices of fixed income
securities also generally will fall if an issuer's credit rating declines, and
rise if it improves. The prices of mortgage securities may be particularly
sensitive to changes in interest rates because of the risk that borrowers will
become more or less likely to refinance their mortgages. For example, an
increase in interest rates generally will reduce prepayments, effectively
lengthening the maturity of some mortgage securities, and make them subject to
more drastic price movements. Because of prepayment issues, it is not possible
to predict the ultimate maturity of mortgage securities. The Portfolio also is
subject to the risks associated with using derivatives. Please read the section
entitled "Important Investment Information" for more information about these
risks.
100% U.S. ISSUERS
- ----------------------------------------------
GENERALLY AT LEAST 65% INVESTED IN
FIXED INCOME SECURITIES
- ----------------------------------------------
80% OF FIXED INCOME SECURITIES RATED
A OR HIGHER (OR EQUIVALENT)
- ----------------------------------------------
UP TO 20% OF FIXED INCOME
SECURITIES RATED BBB (OR EQUIVALENT)
- ----------------------------------------------
AVERAGE WEIGHTED MATURITY
GENERALLY GREATER THAN 5 YEARS
- ----------------------------------------------
MAY INVEST OVER 50% IN MORTGAGE
SECURITIES
- ----------------------------------------------
BENCHMARK: SALOMON BROAD
INVESTMENT GRADE
INDEX
- ----------------------------------------------
TICKER SYMBOL: MPSFX
- ----------------------------------------------
CUSIP NO.: 552-913-881
<PAGE>
PORTFOLIO MANAGERS
- ----------------------------------------------
THOMAS L. BENNETT, KENNETH B. DUNN
AND RICHARD B. WORLEY
- --------------------------------------------------------------------------------
DOMESTIC FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
COMMENCED OPERATIONS ON SEPTEMBER 29, 1987
1989 - 11.22%
1990 - 7.19%
1991 - 21.54%
1992 - 9.12%
1993 - 13.75%
1994 - -3.89%
1995 - 18.85%
1996 - 3.89%
1997 - 9.62%
1998 - 7.23%
- --------------------------------------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
- --------------------------------------------------------------------------------
QUARTER ENDED 9/30/91 QUARTER ENDED 3/31/92
7.48% -2.28%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
DOMESTIC SALOMON BROAD
FIXED INCOME INVESTMENT GRADE
PORTFOLIO INDEX
- --------------------------------------------------------------------------------
ONE YEAR 7.23 8.72
- --------------------------------------------------------------------------------
FIVE YEARS 6.88 7.30
- --------------------------------------------------------------------------------
TEN YEARS 9.63 9.31
- --------------------------------------------------------------------------------
SINCE INCEPTION
9/29/87 9.80 9.48
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1, 5 and 10 year periods and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The variability of
performance over time provides an indication of the risks of investing in the
Portfolio. How the Portfolio has performed in the past does not necessarily
indicate how the Portfolio will perform in the future.
9
<PAGE>
FIXED INCOME PORTFOLIO
OBJECTIVE
The Fixed Income Portfolio seeks above average total return over a market cycle
of three to five years.
APPROACH
The Portfolio invests in a diversified portfolio of FIXED INCOME SECURITIES,
including U.S. Government securities, corporate bonds, MORTGAGE SECURITIES, and
to a limited extent, FOREIGN FIXED INCOME SECURITIES. The Portfolio invests
primarily in investment grade securities, but also may invest a portion of its
assets in HIGH YIELD SECURITIES, also known as "junk bonds." The Adviser will
use futures, swaps and other DERIVATIVES in managing the Portfolio.
PROCESS
The Adviser actively manages the maturity and DURATION of the Portfolio in
anticipation of long-term trends in interest rates and inflation. Depending on
the Adviser's outlook for the economy, interest rates and inflation, the Adviser
may lengthen or shorten the Portfolio's average maturity or duration. The
portfolio managers as a team determine the Portfolio's overall maturity and
duration targets and sector allocations. The portfolio managers then
individually select particular securities for the Portfolio in various sectors
within those overall guidelines. The Adviser alters the Portfolio's weightings
in various sectors based on its perception of value. The Adviser may sell
securities when it believes that expected risk-adjusted return is low compared
to other investment opportunities.
PRINCIPAL RISKS
Market prices of the Portfolio's holdings respond to economic developments,
especially changes in interest rates, as well as to perceptions of the
creditworthiness of individual issuers. Generally, fixed income securities
decrease in value as interest rates rise and vice versa. Prices of fixed income
securities also generally will fall if an issuer's credit rating declines, and
rise if it improves.
The prices of mortgage securities may be particularly sensitive to changes in
interest rates because of the risk that borrowers will become more or less
likely to refinance their mortgages. For example, an increase in interest rates
generally will reduce prepayments, effectively lengthening the maturity of some
mortgage securities, and make them subject to more drastic price movements.
Because of prepayment issues, it is not possible to predict the ultimate
maturity of mortgage securities.
The Portfolio's investments in high yield securities expose it to a substantial
degree of credit risk. Prices of high yield securities will rise and fall
primarily in response to changes in the issuer's financial health, although
changes in market interest rates also will affect prices. High yield securities
may experience reduced liquidity, and sudden and substantial decreases in price,
during certain market conditions.
The Portfolio also is subject to the risks of investing in derivatives and, to a
limited extent, foreign fixed income securities. Foreign fixed income securities
may be denominated in foreign currencies, which will fluctuate in value relative
to the U.S. dollar. The Portfolio may use derivatives to hedge some or all of
the risks associated with foreign currencies. Certain hedging strategies or
instruments may not be available or practical in certain markets or under
certain conditions. Hedging the Portfolio's currency risks involves certain
risks, including the possibility of mismatching the Portfolio's obligations
under a forward or futures contract with the value of securities denominated in
a particular currency. Please read the section entitled "Important Investment
Information" for more information about these risks.
GENERALLY AT LEAST 65% INVESTED IN
FIXED INCOME SECURITIES
- ------------------------------------------------
AVERAGE WEIGHTED MATURITY
GENERALLY GREATER THAN 5 YEARS
- ------------------------------------------------
80% INVESTMENT GRADE SECURITIES
- ------------------------------------------------
UP TO 20% HIGH YIELD SECURITIES
- ------------------------------------------------
MAY INVEST OVER 50% IN MORTGAGE
SECURITIES
- ------------------------------------------------
BENCHMARK: SALOMON BROAD
INVESTMENT GRADE
INDEX
- ------------------------------------------------
TICKER SYMBOL: MPFIX
- ------------------------------------------------
CUSIP NO.: 552-913-303
<PAGE>
PORTFOLIO MANAGERS
- ------------------------------------------------
THOMAS L. BENNETT, KENNETH B. DUNN
AND RICHARD B. WORLEY
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
COMMENCED OPERATIONS ON NOVEMBER 14, 1984
1989 - 11.19%
1990 - 7.16%
1991 - 21.49%
1992 - 8.46%
1993 - 13.90%
1994 - -5.51%
1995 - 19.03%
1996 - 7.36%
1997 - 9.61%
1998 - 6.91%
- --------------------------------------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
- --------------------------------------------------------------------------------
QUARTER ENDED 9/30/91 QUARTER ENDED 3/31/94
7.56% -3.13%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- --------------------------------------------------------------------------------
FIXED SALOMON BROAD
INCOME INVESTMENT
PORTFOLIO GRADE INDEX
- --------------------------------------------------------------------------------
ONE YEAR 6.91 8.72
- --------------------------------------------------------------------------------
FIVE YEARS 7.19 7.30
- --------------------------------------------------------------------------------
TEN YEARS 9.73 9.31
- --------------------------------------------------------------------------------
SINCE INCEPTION
11/14/84 10.63 10.11
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1, 5 and 10 year periods and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The variability of
performance over time provides an indication of the risks of investing in the
Portfolio. How the Portfolio has performed in the past does not necessarily
indicate how the Portfolio will perform in the future.
10
<PAGE>
FIXED INCOME II PORTFOLIO
OBJECTIVE
The Fixed Income II Portfolio seeks above average total return over a market
cycle of three to five years.
APPROACH
The Portfolio invests in U.S. Government securities and other investment grade
FIXED INCOME SECURITIES, including corporate bonds and MORTGAGE SECURITIES. The
Portfolio invests principally in securities of U.S. issuers, and to a limited
extent in FOREIGN FIXED INCOME SECURITIES. The Adviser will use futures, swaps
and other DERIVATIVES in managing the Portfolio.
PROCESS
The Adviser actively manages the maturity and DURATION of the Portfolio in
anticipation of long-term trends in interest rates and inflation. Depending on
the Adviser's outlook for the economy, interest rates and inflation, the Adviser
may lengthen or shorten the Portfolio's average maturity or duration. The
portfolio managers as a team determine the Portfolio's overall maturity and
duration targets and sector allocations. The portfolio managers then
individually select particular securities for the Portfolio in various sectors
within those overall guidelines. The Adviser alters the Portfolio's weightings
in various sectors based on its perception of value. The Adviser may sell
securities when it believes that expected risk-adjusted return is low compared
to other investment opportunities.
PRINCIPAL RISKS
Market prices of the Portfolio's holdings respond to economic developments,
especially changes in interest rates, as well as to perceptions of the
creditworthiness of individual issuers. Generally, fixed income securities
decrease in value as interest rates rise and vice versa. Prices of fixed income
securities also generally will fall if an issuer's credit rating declines, and
rise if it improves.
The prices of mortgage securities may be particularly sensitive to changes in
interest rates because of the risk that borrowers will become more or less
likely to refinance their mortgages. For example, an increase in interest rates
generally will reduce prepayments, effectively lengthening the maturity of some
mortgage securities, and make them subject to more drastic price movements.
Because of prepayment issues, it is not possible to predict the ultimate
maturity of mortgage securities. The Portfolio also is subject to the risks
associated with using derivatives.
Foreign fixed income securities may be denominated in foreign currencies, which
will fluctuate in value relative to the U.S. dollar. The Portfolio may use
derivatives to hedge some or all of the risks associated with foreign
currencies. Certain hedging strategies or instruments may not be available or
practical in certain markets or under certain conditions. Hedging the
Portfolio's currency risks involves certain risks, including the possibility of
mismatching the Portfolio's obligations under a forward or futures contract with
the value of securities denominated in a particular currency. Please read the
section entitled "Important Investment Information" for more information about
these risks.
GENERALLY AT LEAST 65% INVESTED IN
FIXED INCOME SECURITIES
- -------------------------------------------------
100% INVESTMENT GRADE SECURITIES
- -------------------------------------------------
AVERAGE WEIGHTED MATURITY
GENERALLY GREATER THAN 5 YEARS
- -------------------------------------------------
MAY INVEST OVER 50% IN MORTGAGE
SECURITIES
- -------------------------------------------------
BENCHMARK: SALOMON BROAD
INVESTMENT GRADE
INDEX
- -------------------------------------------------
TICKER SYMBOL: MPFDX
- -------------------------------------------------
CUSIP NO.: 552-913-741
<PAGE>
PORTFOLIO MANAGERS
- -------------------------------------------------
THOMAS L. BENNETT, KENNETH B. DUNN
AND RICHARD B. WORLEY
- --------------------------------------------------------------------------------
FIXED INCOME II PORTFOLIO
- --------------------------------------------------------------------------------
COMMENCED OPERATIONS ON AUGUST 31, 1990
1991 - 19.29%
1992 - 7.03%
1993 - 12.62%
1994 - -5.15%
1995 - 18.67%
1996 - 5.53%
1997 - 9.29%
1998 - 7.54%
- --------------------------------------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
- --------------------------------------------------------------------------------
QUARTER ENDED 9/30/91 QUARTER ENDED 3/31/92
7.64% -2.78%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- --------------------------------------------------------------------------------
FIXED SALOMON BROAD
INCOME II INVESTMENT
PORTFOLIO GRADE INDEX
- --------------------------------------------------------------------------------
ONE YEAR 7.54 8.72
- --------------------------------------------------------------------------------
FIVE YEARS 6.90 7.30
- --------------------------------------------------------------------------------
SINCE INCEPTION
8/31/90 9.76 9.11
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1 and 5 year periods and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The variability of
performance over time provides an indication of the risks of investing in the
Portfolio. How the Portfolio has performed in the past does not necessarily
indicate how the Portfolio will perform in the future.
11
<PAGE>
GLOBAL FIXED INCOME PORTFOLIO
OBJECTIVE
The Global Fixed Income Portfolio seeks above average total return over a market
cycle of three to five years.
APPROACH
The Portfolio invests primarily in high grade FIXED INCOME SECURITIES of U.S.
and foreign issuers. In the United States, the Portfolio will invest primarily
in a combination of U.S. government, corporate and MORTGAGE SECURITIES offering
attractive values. The Portfolio may invest in HIGH YIELD SECURITIES and
emerging market fixed income securities to a limited extent. Most of the
Portfolio's FOREIGN FIXED INCOME SECURITIES will be issued by foreign
governments and international organizations (e.g., the World Bank). The Adviser
may use futures, swaps and other DERIVATIVES in managing the Portfolio.
PROCESS
The Adviser uses fundamental research on relative values, together with analysis
of economic, interest rate and exchange rate trends, to determine the desired
country, currency and DURATION exposures for the Portfolio. The portfolio
managers then select particular securities for the Portfolio in various sectors
within the overall guidelines set by the management team. The Adviser may sell
securities when it believes that expected risk - adjusted return is low compared
to other investment opportunities.
PRINCIPAL RISKS
The Portfolio is subject to the risks of investing in foreign fixed income
securities. News and events unique to a country or region will affect those
markets and their issuers, yet may have little or no effect on the U.S. economy
or similar issuers located in the United States. Many of the Portfolio's
investments will be denominated in a foreign currency. Changes in the values of
those currencies compared to the U.S. dollar may affect the value of the
Portfolio's investments. These changes may happen separately from and in
response to events that do not otherwise affect the value of the security in the
issuer's home country. The Adviser may use derivatives and other techniques to
manage these risks. The Adviser may, in its discretion, use derivatives to hedge
currency risks. However, the Adviser cannot guarantee that it will succeed in
doing so. Certain hedging strategies or instruments may not be available or
practical in certain markets or under certain conditions. Hedging the
Portfolio's currency risks involves certain risks, including the possibility of
mismatching the Portfolio's obligations under a forward or futures contract with
the value of securities denominated in a particular currency.
Market prices of fixed income securities respond to economic developments,
especially changes in interest rates, and perceptions of the creditworthiness of
individual issuers. Generally, fixed income securities decrease in value as
interest rates rise and vice versa. Prices of fixed income securities also
generally will fall if an issuer's credit rating declines, and rise if it
improves.
The Portfolio is a non-diversified portfolio that may invest in a relatively
limited number of issuers. As a result, the Portfolio's performance may be
affected by the rise and fall in the prices of fixed income securities of a
relatively small number of companies. The Portfolio also is subject to the risks
associated with investing in derivatives and, to a limited extent, high yield
securities and emerging market securities. Please read the section entitled
"Important Investment Information" for more information about these risks.
GENERALLY AT LEAST 65% INVESTED IN
FIXED INCOME SECURITIES OF ISSUERS IN
AT LEAST 3 COUNTRIES, INCLUDING THE U.S.
- ------------------------------------------------
95% INVESTMENT GRADE SECURITIES
- ------------------------------------------------
UP TO 5% INVESTED IN HIGH YIELD
SECURITIES
- ------------------------------------------------
AVERAGE WEIGHTED MATURITY
GENERALLY GREATER THAN 5 YEARS
- ------------------------------------------------
BENCHMARK: SALOMON WORLD
GOVERNMENT BOND
INDEX
- ------------------------------------------------
TICKER SYMBOL: MAGFX
- ------------------------------------------------
CUSIP NO.: 552-913-683
<PAGE>
PORTFOLIO MANAGERS
- ------------------------------------------------
J. DAVID GERMANY, MICHAEL KUSHMA,
PAUL F. O'BRIEN AND RAM WILLNER
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
COMMENCED OPERATIONS ON APRIL 30, 1993
1994 - -1.57%
1995 - 20.02%
1996 - 6.03%
1997 - -0.02%
1998 - 14.10%
- --------------------------------------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
- --------------------------------------------------------------------------------
QUARTER ENDED 3/31/95 QUARTER ENDED 3/31/97
8.03% -4.11%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- --------------------------------------------------------------------------------
GLOBAL FIXED SALOMON WORLD
INCOME GOVERNMENT
PORTFOLIO BOND INDEX
- --------------------------------------------------------------------------------
ONE YEAR 14.10 15.29
- --------------------------------------------------------------------------------
FIVE YEARS 7.40 7.85
- --------------------------------------------------------------------------------
SINCE INCEPTION
4/30/93 8.12 7.87
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1 and 5 year periods and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The variability of
performance over time provides an indication of the risks of investing in the
Portfolio. How the Portfolio has performed in the past does not necessarily
indicate how the Portfolio will perform in the future.
12
<PAGE>
HIGH YIELD PORTFOLIO
OBJECTIVE
The High Yield Portfolio seeks above average total return over a market cycle of
three to five years.
APPROACH
The Portfolio invests primarily in HIGH YIELD SECURITIES (commonly referred to
as "junk bonds"). The Portfolio also may invest in other FIXED INCOME
SECURITIES, including U.S. Government securities, investment grade corporate
bonds and, to a limited extent, MORTGAGE SECURITIES. The Portfolio may invest to
a limited extent in FOREIGN FIXED INCOME SECURITIES, including EMERGING MARKET
SECURITIES. The Adviser will use futures, swaps and other DERIVATIVES in
managing the Portfolio.
PROCESS
The Adviser uses equity and fixed income valuation techniques, together with
analyses of economic and industry trends, to determine the Portfolio's overall
structure, sector allocation and desired maturity. The Adviser emphasizes
securities of companies that have strong industry positions and favorable
outlooks for cash flow and asset values. The Adviser conducts a credit analysis
for each security considered for investment to evaluate its attractiveness
relative to the level of risk it presents. The Portfolio maintains a high level
of diversification to minimize its exposure to the risks associated with any
particular issuer. The Adviser may sell securities when it believes that
expected risk - adjusted return is low compared to other investment
opportunities.
PRINCIPAL RISKS
Market prices of the Portfolio's fixed income securities holdings respond to
economic developments, especially changes in interest rates, as well as to
perceptions of the creditworthiness of individual issuers. The Portfolio's
investments in high yield securities expose it to a substantial degree of credit
risk. These investments are considered speculative under traditional investment
standards. Prices of high yield securities will rise and fall primarily in
response to changes in the issuer's financial health, although changes in market
interest rates also will affect prices. Generally, fixed income securities
decrease in value as interest rates rise and vice versa. High yield securities
may experience reduced liquidity, and sudden and substantial decreases in price,
during certain market conditions.
The Portfolio also is subject to the risks associated with using derivatives.
Foreign fixed income securities may be denominated in foreign currencies, which
will fluctuate in value relative to the U.S. dollar. The Portfolio may use
derivatives to hedge some or all of the risks associated with foreign
currencies. Certain hedging strategies or instruments may not be available or
practical in certain markets or under certain conditions. Hedging the
Portfolio's currency risks involves certain risks, including the possibility of
mismatching the Portfolio's obligations under a forward or futures contract with
the value of securities denominated in a particular currency. Please read the
section entitled "Important Investment Information" for more information about
these risks.
AVERAGE WEIGHTED MATURITY
GENERALLY GREATER THAN 5 YEARS
- ----------------------------------------
GENERALLY AT LEAST 65% INVESTED IN
HIGH YIELD SECURITIES
- ----------------------------------------
BENCHMARK: SALOMON HIGH
YIELD INDEX
- ----------------------------------------
TICKER SYMBOL: MPHYX
- ----------------------------------------
CUSIP NO.: 552-913-790
<PAGE>
PORTFOLIO MANAGERS
- ----------------------------------------
ROBERT E. ANGEVINE, THOMAS L. BENNETT,
STEPHEN F. ESSER AND GORDON W. LOERY
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
COMMENCED OPERATIONS ON FEBRUARY 28, 1989
1990 - -10.94%
1991 - 44.17%
1992 - 18.51%
1993 - 24.57%
1994 - -7.06%
1995 - 23.94%
1996 - 15.29%
1997 - 15.98%
1998 - 3.16%
- --------------------------------------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
- --------------------------------------------------------------------------------
QUARTER ENDED 3/31/91 QUARTER ENDED 9/30/90
24.81% -12.74%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- --------------------------------------------------------------------------------
SALOMON
HIGH YIELD HIGH YIELD
PORTFOLIO INDEX
- --------------------------------------------------------------------------------
ONE YEAR 3.16 3.61
- --------------------------------------------------------------------------------
FIVE YEARS 9.70 9.06
- --------------------------------------------------------------------------------
SINCE INCEPTION
2/28/89 11.19 11.00
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1 and 5 year periods and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The variability of
performance over time provides an indication of the risks of investing in the
Portfolio. How the Portfolio has performed in the past does not necessarily
indicate how the Portfolio will perform in the future.
13
<PAGE>
INTERMEDIATE DURATION PORTFOLIO
OBJECTIVE
The Intermediate Duration Portfolio seeks above average total return over a
market cycle of three to five years.
APPROACH
The Portfolio invests primarily in U.S. Government securities and investment
grade corporate bonds, MORTGAGE and other FIXED INCOME SECURITIES. The Portfolio
may invest to a limited extent in FOREIGN FIXED INCOME SECURITIES. The Portfolio
maintains an average duration of between two and five years. The Adviser will
use futures, swaps and other DERIVATIVES in managing the Portfolio.
PROCESS
The Adviser actively manages the Portfolio's maturity and DURATION in
anticipation of long-term trends in interest rates and inflation. The Adviser
analyzes interest rates, the yield curve, the relative appeal of U.S. versus
foreign fixed income securities, credit quality and the likelihood of
prepayments. The Adviser perceives high real interest rates and a steep yield
curve as indicators of value. The portfolio management team selects individual
securities based on their relative values. The Adviser may sell securities when
it believes that expected risk - adjusted return is low compared to other
investment opportunities.
PRINCIPAL RISKS
Market prices of the Portfolio's holdings respond to economic developments,
especially changes in interest rates, as well as to perceptions of the
creditworthiness of individual issuers. Generally, fixed income securities
decrease in value as interest rates rise and vice versa. Prices of fixed income
securities also will fall if an issuer's credit rating declines, and rise if it
improves. The prices of mortgage securities may be particularly sensitive to
changes in interest rates because of the risk that borrowers will become more or
less likely to refinance their mortgages. For example, an increase in interest
rates generally will reduce prepayments, effectively lengthening the maturity of
some mortgage securities, and make them subject to more drastic price movements.
Because of prepayment issues, it is not possible to predict the ultimate
maturity of mortgage securities.
The Portfolio also is subject to the risks associated with using derivatives.
Foreign fixed income securities may be denominated in foreign currencies, which
will fluctuate in value relative to the U.S. dollar. The Portfolio may use
derivatives to hedge some or all of the risks associated with foreign
currencies. Certain hedging strategies or instruments may not be available or
practical in certain markets or under certain conditions. Hedging the
Portfolio's currency risks involves certain risks, including the possibility of
mismatching the Portfolio's obligations under a forward or futures contract with
the value of securities denominated in a particular currency. Please read the
section entitled "Important Investment Information" for more information about
these risks.
GENERALLY AT LEAST 65% INVESTED IN
FIXED INCOME SECURITIES
- ------------------------------------------------------
100% INVESTMENT GRADE SECURITIES
- ------------------------------------------------------
AVERAGE DURATION 2-5 YEARS
- ------------------------------------------------------
MAY INVEST OVER 50% IN MORTGAGE
SECURITIES
- ------------------------------------------------------
BENCHMARK: LEHMAN BROTHERS
INTERMEDIATE
GOVERNMENT/
CORPORATE INDEX
- ------------------------------------------------------
TICKER SYMBOL: MAIDX
- ------------------------------------------------------
CUSIP NO.: 552-913-642
PORTFOLIO MANAGERS
- ------------------------------------------------------
ANGELO G. MANIOUDAKIS AND
SCOTT F. RICHARD
- --------------------------------------------------------------------------------
INTERMEDIATE DURATION PORTFOLIO
- --------------------------------------------------------------------------------
COMMENCED OPERATIONS ON OCTOBER 3, 1994
1995 - 15.38%
1996 - 5.94%
1997 - 8.07%
1998 - 7.03%
- --------------------------------------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
- --------------------------------------------------------------------------------
QUARTER ENDED 3/31/95 QUARTER ENDED 3/31/96
4.80% 0.20%
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- --------------------------------------------------------------------------------
LEHMAN BROTHERS
INTERMEDIATE INTERMEDIATE
DURATION GOVERNMENT/CORPORATE
PORTFOLIO INDEX
- --------------------------------------------------------------------------------
ONE YEAR 7.03 8.44
- --------------------------------------------------------------------------------
SINCE INCEPTION
10/3/94 8.38 8.29
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1 year period and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The variability of
performance over time provides an indication of the risks of investing in the
Portfolio. How the Portfolio has performed in the past does not necessarily
indicate how the Portfolio will perform in the future.
14
<PAGE>
INTERNATIONAL FIXED INCOME PORTFOLIO
OBJECTIVE
The International Fixed Income Portfolio seeks above average total return over a
market cycle of three to five years.
APPROACH
The Portfolio invests primarily in high grade FOREIGN FIXED INCOME SECURITIES.
The Portfolio may invest to a limited degree IN HIGH YIELD SECURITIES and
EMERGING MARKET FIXED INCOME SECURITIES. The Adviser will use futures, swaps and
other DERIVATIVES in managing the Portfolio.
PROCESS
The portfolio management team determines the desired country, currency and
duration exposures for the Portfolio. The Adviser manages the Portfolio's
DURATION and exposure to particular countries and currencies by conducting
fundamental research on relative values and analyzing economic, interest rate
and exchange rate trends. The portfolio managers select particular securities
for the Portfolio in various sectors within the overall guidelines set by the
team. The Adviser may sell securities when it believes that expected risk -
adjusted return is low compared to other investment opportunities.
PRINCIPAL RISKS
The Portfolio is subject to the risks of investing in foreign fixed income
securities. News and events unique to a country or region will affect those
markets and their issuers, yet may have little or no effect on the U.S. economy
or similar issuers located in the United States. Many of the Portfolio's
investments will be denominated in a foreign currency. Changes in the values of
those currencies compared to the U.S. dollar may affect the value of the
Portfolio's investments. These changes may happen separately from, and in
response to, events that do not otherwise affect the value of the security in
the issuer's home country. The Adviser may use derivatives and other techniques
to manage these risks. The Adviser may, in its discretion, use derivatives to
hedge currency risks. However, the Adviser cannot guarantee that it will succeed
in doing so. Certain hedging strategies or instruments may not be available or
practical in certain markets or under certain conditions. Hedging the
Portfolio's currency risks involves certain risks, including the possibility of
mismatching the Portfolio's obligations under a forward or futures contract with
the value of securities denominated in a particular currency.
Market prices of fixed income securities respond to economic developments,
especially changes in interest rates, and perceptions of the creditworthiness of
individual issuers. Generally, fixed income securities decrease in value as
interest rates rise and vice versa. Prices of fixed income securities also
generally will fall if an issuer's credit rating declines, and rise if it
improves.
The Portfolio is a non-diversified portfolio that may invest in a relatively
limited number of issuers. As a result, the Portfolio's performance may be
affected by the rise and fall in the price of fixed income securities of a
relatively small number of companies. The Portfolio also is subject to the risks
associated with investing in derivatives, high yield securities and emerging
market securities. Please read the section entitled "Important Investment
Information" for more information about these risks.
GENERALLY AT LEAST 80% INVESTED IN
FIXED INCOME SECURITIES OF ISSUERS IN
AT LEAST 3 COUNTRIES OTHER THAN
THE U.S.
- -------------------------------------------------
95% INVESTMENT GRADE SECURITIES
- -------------------------------------------------
UP TO 5% INVESTED IN HIGH YIELD
SECURITIES
- -------------------------------------------------
AVERAGE WEIGHTED MATURITY GENERALLY
GREATER THAN 5 YEARS
- -------------------------------------------------
BENCHMARK: SALOMON WORLD
GOVERNMENT BOND
EX-U.S. INDEX
- -------------------------------------------------
TICKER SYMBOL: MPIFX
- -------------------------------------------------
CUSIP NO.: 552-913-816
<PAGE>
PORTFOLIO MANAGERS
- -------------------------------------------------
J. DAVID GERMANY, MICHAEL KUSHMA
AND PAUL F. O'BRIEN
- --------------------------------------------------------------------------------
INTERNATIONAL FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
COMMENCED OPERATIONS ON APRIL 29, 1994
1995 - 19.64%
1996 - 6.20%
1997 - -3.97%
1998 - 17.74%
- --------------------------------------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
- --------------------------------------------------------------------------------
QUARTER ENDED 3/31/95 QUARTER ENDED 3/31/97
10.86% -5.74%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- --------------------------------------------------------------------------------
SALOMON WORLD
INTERNATIONAL GOVERNMENT
FIXED INCOME BOND EX-U.S.
PORTFOLIO INDEX
- --------------------------------------------------------------------------------
ONE YEAR 17.74 17.79
- --------------------------------------------------------------------------------
SINCE INCEPTION
4/29/94 8.34 8.27
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1 year period and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The variability of
performance over time provides an indication of the risks of investing in the
Portfolio. How the Portfolio has performed in the past does not necessarily
indicate how the Portfolio will perform in the future.
15
<PAGE>
LIMITED DURATION PORTFOLIO
OBJECTIVE
The Limited Duration Portfolio seeks above average total return over a market
cycle of three to five years.
APPROACH
The Portfolio invests primarily in U.S. Government securities and other
investment grade FIXED INCOME SECURITIES, including corporate bonds and mortgage
securities. While the Portfolio generally does not invest in FOREIGN SECURITIES,
it may invest in Brady Bonds The Portfolio maintains an average duration of
between one and three years. The Adviser will use futures, swaps and other
DERIVATIVES in managing the Portfolio.
PROCESS
The Adviser seeks to earn excess returns by actively managing the interest rate
risk of the portfolio and by selecting attractive individual securities. The
Adviser perceives times of high real interest rates and steep yield curves as
good times to have extra interest rate risk, and manages the portfolio's
DURATION accordingly. The Adviser selects specific securities based on their
relative values as compared with U.S. Treasury securities, and takes into
account their yield spreads as adjusted to reflect option and credit risk. The
Adviser may sell securities when it believes that expected risk adjusted return
is low compared to other investment opportunities.
PRINCIPAL RISKS
Market prices of the Portfolio's holdings respond to economic developments,
especially changes in interest rates, as well as to perceptions of the
creditworthiness of individual issuers. Generally, fixed income securities
decrease in value as interest rates rise and vice versa. Prices of fixed income
securities also generally will fall if an issuer's credit rating declines, and
rise if it improves. The prices of mortgage securities may be particularly
sensitive to changes in interest rates because of the risk that borrowers will
become more or less likely to refinance their mortgages. For example, an
increase in interest rates generally will reduce prepayments, effectively
lengthening the maturity of some mortgage securities, and make them subject to
more drastic price movements. Because of prepayment issues, it is not possible
to predict the ultimate maturity of mortgage securities.
The Portfolio also is subject to the risks associated with using derivatives.
Brady Bonds are subject to certain risks, including the risk of default by the
issuer, and if denominated in foreign currencies, the risk that the currencies
will fluctuate in value relative to the U.S. dollar. The Portfolio may use
derivatives to hedge some or all of the risks associated with foreign
currencies. Certain hedging strategies or instruments may not be available or
practical in certain markets or under certain conditions. Hedging the
Portfolio's currency risks involves certain risks, including the possibility of
mismatching the Portfolio's obligations under a forward or futures contract with
the value of securities denominated in a particular currency. Please read the
section entitled "Important Investment Information" for more information about
these risks.
GENERALLY AT LEAST 65% INVESTED IN
FIXED INCOME SECURITIES
- -----------------------------------------------
100% INVESTMENT GRADE SECURITIES
- -----------------------------------------------
MAY INVEST IN BRADY BONDS
- -----------------------------------------------
AVERAGE DURATION 1-3 YEARS
- -----------------------------------------------
BENCHMARK: SALOMON 1-3
YEAR TREASURY/
GOVERNMENT
SPONSORED INDEX
- -----------------------------------------------
TICKER SYMBOL: MPLDX
- -----------------------------------------------
CUSIP NO.: 552-913-733
<PAGE>
PORTFOLIO MANAGERS
- -----------------------------------------------
MICHELE A. KREISLER AND
SCOTT F. RICHARD
- --------------------------------------------------------------------------------
LIMITED DURATION PORTFOLIO
- --------------------------------------------------------------------------------
COMMENCED OPERATIONS ON MARCH 31, 1992
1993 - 5.97%
1994 - -0.07%
1995 - 10.37%
1996 - 5.27%
1997 - 6.25%
1998 - 5.63%
- --------------------------------------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
- --------------------------------------------------------------------------------
QUARTER ENDED 3/31/95 QUARTER ENDED 3/31/94
3.23% -0.95%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- --------------------------------------------------------------------------------
SALOMON 1-3
LIMITED YEAR TREASURY/
DURATION GOVERNMENT SPONSORED
PORTFOLIO INDEX
- --------------------------------------------------------------------------------
ONE YEAR 5.63 6.95
- --------------------------------------------------------------------------------
FIVE YEARS 5.44 5.94
- --------------------------------------------------------------------------------
SINCE INCEPTION
3/31/92 5.92 6.11
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1 and 5 year periods and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The variability of
performance over time provides an indication of the risks of investing in the
Portfolio. How the Portfolio has performed in the past does not necessarily
indicate how the Portfolio will perform in the future.
16
<PAGE>
MULTI-MARKET FIXED INCOME PORTFOLIO
OBJECTIVE
The Multi-Market Fixed Income Portfolio seeks above average total return over a
market cycle of three to five years.
APPROACH
The Portfolio invests in a diversified portfolio of U.S. and FOREIGN FIXED
INCOME SECURITIES, including MORTGAGE SECURITIES, HIGH YIELD SECURITIES
(commonly referred to as "junk bonds") and EMERGING MARKET SECURITIES. The
Adviser will use futures, swaps and other DERIVATIVES in managing the Portfolio.
PROCESS
The Adviser determines the Portfolio's overall maturity and DURATION targets and
sector allocations. The portfolio managers then select particular securities for
the Portfolio in various sectors within those overall guidelines. The Adviser
may increase or decrease the Portfolio's exposure to interest rate changes based
on its outlook for the economy, interest rates and inflation. The Portfolio
invests varying amounts in U.S. and foreign securities (including emerging
market securities), and investment grade and high yield securities, based on the
Adviser's perception of their relative values. The Adviser may sell securities
when it believes that expected risk - adjusted return is low compared to other
investment opportunities.
PRINCIPAL RISKS
Market prices of the Portfolio's holdings respond to economic developments,
especially changes in interest rates, as well as to perceptions of the
creditworthiness of individual issuers. Generally, fixed income securities
decrease in value as interest rates rise and vice versa. Prices of fixed income
securities also generally will fall if an issuer's credit rating declines, and
rise if it improves. The prices of mortgage securities may be particularly
sensitive to changes in interest rates because of the risk that borrowers will
become more or less likely to refinance their mortgages. For example, an
increase in interest rates generally will reduce prepayments, effectively
lengthening the maturity of some mortgage securities, and make them subject to
more drastic price movements. Because of prepayment issues, it is not possible
to predict the ultimate maturity of mortgage securities
The Portfolio is subject to the risks of investing in foreign fixed income
securities. News and events unique to a country or region will affect those
markets and their issuers, yet may have little or no effect on the U.S. economy
or similar issuers located in the United States. Many of the Portfolio's foreign
securities will be denominated in a foreign currency. Changes in the values of
those currencies compared to the U.S. dollar may affect the value of the
Portfolio's investments. These changes may happen separately from and in
response to events that do not otherwise affect the value of the security in the
issuer's home country. The Adviser may use derivatives and other techniques to
manage these risks. The Adviser may, in its discretion, use derivatives to hedge
currency risks. However, the Adviser cannot guarantee that it will succeed in
doing so. Certain hedging strategies or instruments may not be available or
practical in certain markets or under certain conditions. Hedging the
Portfolio's currency risks involves certain risks, including the possibility of
mismatching the Portfolio's obligations under a forward or futures contract with
the value of securities denominated in a particular currency.
<PAGE>
GENERALLY AT LEAST 65% INVESTED IN
FIXED INCOME SECURITIES
- ----------------------------------------------------------
AVERAGE WEIGHTED MATURITY
GENERALLY GREATER THAN 5 YEARS
- ----------------------------------------------------------
BENCHMARK: WEIGHTED BLEND OF
QUARTERLY RETURNS OF
60% SALOMON BROAD
INVESTMENT
GRADE INDEX
20% SALOMON WORLD
GOVERNMENT BOND
EX-U.S. INDEX (HALF
HEDGED INTO U.S.
DOLLARS)
12% SALOMON HIGH
YIELD MARKET INDEX
8% J.P. MORGAN
EMERGING MARKETS
BOND INDEX
- ----------------------------------------------------------
TICKER SYMBOL: MPMMX
- ----------------------------------------------------------
CUSIP NO.: 552-913-352
PORTFOLIO MANAGERS
- ----------------------------------------------------------
THOMAS L. BENNETT, KENNETH B. DUNN,
STEPHEN F. ESSER AND J. DAVID GERMANY
17
<PAGE>
MULTI-MARKET FIXED INCOME PORTFOLIO (Continued)
Emerging market countries are generally considered to be less economically
mature than developed nations. Emerging market countries may be more likely to
experience political turmoil or rapid changes in economic conditions, and
issuers in those countries may be in more precarious financial condition. These
characteristics can cause securities in emerging market countries to experience
significant price volatility.
The Portfolio's investments in high yield securities expose it to a substantial
degree of credit risk. Prices of high yield securities will rise and fall
primarily in response to changes in the issuer's financial health, although
changes in market interest rates also will affect prices. High yield securities
may experience reduced liquidity, and sudden and substantial decreases in price,
during certain market conditions. The Portfolio also is subject to the risks of
using derivatives. Please read the section entitled "Important Investment
Information" for more information about these risks.
- --------------------------------------------------------------------------------
MULTI-MARKET FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
COMMENCED OPERATIONS ON OCTOBER 1, 1997
1998 - 5.28%
- --------------------------------------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
- --------------------------------------------------------------------------------
QUARTER ENDED 12/31/98 QUARTER ENDED 9/30/98
3.02% -0.71%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- --------------------------------------------------------------------------------
MULTI-MARKET SALOMON SALOMON WORLD
FIXED INCOME BROAD GOVERNMENT BOND BLENDED
PORTFOLIO INDEX EX-U.S. INDEX INDEX*
- --------------------------------------------------------------------------------
ONE YEAR 5.28 8.72 17.79 7.85
- --------------------------------------------------------------------------------
SINCE INCEPTION
10/1/97 4.63 9.10 12.85 7.61
* The Blended Index is an unmanaged index comprised of 60% Salomon Broad
Investment Index, 20% Salomon World Government Bond Ex-U.S. Index (half hedged
into U.S. dollars), 12% Salomon High Yield Market Index and 8% J.P. Morgan
Emerging Markets Bond Index.
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1 year period and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The variability of
performance over time provides an indication of the risks of investing in the
Portfolio. How the Portfolio has performed in the past does not necessarily
indicate how the Portfolio will perform in the future.
18
<PAGE>
MUNICIPAL PORTFOLIO
OBJECTIVE
The Municipal Portfolio seeks to realize above-average total return over a
market cycle of three to five years, consistent with the conservation of capital
and the realization of current income that is exempt from federal income tax.
APPROACH
The Portfolio invests principally in FIXED INCOME SECURITIES issued by local,
state and regional governments that provide income that is exempt from federal
income taxes (commonly called municipal securities). The Portfolio may purchase
municipal securities that pay interest that is subject to the federal
alternative minimum tax, and fixed income securities on which the interest
payments are taxable. The Portfolio may invest in HIGH YIELD municipal
securities (commonly called "junk bonds"). The Adviser will use futures, swaps
and other DERIVATIVES in managing the Portfolio.
PROCESS
The Adviser will vary the Portfolio's average DURATION and maturity and the
amount invested in particular types of securities based on its outlook for the
economy and interest rates and its analysis of the risks and rewards offered by
different investments. The Adviser analyzes the credit risk posed by specific
securities considered for investment. The Adviser also takes into consideration
the risk that an issuer may call specific securities for redemption, which could
force the Portfolio to reinvest the proceeds at a lower interest rate. The
Adviser may sell securities when it believes that expected risk-adjusted return
is low compared to other investment opportunities.
PRINCIPAL RISKS
Market prices of the Portfolio's holdings respond to economic developments,
especially changes in interest rates, as well as to perceptions of the
creditworthiness of individual issuers. Generally, fixed income securities
decrease in value as interest rates rise and vice versa. Prices of fixed income
securities also generally will fall if an issuer's credit rating declines, and
rise if it improves. Municipal securities may be subject to call risk, which
could result in the Portfolio having to reinvest the proceeds at a lower rate of
interest.
The Portfolio's investments in high yield securities expose it to a substantial
degree of credit risk. Prices of high yield securities will rise and fall
primarily in response to changes in the issuer's financial health, although
changes in market interest rates also will affect prices. High yield securities
may experience reduced liquidity, and sudden and substantial decreases in price,
during certain market conditions. The Portfolio also is subject to the risks
associated with using derivatives. Please read the section entitled "Important
Investment Information" for more information about these risks.
GENERALLY AT LEAST 80% OF INCOME
WILL BE EXEMPT FROM REGULAR FEDERAL
INCOME TAX
- --------------------------------------------------------
80% INVESTMENT GRADE SECURITIES
- --------------------------------------------------------
UP TO 20% IN HIGH YIELD SECURITIES
- --------------------------------------------------------
AVERAGE WEIGHTED MATURITY
GENERALLY 5-10 YEARS
- --------------------------------------------------------
BENCHMARK: A WEIGHTED BLEND OF
QUARTERLY RETURNS OF
50% LEHMAN 5-YEAR
MUNICIPAL BOND INDEX
50% LEHMAN
10-YEAR MUNICIPAL
BOND INDEX
- --------------------------------------------------------
TICKER SYMBOL: MPMFX
- --------------------------------------------------------
CUSIP NO.: 552-913-691
<PAGE>
PORTFOLIO MANAGERS
- --------------------------------------------------------
STEVEN K. KREIDER AND NEIL STONE
- --------------------------------------------------------------------------------
MUNICIPAL PORTFOLIO
- --------------------------------------------------------------------------------
COMMENCED OPERATIONS ON OCTOBER 1, 1992
1993 - 14.31%
1994 - -6.30%
1995 - 19.98%
1996 - 5.60%
1997 - 8.68%
1998 - 5.82%
- --------------------------------------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
- --------------------------------------------------------------------------------
QUARTER ENDED 3/31/95 QUARTER ENDED 3/31/94
8.94% -7.34%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- --------------------------------------------------------------------------------
LEHMAN 5-YEAR LEHMAN 10-YEAR BLENDED
MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
PORTFOLIO BOND INDEX BOND INDEX INDEX*
- --------------------------------------------------------------------------------
ONE YEAR 5.82 5.84 6.76 6.30
- --------------------------------------------------------------------------------
FIVE YEARS 6.42 5.28 6.35 5.54
- --------------------------------------------------------------------------------
SINCE INCEPTION
10/1/92 7.66 5.85 7.42 7.14
* The Blended Municipal Index is an unmanaged index comprised of the Lehman Long
Municipal Index from 10/1/92 to 3/31/96 and 50% Lehman 10 Year Municipal Bond
Index and 50% Lehman 5 Year Municipal Bond Index thereafter.
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1 and 5 year periods and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The variability of
performance over time provides an indication of the risks of investing in the
Portfolio. How the Portfolio has performed in the past does not necessarily
indicate how the Portfolio will perform in the future.
19
<PAGE>
SPECIAL PURPOSE FIXED INCOME PORTFOLIO
OBJECTIVE
The Special Purpose Fixed Income Portfolio seeks above average total return over
a market cycle of three to five years.
APPROACH
The Portfolio invests primarily in U.S. FIXED INCOME SECURITIES, including U.S.
Government securities, corporate bonds, HIGH YIELD SECURITIES (commonly called
"junk bonds"), and MORTGAGE SECURITIES. It may also invest to a limited extent
in FOREIGN FIXED INCOME SECURITIES. The Adviser will use futures, swaps and
other DERIVATIVES in managing the Portfolio.
PROCESS
The Portfolio's maturity and DURATION strategy and sector allocations are based
on the assumption that investors are combining an investment in this Portfolio
with an equity investment. The Adviser determines the Portfolio's overall
maturity and duration targets and sector allocations. The portfolio managers
then select particular securities for the Portfolio in various sectors within
those overall guidelines. The Adviser manages the Portfolio's average maturity
and duration in anticipation of long-term trends in the economy, interest rates
and inflation. The Adviser alters the Portfolio's weightings in various sectors
based on its perception of value. The Adviser may sell securities when it
believes that expected risk-adjusted return is low compared to other investment
opportunities.
PRINCIPAL RISKS
Market prices of the Portfolio's holdings respond to economic developments,
especially changes in interest rates, as well as to perceptions of the
creditworthiness of individual issuers. Generally, fixed income securities
decrease in value as interest rates rise and vice versa. Prices of fixed income
securities also generally will fall if an issuer's credit rating declines, and
rise if it improves. The prices of mortgage securities may be particularly
sensitive to changes in interest rates because of the risk that borrowers will
become more or less likely to refinance their mortgages. For example, an
increase in interest rates generally will reduce prepayments, effectively
lengthening the maturity of some mortgage securities, and make them subject to
more drastic price movements. Because of prepayment issues, it is not possible
to predict the ultimate maturity of mortgage securities.
The Portfolio also is subject to the risks of investing in derivatives and, to a
limited extent, high yield securities and foreign fixed income securities.
Foreign fixed income securities may be denominated in foreign currencies, which
will fluctuate in value relative to the U.S. dollar. The Portfolio may use
derivatives to hedge some or all of the risks associated with foreign
currencies. Certain hedging strategies or instruments may not be available or
practical in certain markets or under certain conditions. Hedging the
Portfolio's currency risks involves certain risks, including the possibility of
mismatching the Portfolio's obligations under a forward or futures contract with
the value of securities denominated in a particular currency. Please read the
section entitled "Important Investment Information" for more information about
these risks.
GENERALLY AT LEAST 65% INVESTED IN
FIXED INCOME SECURITIES
- ---------------------------------------------------------
AVERAGE WEIGHTED MATURITY
GENERALLY GREATER THAN 5 YEARS
- ---------------------------------------------------------
MAY INVEST OVER 50% OF ASSETS IN
MORTGAGE SECURITIES
- ---------------------------------------------------------
BENCHMARK: SALOMON BROAD
INVESTMENT GRADE
INDEX
- ---------------------------------------------------------
TICKER SYMBOL: MPSPX
- ---------------------------------------------------------
CUSIP NO.: 552-913-725
<PAGE>
PORTFOLIO MANAGERS
- ---------------------------------------------------------
THOMAS L. BENNETT, KENNETH B. DUNN
AND RICHARD B. WORLEY
- --------------------------------------------------------------------------------
SPECIAL PURPOSE FIXED INCOME PROTFOLIO
- --------------------------------------------------------------------------------
COMMENCED OPERATIONS ON MARCH 31, 1992
1993 - 14.85%
1994 - -5.02%
1995 - 19.70%
1996 - 7.41%
1997 - 10.04%
1998 - 6.33%
- --------------------------------------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
- --------------------------------------------------------------------------------
QUARTER ENDED 6/30/95 QUARTER ENDED 3/31/94
5.83% -2.74%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- --------------------------------------------------------------------------------
SPECIAL PURPOSE SALOMON BROAD
FIXED INCOME INVESTMENT GRADE
PORTFOLIO INDEX
- --------------------------------------------------------------------------------
ONE YEAR 6.33 8.72
- --------------------------------------------------------------------------------
FIVE YEARS 7.40 7.30
- --------------------------------------------------------------------------------
SINCE INCEPTION
3/31/92 9.28 8.19
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1 and 5 year periods and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The variability of
performance over time provides an indication of the risks of investing in the
Portfolio. How the Portfolio has performed in the past does not necessarily
indicate how the Portfolio will perform in the future.
20
<PAGE>
TARGETED DURATION PORTFOLIO
OBJECTIVE
The Targeted Duration Portfolio seeks above average total return consistent with
reasonable risk.
APPROACH
The Portfolio invests in a broad range of FIXED INCOME SECURITIES, including
U.S. Government securities, corporate bonds, MORTGAGE SECURITIES, and HIGH YIELD
SECURITIES (commonly called "junk bonds"). The Portfolio intends to approximate
the duration of the Merrill Lynch 1-3 Year Government Bond Index (currently 1.7
years). It may also invest to a limited extent in FOREIGN FIXED INCOME
SECURITIES. The Adviser will use futures, swaps and other DERIVATIVES in
managing the Portfolio.
PROCESS
The Adviser tries to achieve the Portfolio's objectives by allocating its assets
among broad fixed income sectors, as well as by selecting attractive individual
securities within each of those sectors. The portfolio management team makes
both the sector allocation decision and the security selections based on
relative value. The Adviser uses U.S. Treasury securities and Treasury futures
to try to make the Portfolio's sensitivity to changes in interest rates equal to
that of the Merrill Lynch 1-3 Year Government Bond Index. The Adviser may sell
securities when it believes that expected risk - adjusted return is low compared
to other investment opportunities.
PRINCIPAL RISKS
Market prices of the Portfolio's holdings respond to economic developments,
especially changes in interest rates, as well as to perceptions of the
creditworthiness of individual issuers. Generally, fixed income securities
decrease in value as interest rates rise and vice versa. Prices of fixed income
securities also generally will fall if an issuer's credit rating declines, and
rise if it improves. The prices of mortgage securities may be particularly
sensitive to changes in interest rates because of the risk that borrowers will
become more or less likely to refinance their mortgages. For example, an
increase in interest rates generally will reduce prepayments, effectively
lengthening the maturity of some mortgage securities, and make them subject to
more drastic price movements. Because of prepayment issues, it is not possible
to predict the ultimate maturity of mortgage securities.
The Portfolio's investments in high yield securities expose it to a substantial
degree of credit risk. Prices of high yield securities will rise and fall
primarily in response to changes in the issuer's financial health, although
changes in market interest rates also will affect prices. High yield securities
may experience reduced liquidity, and sudden and substantial decreases in price,
during certain market conditions. The Portfolio also is subject to the risks
associated with using derivatives. Foreign fixed income securities may be
denominated in foreign currencies, which will fluctuate in value relative to the
U.S. dollar. The Portfolio may use derivatives to hedge some or all of the risks
associated with foreign currencies. Certain hedging strategies or instruments
may not be available or practical in certain markets or under certain
conditions. Hedging the Portfolio's currency risks involves certain risks,
including the possibility of mismatching the Portfolio's obligations under a
forward or futures contract with the value of securities denominated in a
particular currency. Please read the section entitled "Important Investment
Information" for more information about these risks.
No performance information is provided because the Targeted Duration Portfolio
had not commenced operations as of 12/31/98.
GENERALLY AT LEAST 65% INVESTED IN
FIXED INCOME SECURITIES
- ----------------------------------------------------------
AVERAGE DURATION WILL APPROXIMATE
THE BENCHMARK (CURRENTLY 1.7 YEARS)
- ----------------------------------------------------------
80% INVESTMENT GRADE SECURITIES
- ----------------------------------------------------------
UP TO 20% HIGH YIELD SECURITIES
- ----------------------------------------------------------
MAY INVEST OVER 50% IN MORTGAGE
SECURITIES
- ----------------------------------------------------------
BENCHMARK: MERRILL LYNCH 1-3
YEAR GOVERNMENT
BOND INDEX
- ----------------------------------------------------------
TICKER SYMBOL.: NOT AVAILABLE
- ----------------------------------------------------------
CUSIP NO.: 552-913-238
PORTFOLIO MANAGERS
- ----------------------------------------------------------
MICHELE A. KREISLER AND
SCOTT F. RICHARD
21
<PAGE>
BALANCED PORTFOLIO
OBJECTIVE
The Balanced Portfolio seeks above average total return over a market cycle of
three to five years.
APPROACH
The Portfolio invests in a mix of EQUITY and FIXED INCOME SECURITIES. The
Portfolio normally invests 45-75% of its assets in equity securities and 25-55%
of its assets in fixed income securities. The Portfolio may invest up to 25% of
its assets in FOREIGN EQUITY and FOREIGN FIXED INCOME SECURITIES, including
EMERGING MARKET SECURITIES. Equity securities generally will be issued by larger
corporations. Fixed income securities will include U.S. Government securities,
corporate bonds, MORTGAGE SECURITIES, HIGH YIELD SECURITIES (commonly called
"junk bonds"), and foreign fixed income securities. The Adviser will use
futures, swaps and other DERIVATIVES in managing the Portfolio.
PROCESS
The Adviser determines the Portfolio's equity and fixed income investment
strategies separately and then determines the mix of those strategies that will
maximize the return available from both the stock and bond markets, based on
proprietary valuation disciplines and analysis. The Adviser evaluates
international economic developments in determining the amount to invest in
foreign securities. In determining whether securities should be sold, the
Adviser considers factors such as deteriorating earnings, cash flow and other
fundamentals, as well as high valuations relative to the Portfolio's investment
universe.
PRINCIPAL RISKS
The prices of common stocks and other equity securities will rise and fall in
response to events that affect entire financial markets or industries, and to
events that affect a particular issuer.
Market prices of the Portfolio's fixed income securities respond to economic
developments, especially changes in interest rates, as well as to perceptions of
the creditworthiness of individual issuers. The prices of mortgage securities
may be particularly sensitive to changes in interest rates because of the risk
that borrowers will become more or less likely to refinance their mortgages. For
example, an increase in interest rates generally will reduce prepayments,
effectively lengthening the maturity of some mortgage securities, and make them
subject to more drastic price movements. Because of prepayment issues, it is not
possible to predict the ultimate maturity of mortgage securities.
The Portfolio is subject to the risks of investing in foreign securities. News
and events unique to a country or region will affect those markets and their
issuers, yet may have little or no effect on the U.S. economy or similar issuers
located in the United States. Emerging market countries are generally considered
to be less economically mature than developed nations. Emerging market countries
may be more likely to experience political turmoil or rapid changes in economic
conditions, and issuers in those countries may be in more precarious financial
condition. These characteristics can cause securities in emerging market
countries to experience significant price volatility. Brady Bonds are subject to
certain risks, including the risk of default by the issuer.
Many of the Portfolio's foreign securities will be denominated in a foreign
currency. Brady Bonds also may be denominated in a foreign currency. Changes in
the values of those currencies compared to the U.S. dollar may affect the value
of the Portfolio's investments. These changes may happen separately from and in
response to events that do not otherwise affect the value of the security in the
issuer's home country. The Adviser may, in its discretion, use derivatives and
other techniques to hedge currency risks. However, the Adviser cannot guarantee
that it will succeed in doing so. Certain hedging
<PAGE>
GENERALLY 45-75% INVESTED IN
EQUITIES, 25-55% IN FIXED INCOME
SECURITIES
- ------------------------------------------------------
AT LEAST 25% INVESTED IN SENIOR FIXED
INCOME SECURITIES
- ------------------------------------------------------
UP TO 25% INVESTED IN FOREIGN EQUITY
AND FOREIGN FIXED INCOME SECURITIES
- ------------------------------------------------------
UP TO 10% INVESTED IN BRADY BONDS
(A TYPE OF EMERGING MARKET FIXED
INCOME SECURITY)
- ------------------------------------------------------
EQUITY CAPITALIZATION GENERALLY
GREATER THAN $1 BILLION
- ------------------------------------------------------
AVERAGE WEIGHTED MATURITY OF FIXED
INCOME SECURITIES GENERALLY GREATER
THAN 5 YEARS
- ------------------------------------------------------
BENCHMARK: WEIGHTED BLEND
OF QUARTERLY
RETURNS OF
60% S&P 500
INDEX
40% SALOMON
BROAD INVESTMENT
GRADE INDEX
- ------------------------------------------------------
TICKER SYMBOL: MPBAX
- ------------------------------------------------------
CUSIP NO.: 552-913-675
PORTFOLIO MANAGERS
- ------------------------------------------------------
THOMAS L. BENNETT, BARTON M. BIGGS,
GARY G. SCHLARBAUM, HORACIO A.
VALEIRAS AND RICHARD B. WORLEY
22
<PAGE>
BALANCED PORTFOLIO (Continued)
strategies or instruments may not be available or practical in certain markets
or under certain conditions. Hedging the Portfolio's currency risks involves
certain risks, including the possibility of mismatching the Portfolio's
obligations under a forward or futures contract with the value of securities
denominated in a particular currency.
The Portfolio's investments in high yield securities expose it to a substantial
degree of credit risk. Prices of high yield securities will rise and fall
primarily in response to changes in the issuer's financial health, although
changes in market interest rates also will affect prices. High yield securities
may experience reduced liquidity, and sudden and substantial decreases in price,
during certain market conditions.
At various times, equity securities may perform better or worse than fixed
income securities. There is a risk that the Portfolio could invest too much or
too little in an asset class, which could adversely affect the Portfolio's
overall performance.
The Portfolio also is subject to the risks of using derivatives. Please read the
section entitled "Important Investment Information" for more information about
these risks.
- --------------------------------------------------------------------------------
BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
COMMENCED OPERATIONS ON DECEMBER 31, 1992
1993 - 10.37%
1994 - -1.93%
1995 - 27.34%
1996 - 15.37%
1997 - 19.61%
1998 - 15.40%
- --------------------------------------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
- --------------------------------------------------------------------------------
QUARTER ENDED 12/31/98 QUARTER ENDED 9/30/98
12.06% -6.73%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- --------------------------------------------------------------------------------
SALOMON BROAD 60/40
BALANCED S&P 500 INVESTMENT BLENDED
PORTFOLIO INDEX GRADE INDEX INDEX*
- --------------------------------------------------------------------------------
ONE YEAR 15.40 28.57 8.72 21.24
- --------------------------------------------------------------------------------
FIVE YEARS 14.74 24.06 7.30 17.36
- --------------------------------------------------------------------------------
SINCE INCEPTION
12/31/92 14.00 21.61 7.73 16.10
* The 60/40 Blended Index is an unmanaged index comprised of 60% S&P 500 Index
and 40% Salomon Broad Investment Grade Index.
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1 and 5 year periods and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The variability of
performance over time provides an indication of the risks of investing in the
Portfolio. How the Portfolio has performed in the past does not necessarily
indicate how the Portfolio will perform in the future.
23
<PAGE>
MULTI-ASSET-CLASS PORTFOLIO
OBJECTIVE
The Multi-Asset-Class Portfolio seeks above average total return
over a market cycle of three to five years.
APPROACH
The Portfolio seeks to invest in a combination of asset classes that
do not move in tandem with each other in order to improve potential return and
control the Portfolio's overall risks. The Portfolio invests in EQUITY
SECURITIES and FIXED INCOME SECURITIES of U.S. and foreign issuers, including
EMERGING MARKET SECURITIES, in accordance with the Adviser's target allocation
among certain asset classes. The Portfolio's equity securities generally will be
issued by larger corporations. Fixed income securities will include U.S.
Government securities, foreign government securities, corporate bonds, MORTGAGE
SECURITIES and HIGH YIELD SECURITIES (commonly called "junk bonds"). The
Portfolio's neutral position is generally 50% domestic equity securities, 24%
domestic fixed income securities, 14% foreign equity securities, 6% FOREIGN
FIXED INCOME SECURITIES and 6% high yield securities. The Adviser will use
futures, swaps and other DERIVATIVES in managing the Portfolio.
PROCESS
The Adviser makes strategic judgments based on proprietary measures
used to compare the relative risks and returns of stock and bond markets around
the world. The Adviser's asset allocation team sets the target exposures for
domestic and international equity and fixed income securities, high yield
securities and cash, depending on the Adviser's appraisal of the relative
attractiveness of each type of investment. In determining whether securities
should be sold, the Adviser considers factors such as deteriorating earnings,
cash flows and other fundamentals, as well as high valuations relative to the
Portfolio's investment universe.
PRINCIPAL RISKS
The prices of common stocks and other equity securities will
rise and fall in response to events that affect entire financial markets or
industries, and to events that affect a particular issuer.
Market prices of the Portfolio's fixed income securities respond to economic
developments, especially changes in interest rates, as well as to perceptions of
the creditworthiness of individual issuers. The prices of mortgage securities
may be particularly sensitive to changes in interest rates because of the risk
that borrowers will become more or less likely to refinance their mortgages. For
example, an increase in interest rates generally will reduce prepayments,
effectively lengthening the maturity of some mortgage securities, and make them
subject to more drastic price movements. Because of prepayment issues, it is not
possible to predict the ultimate maturity of mortgage securities.
The Portfolio is subject to the risks of investing in foreign securities. News
and events unique to a country or region will affect those markets and their
issuers, yet may have little or no effect on the U.S. economy or similar issuers
located in the United States. Emerging market countries are generally considered
to be less economically mature than developed nations. Emerging market countries
may be more likely to experience political turmoil or rapid changes in economic
conditions, and issuers in those countries may be in a more precarious financial
condition. These characteristics can cause securities in emerging market
countries to experience significant price volatility.
<PAGE>
GENERALLY AT LEAST 65% INVESTED IN
ISSUERS LOCATED IN AT LEAST 3 COUNTRIES,
INCLUDING THE U.S.
- ---------------------------------------------
EQUITY CAPITALIZATION GENERALLY
GREATER THAN $1 BILLION
- ---------------------------------------------
AVERAGE WEIGHTED MATURITY OF FIXED
INCOME SECURITIES GENERALLY GREATER
THAN 5 YEARS
- ---------------------------------------------
BENCHMARK: A WEIGHTED BLEND OF
QUARTERLY RETURNS OF
50% S&P 500 INDEX
14% MSCI EAFE-GDP
WEIGHTED INDEX
24% SALOMON BROAD
INVESTMENT GRADE INDEX
6% SALOMON WORLD
GOVERNMENT BOND
EX-U.S. INDEX
6% SALOMON HIGH
YIELD MARKET INDEX
- ---------------------------------------------
TICKER SYMBOL: MPGBX
- ---------------------------------------------
CUSIP NO.: 552-913-634
PORTFOLIO MANAGERS
THOMAS L. BENNETT, BARTON M. BIGGS,
J. DAVID GERMANY, GARY G. SCHLARBAUM,
HORACIO A. VALEIRAS AND
RICHARD B. WORLEY
24
<PAGE>
MULTI-ASSET-CLASS PORTFOLIO (Continued)
Many of the Portfolio's foreign securities will be denominated in a foreign
currency. Changes in the values of those currencies compared to the U.S. dollar
may affect the value of the Portfolio's investments. These changes may happen
separately from and in response to events that do not otherwise affect the value
of the security in the issuer's home country. The Adviser may use derivatives
and other techniques to manage these risks. However, the Adviser cannot
guarantee that it will succeed in doing so. Certain hedging strategies or
instruments may not be available or practical in certain markets or under
certain conditions. Hedging the Portfolio's currency risks involves certain
risks, including the possibility of mismatching the Portfolio's obligations
under a forward or futures contract with the value of securities denominated in
a particular currency.
The Portfolio's investments in high yield securities expose it to a substantial
degree of credit risk. Prices of high yield securities will rise and fall
primarily in response to changes in the issuer's financial health, although
changes in market interest rates also will affect prices. High yield securities
may experience reduced liquidity, and sudden and substantial decreases in price,
during certain market conditions.
At various times, some asset classes will perform better or worse than others.
There is a risk that the Portfolio could invest too much or too little in
particular asset classes, which could adversely affect the Portfolio's overall
performance.
The Portfolio also is subject to the risks of using derivatives. Please read the
section entitled "Important Investment Information" for more information about
these risks.
- --------------------------------------------------------------------------------
MULTI-ASSET-CLASS PORTFOLIO
- --------------------------------------------------------------------------------
Commenced operations on July 29, 1994
1995 - 24.62%
1996 - 15.93%
1997 - 17.48%
1998 - 13.87%
- --------------------------------------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
- --------------------------------------------------------------------------------
QUARTER ENDED 12/31/98 QUARTER ENDED 9/30/98
12.82% -8.64%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
SALOMON BROAD MSCI EAFE-GDP
MULTI-ASSET-CLASS S&P 500 INVESTMENT WEIGHTED BLENDED
PORTFOLIO INDEX GRADE INDEX INDEX INDEX*
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ONE YEAR 13.87 28.57 8.72 26.71 22.05
- -------------------------------------------------------------------------------------------------------
SINCE INCEPTION
7/29/94 15.69 27.65 8.76 10.58 18.57
</TABLE>
* The Blended Index is an unmanaged index comprised of 50% S&P 500 Index, 24%
Salomon Broad Investment Grade Index, 14% MSCI EAFE-GDP Weighted Index, 6%
Salomon High Yield Index and 6% Salomon World Government Bond Ex-U.S. Index
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1 year period and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The variability of
performance over time provides an indication of the risks of investing in the
Portfolio. How the Portfolio has performed in the past does not necessarily
indicate how the Portfolio will perform in the future.
25
<PAGE>
IMPORTANT INVESTMENT INFORMATION
Each Portfolio involves the risk that an investor may lose money. Some of the
Portfolios may actively trade their securities to achieve their investment
objectives. High levels of portfolio turnover are likely to lead to increased
transaction costs and possible tax consequences. Nonetheless, short-term trading
activities represented by high portfolio turnover rates are not incompatible
with these Portfolios' stated objectives of achieving long-term capital
appreciation or other multi-year goals, in that short-term trading can lead to
gains that ultimately will increase the value of the investor's shares.
The following section describes the principal types of investments that various
Portfolios may make and some of the risks associated with those investments.
More information about these investments and risks is contained in the Statement
of Additional Information.
EQUITY SECURITIES
Equity securities include common stock, preferred stock, convertible securities,
ADRs, rights, warrants and shares of investment companies. Equity securities in
which the Portfolios may invest may be publicly traded on securities exchanges
or over-the-counter. The Portfolios also may invest in securities that are not
publicly traded. These securities may be more difficult to sell than other
equity securities and their value may fluctuate more dramatically than other
securities. Each Portfolio may purchase shares of other investment companies
subject to limits imposed by the Investment Company Act of 1940 ("1940 Act") and
any other applicable law.
Equity securities are subject to the risk that prices will fluctuate in response
to events affecting particular issuers, or entire industries or markets. Smaller
companies are subject to additional risks because they may have more limited
markets and financial resources, narrower product lines or lack of depth of
management. Smaller companies' securities also may be less liquid, and subject
to more abrupt or erratic price movements. ADRs are U.S. dollar-denominated
securities that represent claims to shares of foreign stocks. The Fund treats
ADRs as U.S. securities for purposes of foreign investment limitations.
Growth stocks generally are characterized by higher growth rates, betas, and
price/earnings ratios, and lower yields than the stock market in general as
measured by an appropriate stock market index. Value stocks are those stocks
that 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
characteristics such as price/earnings 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.
FIXED INCOME SECURITIES
Fixed income securities include a wide variety of investments, such as U.S.
Government securities, securities issued by federal or federally sponsored
agencies ("agencies"), corporate bonds, asset-backed securities, mortgage
securities, high yield securities, municipal bonds, loan participations and
assignments, zero coupon bonds, convertible securities, Yankee bonds, repurchase
agreements, commercial paper and cash equivalents.
Fixed income securities generally are subject to risks related to changes in
interest rates and in the financial health or credit rating of the issuers. The
value of a fixed income security typically moves in the opposite direction of
prevailing interest rates: if rates rise, the value of a fixed income security
falls; if rates fall, the value increases. The maturity and duration of a fixed
income instrument also affects the extent to which the price of the security
will change in response to these and other factors. Longer term securities tend
to experience larger price changes than shorter term securities because they are
more sensitive to changes in interest rates or in the credit ratings of the
issuers. Certain types of fixed income securities, such as inverse floaters, are
designed to respond differently to changes in interest rates.
Certain fixed income securities pay a floating or variable rate of interest. The
interest rates on these securities will vary with changes in specified market
rates or indices, such as the prime rate, or at
26
<PAGE>
IMPORTANT INVESTMENT INFORMATION (Continued)
specified intervals. The variation in the interest rate may enable an investor
to trade a floating or variable rate security at par on a daily or periodic
basis. Some obligations carry a demand feature permitting the holder to tender
them back to the issuer or to a third party at par value before maturity. If the
demand feature is an obligation of a foreign entity, it will be subject to
certain risks described in the section below entitled "Foreign Securities".
Some fixed income securities may be called (redeemed by the issuer) prior to
final maturity. The risk of holding a callable security is that if it is called,
a Portfolio may have to reinvest the proceeds at a lower rate of interest.
DURATION
The average duration of a fixed income portfolio measures its
exposure to the risk of changing interest rates. A Portfolio with a lower
average duration generally will experience less price volatility in response to
changes in interest rates as compared with a Portfolio with a higher average
duration.
MORTGAGE SECURITIES
Mortgage securities are subject to the risk that as interest rates fall,
borrowers will refinance their mortgages, resulting in prepayment of principal.
A Portfolio holding mortgage securities that are experiencing prepayments will
have to reinvest these principal payments at lower prevailing interest rates. On
the other hand, when interest rates rise, borrowers are less likely to
refinance, resulting in lower prepayments. This can effectively extend the
maturity of a Portfolio's mortgage securities, resulting in greater price
volatility.
HIGH YIELD SECURITIES
Fixed income securities that are not investment grade are commonly referred to
as junk bonds or high yield, high risk securities. These securities offer a
higher yield than other, higher rated securities, but they carry a greater
degree of risk and are considered speculative by the major credit rating
agencies. High yield securities may be issued by companies that are
restructuring, are smaller and less credit worthy or are more highly indebted
than other companies. This means that they may have more difficulty making
scheduled payments of principal and interest. Changes in the value of high yield
securities are influenced more by changes in the financial and business position
of the issuing company than by changes in interest rates when compared to
investment grade securities.
YANKEE BONDS
Yankee bonds are U.S.-dollar denominated fixed income instruments issued by
foreign governments and corporations and sold in the United States. They are
considered U.S. securities for purposes of the Portfolios' investment policies
(except for the Domestic Fixed Income Portfolio).
FOREIGN SECURITIES
While many of the characteristics and risks of foreign equity and fixed income
securities are similar to those of domestic securities, investing in foreign
securities involves certain additional risks. Foreign issuers generally are
subject to different accounting, auditing and financial reporting standards than
U.S. companies. There may be less information available to the public about
foreign issuers. Securities of foreign issuers can be less liquid and experience
greater price movements. Foreign stock exchanges, broker-dealers, and listed
issuers may be subject to less government regulation and oversight. The cost of
investing in foreign securities, including brokerage commissions and custodial
expenses, can be higher than in the United States. In some foreign countries,
there is also the risk of government expropriation, excessive taxation,
political or social instability, the imposition of currency controls, or
diplomatic developments that could affect the Portfolios' investments in those
countries. There also can be difficulty obtaining and enforcing judgments in
foreign countries.
Foreign securities are denominated in foreign currencies. The value of foreign
currencies fluctuates relative to the value of the U.S. dollar. Since the
Portfolios must convert the value of foreign securities into
27
<PAGE>
IMPORTANT INVESTMENT INFORMATION (Continued)
dollars, changes in currency exchange rates can increase or decrease the U.S.
dollar value of the Portfolios' assets. The Adviser may use certain derivatives
to offset this risk. The risks of hedging currency risk are described below in
the section entitled "Derivatives and Other Investments". The Adviser may in its
discretion choose not to hedge against currency risk. In addition, certain
market conditions may make it impossible or uneconomical to hedge against
currency risk.
EMERGING MARKET SECURITIES
Investing in emerging market securities enhances the risks of foreign investing.
The risk of political or social upheaval, expropriation, and restrictive
controls on foreign investors' ability to repatriate capital is greater in
emerging markets. Emerging market securities generally are less liquid and
subject to wider price and currency fluctuations than securities issued in more
developed countries. In certain countries, there may be few publicly traded
securities, and the market may be dominated by a few issuers or sectors. Fixed
income securities issued by emerging markets issuers are more likely to be
considered equivalent to risky high yield securities. Investment funds and
structured investments are mechanisms for U.S. and other investors to invest in
certain emerging markets that have laws precluding or limiting direct
investments in their securities by foreign investors. Brady Bonds are debt
obligations created as part of the restructuring of commercial bank loans to
entities in emerging market countries. Brady Bonds may be collateralized or not,
and may be issued in various currencies (most are U.S.-dollar denominated).
DERIVATIVES AND OTHER INVESTMENTS
The Portfolios may use derivatives to pursue portfolio strategies and
objectives. Derivatives are financial instruments whose value and performance
are based on the value and performance of another security or financial
instrument. Derivatives include futures, options, forward contracts, swaps,
collateralized mortgage obligations ("CMOs"), stripped mortgage-backed
securities ("SMBS") and structured notes. Derivatives sometimes offer the most
economical way of pursuing a particular investment strategy, limiting certain
risks or enhancing potential returns.
Certain derivative instruments are publicly traded on exchanges or
over-the-counter, while others are privately negotiated. The Portfolios may
enter into public or private over-the-counter derivatives transactions with
counterparties that meet the Fund's requirements for credit quality and
collateral. A Portfolio will not use derivatives to increase a Portfolio's level
of risk above the level that could be achieved using only traditional investment
securities. A Portfolio will not use derivatives as an indirect way of investing
in assets that it cannot, as a matter of policy, invest in directly. Forward
contracts are used to protect against uncertainty in the level of future foreign
currency exchange rates. The Portfolios may use futures to gain exposure to an
entire market (e.g., stock index futures) or to control their exposure to
changing foreign currency exchange rates. Portfolios investing in fixed income
securities will use futures to control their exposure to changes in interest
rates and to manage the overall maturity and duration of their securities
holdings. If a Portfolio buys an option, it buys a legal contract giving it the
right to buy or sell a specific amount of a security or futures contract at an
agreed-upon price. If a Portfolio "writes" an option, it sells to another person
the right to buy from or sell to the Portfolio a specific amount of a security
or futures contract at an agreed-upon price. The Portfolios may enter into swap
transactions which are contracts in which a Portfolio agrees to exchange the
return or interest rate on one instrument for the return or interest rate on
another instrument. Payments may be based on currencies, interest rates,
securities indices or commodity indices. Swaps may be used to manage the
maturity and duration of a fixed income portfolio, or to gain exposure to a
market without directly investing in securities traded in that market.
Structured investments are units representing an interest in assets held in a
trust that is not an investment company as defined in the 1940 Act. The trust
may pay a return based on the income it receives from those assets, or it may
pay a return based on a specified index.
RISKS OF DERIVATIVES
The primary risks of derivatives are: (i) changes in the market value of
securities held by a Portfolio, and of derivatives relating to those securities,
may not be proportionate, (ii) there may not be a liquid market for a Portfolio
to sell a derivative, which could result in difficulty closing a position, and
(iii) certain
28
<PAGE>
IMPORTANT INVESTMENT INFORMATION (Continued)
derivatives can magnify the extent of losses incurred due to changes in the
market value of the securities to which they relate. See the Statement of
Additional Information for more about the risks of different types of
derivatives.
The amount that a Portfolio may invest in futures and options depends on the
type of portfolio. The limitations are as follows:
Any Fixed Income Portfolio (except the Cash Reserves Portfolio) may enter into
futures contracts and options on futures contracts for bona fide hedging
purposes to an unlimited extent. It also can enter into futures contracts and
options thereon for other purposes, provided that no more than 5% of the
Portfolio's total assets at the time of the transaction are required as margin
and option premiums to secure the Portfolio's obligations under such contracts.
Any Equity Portfolio or Balanced Portfolio may enter into futures contracts
subject to the limitation that it cannot incur obligations to purchase
securities under futures and options contracts in excess of 50% of the
Portfolio's total assets. It also is subject to the limit that no more than 5%
of the Portfolio's total assets at the time of the transaction may be required
as margin and option premiums to secure the Portfolio's obligations under
futures contracts and options thereon entered into for purposes other than bona
fide hedging.
Each Portfolio (except the Cash Reserves Portfolio) may invest in certain
derivatives, such as forwards, futures, options and mortgage derivatives as well
as when-issued securities which require the Portfolio to segregate some or all
of its cash or liquid securities to cover its obligations under those
instruments. At certain levels, this can cause a Portfolio to lose flexibility
in managing its investments properly, responding to shareholder redemption
requests, or meeting other obligations. A Portfolio in that position could be
forced to sell other securities that it wanted to retain or to realize
unintended gains or losses.
MORTGAGE DERIVATIVES
CMOs and SMBS are derivatives based on mortgage securities. CMOs are issued in a
number of series (known as "tranches"), each of which has a stated maturity.
Cash flow from the underlying mortgages is allocated to the tranches in a
predetermined, specified order. SMBS are multi-class mortgage securities issued
by U.S. government agencies and instrumentalities and financial institutions.
They usually have two classes, one receiving most of the principal payments from
the mortgages, and one receiving most of the interest. In some cases, classes
may receive interest only (called "IOs") or principal only (called "POs"). Both
CMOs and SMBS are subject to the risks of price movements in response to
changing interest rates and the level of prepayments made by borrowers.
Depending on the class of CMO or SMBS that a Portfolio holds, these price
movements may be significantly greater than that experienced by mortgage
securities generally, depending on whether the payments are predominantly based
on principal or interest paid on the underlying mortgages. In addition, the
yield to maturity of IOs and POs is extremely sensitive to prepayment levels. As
a result, a high rate of prepayments can have a material effect on a Portfolio's
yield to maturity and could cause a Portfolio to lose money on the investment.
ADDITIONAL INFORMATION
When the Adviser believes that changes in economic, financial or political
conditions warrant, each Portfolio may invest without limit in certain fixed
income securities for temporary defensive purposes. See the Statement of
Additional Information for more information about the types of fixed income
securities in which the Portfolios may invest. If the Adviser incorrectly
predicts the effects of these changes, such defensive investments may adversely
affect the Portfolios' performance. Consistent with their investment policies,
the Portfolios also will purchase and sell securities without regard to the
effect on portfolio turnover. Higher portfolio turnover (e.g., over 100% per
year) will cause the Portfolio to incur additional transaction costs and may
result in taxable gains being passed through to shareholders.
29
<PAGE>
EQUITY PORTFOLIOS
ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)
The Securities and Exchange Commission (the "Commission") requires all funds to
disclose in the table to the right the fees and expenses that you may pay if you
buy and hold shares of the Portfolios. The Portfolios do not charge any sales
loads or similar fees when you purchase or redeem shares.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
TOTAL
ANNUAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12B-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
EQUITY PORTFOLIO .500% NONE .109% .609%
- --------------------------------------------------------------------------------
MID CAP GROWTH PORTFOLIO .500% NONE .120% .620%
- --------------------------------------------------------------------------------
MID CAP VALUE PORTFOLIO .750% NONE .153% .903%
- --------------------------------------------------------------------------------
SMALL CAP GROWTH PORTFOLIO 1.000% NONE 3.830%* 4.830%**
- --------------------------------------------------------------------------------
SMALL CAP VALUE PORTFOLIO .750% NONE .110% .860%
- --------------------------------------------------------------------------------
VALUE PORTFOLIO .500% NONE .100% .600%
Total Annual Fund Operating Expenses reflected in the table above may be
higher than the expenses actually deducted from portfolio assets because of
the effect of expense offset arrangements.
* Other expenses are based on estimated amounts for the current year.
** The Adviser has voluntarily agreed to reduce its advisory fee and/or
reimburse the Portfolios so that total expenses will not exceed the rates
shown in the table below. Fee waivers and/or expense reimbursements are
voluntary and the Adviser reserves the right to terminate any waiver and/or
reimbursement at any time and without notice.
TOTAL ANNUAL FUND OPERATING EXPENSES
AFTER MAS WAIVER/REIMBURSEMENT & OFFSETS
- --------------------------------------------------------------------------------
SMALL CAP GROWTH PORTFOLIO 1.150%
- --------------------------------------------------------------------------------
<PAGE>
EXAMPLE
The example assumes that you invest $10,000 in each Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example assumes that your investment has a 5% return each year and
that each Portfolio's operating expenses remain the same. For Portfolios that
have been in operation for 6 months or less, the example is limited to 3 years.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be equal to the amounts reflected in the table to the right.
This example is intended to help you compare the cost of investing in each
Portfolio with the cost of investing in other mutual funds.
- --------------------------------------------------------------------------------
EXAMPLE
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
EQUITY PORTFOLIO $ 62 $ 195 $340 $ 761
- --------------------------------------------------------------------------------
MID CAP GROWTH PORTFOLIO $ 63 $ 199 $346 $ 774
- --------------------------------------------------------------------------------
MID CAP VALUE PORTFOLIO $ 92 $ 288 $500 $1,111
- --------------------------------------------------------------------------------
SMALL CAP GROWTH PORTFOLIO $483 $1,453 $ -- $ --
- --------------------------------------------------------------------------------
SMALL CAP VALUE PORTFOLIO $ 88 $ 274 $477 $1,061
- --------------------------------------------------------------------------------
VALUE PORTFOLIO $ 61 $ 192 $335 $ 750
30
<PAGE>
FIXED INCOME
PORTFOLIOS
ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)
The Securities and Exchange Commission (the "Commission") requires all funds to
disclose in the table to the right the fees and expenses that you may pay if you
buy and hold shares of the Portfolios. The Portfolios do not charge any sales
loads or similar fees when you purchase or redeem shares.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE PORTFOLIOS (Continued)
- --------------------------------------------------------------------------------
TOTAL
ANNUAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12B-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
CASH RESERVES PORTFOLIO .250% NONE .120% .370%**
- --------------------------------------------------------------------------------
DOMESTIC FIXED INCOME
PORTFOLIO .375% NONE .142% .517%**
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO .375% NONE .107% .482%
- --------------------------------------------------------------------------------
FIXED INCOME II PORTFOLIO .375% NONE .128% .503%
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME
PORTFOLIO .375% NONE .187% .562%
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO .375% NONE .123% .498%
- --------------------------------------------------------------------------------
INTERMEDIATE DURATION
PORTFOLIO .375% NONE .147% .522%
- --------------------------------------------------------------------------------
INTERNATIONAL FIXED INCOME
PORTFOLIO .375% NONE .145% .520%
- --------------------------------------------------------------------------------
LIMITED DURATION PORTFOLIO .300% NONE .121% .421%
- --------------------------------------------------------------------------------
MULTI-MARKET FIXED INCOME
PORTFOLIO .450% NONE .181% .631%**
- --------------------------------------------------------------------------------
MUNICIPAL PORTFOLIO .375% NONE .182% .557%**
- --------------------------------------------------------------------------------
SPECIAL PURPOSE FIXED
INCOME PORTFOLIO .375% NONE .114% .489%
- --------------------------------------------------------------------------------
TARGETED DURATION PORTFOLIO .375% NONE .195%* .570%**
Total Annual Fund Operating Expenses reflected in the table above may be
higher than the expenses actually deducted from portfolio assets because of
the effect of expense offset arrangements.
* Other expenses are based on estimated amounts for the current year.
** The Adviser has voluntarily agreed to reduce its advisory fee and/or
reimburse the Portfolios so that total expenses will not exceed the rates
shown in the table below. Fee waivers and/or expense reimbursements are
voluntary and the Adviser reserves the right to terminate any waiver and/or
reimbursement at any time and without notice.
TOTAL ANNUAL FUND OPERATING EXPENSES
AFTER MAS WAIVER/REIMBURSEMENT & OFFSETS
- --------------------------------------------------------------------------------
CASH RESERVES PORTFOLIO .320%
- --------------------------------------------------------------------------------
DOMESTIC FIXED INCOME
PORTFOLIO .500%
- --------------------------------------------------------------------------------
MULTI-MARKET FIXED INCOME
PORTFOLIO .580%
- --------------------------------------------------------------------------------
MUNICIPAL PORTFOLIO .500%
- --------------------------------------------------------------------------------
TARGETED DURATION PORTFOLIO .450%
31
<PAGE>
EXAMPLE
The example assumes that you invest $10,000 in each Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example assumes that your investment has a 5% return each year and
that each Portfolio's operating expenses remain the same. For Portfolios that
have been in operation for 6 months or less, the example is limited to 3 years.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be equal to the amounts reflected in the table to the right.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE PORTFOLIOS (Continued)
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in each
Portfolio with the cost of investing in other mutual funds.
- --------------------------------------------------------------------------------
EXAMPLE
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
CASH RESERVES PORTFOLIO $38 $119 $208 $468
- --------------------------------------------------------------------------------
DOMESTIC FIXED INCOME PORTFOLIO $53 $166 $289 $649
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO $49 $155 $270 $606
- --------------------------------------------------------------------------------
FIXED INCOME II PORTFOLIO $51 $161 $281 $632
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO $57 $180 $314 $704
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO $51 $160 $279 $626
- --------------------------------------------------------------------------------
INTERMEDIATE DURATION PORTFOLIO $53 $167 $292 $655
- --------------------------------------------------------------------------------
INTERNATIONAL FIXED INCOME PORTFOLIO $53 $167 $291 $653
- --------------------------------------------------------------------------------
LIMITED DURATION PORTFOLIO $43 $135 $236 $531
- --------------------------------------------------------------------------------
MULTI-MARKET FIXED INCOME PORTFOLIO $64 $202 $352 $788
- --------------------------------------------------------------------------------
MUNICIPAL PORTFOLIO $57 $179 $311 $698
- --------------------------------------------------------------------------------
SPECIAL PURPOSE FIXED INCOME PORTFOLIO $50 $157 $274 $615
- --------------------------------------------------------------------------------
TARGETED DURATION PORTFOLIO $58 $183 $ -- $ --
32
<PAGE>
BALANCED PORTFOLIOS
ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)
The Securities and Exchange Commission (the "Commission") requires all funds to
disclose in the table to the right the fees and expenses that you may pay if you
buy and hold shares of the Portfolios. The Portfolios do not charge any sales
loads or similar fees when you purchase or redeem shares.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE PORTFOLIOS (Continued)
- --------------------------------------------------------------------------------
TOTAL
ANNUAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12B-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
BALANCED PORTFOLIO .450% NONE .138% .588%
- --------------------------------------------------------------------------------
MULTI-ASSET-CLASS PORTFOLIO .650% NONE .174% .824%*
Total Annual Fund Operating Expenses reflected in the table above may be
higher than the expenses actually deducted from portfolio assets because of
the effect of expense offset arrangements.
* The Adviser has voluntarily agreed to reduce its advisory fee and/or
reimburse the Portfolios so that total expenses will not exceed the rates
shown in the table below. Fee waivers and/or expense reimbursements are
voluntary and the Adviser reserves the right to terminate any waiver and/or
reimbursement at any time and without notice.
TOTAL ANNUAL FUND OPERATING EXPENSES
AFTER MAS WAIVER/REIMBURSEMENT & OFFSETS
- --------------------------------------------------------------------------------
MULTI-ASSET-CLASS PORTFOLIO .780%
- --------------------------------------------------------------------------------
<PAGE>
EXAMPLE
The example assumes that you invest $10,000 in each Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example assumes that your investment has a 5% return each year and
that each Portfolio's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be
equal to the amounts reflected in the table at right.
- --------------------------------------------------------------------------------
EXAMPLE
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
BALANCED PORTFOLIO $60 $188 $328 $ 735
- --------------------------------------------------------------------------------
MULTI-ASSET-CLASS PORTFOLIO $84 $263 $457 $1,018
This example is intended to help you compare the cost of investing in each
Portfolio with the cost of investing in other mutual funds.
33
<PAGE>
- --------------------------------------------------------------------------------
PURCHASING SHARES
- --------------------------------------------------------------------------------
Institutional Class Shares are available to clients of the Adviser with combined
investments of $5,000,000 and corporations or other institutions such as trusts,
foundations or broker-dealers purchasing for the accounts of others (Shareholder
Organizations).
Institutional Class Shares of each portfolio, except for the Cash Reserves
Portfolio, may be purchased at the net asset value per share (NAV) next
determined after we receive your purchase order. Institutional Class Shares of
the Cash Reserves Portfolio may be purchased at the NAV next determined after we
receive your purchase order and the Fund's Custodian Bank, The Chase Manhattan
Bank ("Chase") receives monies credited by a Federal Reserve Bank ("Federal
Funds").
INITIAL PURCHASE
BY MAIL
You may open an account, subject to acceptance by MAS Funds, by completing and
signing an Account Registration Form provided by MAS Funds' Client Services
Group ("Client Services") and mailing it to MAS Funds c/o Miller Anderson &
Sherrerd, LLP, One Tower Bridge, West Conshohocken, PA 19428-0868 together with
a check payable to MAS Funds.
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. You can avoid this delay by purchasing
shares by wire.
INITIAL PURCHASE
BY WIRE
You may purchase Institutional Class Shares of each portfolio by wiring Federal
Funds to Chase. You should forward a completed Account Registration Form to
Client Services in advance of the wire. For all portfolios, except the Cash
Reserves Portfolio, notification must be given to Client Services at
1-800-354-8185 prior to the determination of NAV. See the section below entitled
"Valuation of Shares". (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 Chase using the following wire 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)
You can also make purchases in the Cash Reserves Portfolio by Federal Funds wire
to Chase. If we receive notification of your order prior to 12:00 noon (Eastern
Time) and Chase receives the funds the same day, then your purchase will become
effective and begin to earn income on that day. If we receive notification of
your order after 12:00 noon (Eastern Time), then your purchase will be effective
on the next business day.
ADDITIONAL
INVESTMENTS
You may make additional investments of Institutional Class Shares (minimum
additional investment $1,000) at the NAV next determined after the
request is received in good order, by mailing a check (payable to MAS Funds) to
Client Services at the address noted under Initial Purchase by Mail or by wiring
Federal Funds to Chase as outlined above. For all portfolios, except the Cash
Reserves Portfolio, notification must be given to Client Services at
1-800-354-8185 prior to the determination of NAV. For the Cash Reserves
Portfolio, Client Services must receive notification of your Federal Funds wire
by 12:00 noon (Eastern Time). We normally credit purchases made by check in the
Cash Reserves Portfolio at the NAV determined two business days after we receive
the check.
34
<PAGE>
- --------------------------------------------------------------------------------
PURCHASING SHARES (Continued)
- --------------------------------------------------------------------------------
OTHER PURCHASE
INFORMATION
We may suspend the offering of shares, or any class of shares, of any portfolio
or reject any purchase orders when we think it is in the best interest of the
Fund. We may waive the minimum initial and additional investment amounts in
certain cases.
Purchases of a portfolio's shares will be made in full and fractional shares of
the portfolio calculated to three decimal places. Certificates for shares will
not be issued unless you request them in writing. Certificates for fractional
shares, however, will not be issued.
- --------------------------------------------------------------------------------
REDEEMING SHARES
- --------------------------------------------------------------------------------
You may redeem shares of each portfolio by mail, or, if authorized, by telephone
at no charge. The value of shares redeemed may be more or less than the purchase
price, depending on the NAV at the time of redemption.
BY MAIL
Each portfolio will redeem shares at the NAV 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. 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 Client Services for further details; and
(d) Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianship, corporations, pension and profit sharing
plans and other organizations.
BY TELEPHONE
If you have authorized the Telephone Redemption Option on the Account
Registration Form, you may request a redemption of shares by calling Client
Services at 1-800-354-8185 and requesting that the redemption proceeds be mailed
or wired to you. You cannot redeem shares by telephone if you hold share
certificates for those shares.
BY FACSIMILE
Written requests in good order for redemptions, exchanges and transfers may be
forwarded to the Fund via facsimile at (610) 940-5284. If you make a request via
facsimile, you must call Client Services to ensure that the Fund properly
received your instructions. The original request must be promptly mailed to MAS
Funds, c/o Miller Anderson & Sherrerd, LLP, One Tower Bridge, West Conshohocken,
PA 19428-0868.
We will ordinarily pay redemption proceeds within three business days after
receipt of your request. We 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 or under any emergency circumstances.
In certain cases, we may determine that it is in the best interest of other
shareholders not to pay redemption proceeds in cash. We may pay you partly or
entirely by distributing to you readily marketable securities held by the
portfolio from which you are redeeming. You may incur brokerage charges when you
sell those securities.
35
<PAGE>
- --------------------------------------------------------------------------------
VALUATION OF SHARES
- --------------------------------------------------------------------------------
We determine the NAV of the following portfolios at the following times on each
day the portfolio(s) is open for business:
o Equity Portfolios as of the close of the NYSE (normally 4:00 p.m. Eastern
Time).
o Fixed Income Portfolios as of one hour after the close of the bond markets
(normally 4:00 p.m. Eastern Time).
o Balanced and Multi-Asset-Class Portfolios as of the later of the close of
the NYSE or one hour after the close of the bond markets (normally 4:00 p.m.
Eastern Time).
o Cash Reserves Portfolio as of 12:00 noon (Eastern Time).
Each Portfolio values its securities at market value, except the Cash Reserves
Portfolio which values its securities using amortized cost valuation. When no
quotations are readily available for securities or when the value of securities
has been materially affected by events occurring after the close of the market,
we will determine the value for those securities in good faith at fair value
using methods approved by the Board of Trustees.
The Fund is closed for business on weekends and the following holidays: New
Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. In
addition, the Cash Reserves Portfolio is closed on Columbus Day and Veterans
Day. The value of certain portfolio securities may change on a day when you
can't purchase or redeem shares because some portfolios invest in foreign
securities that trade on days when the Fund is closed.
- --------------------------------------------------------------------------------
GENERAL SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
You may exchange each portfolio's Institutional Class Shares for Institutional
Class Shares of the Fund's other portfolios based on their respective NAVs. The
exchange privilege is only available with respect to portfolios offering
Institutional Class Shares that are qualified for sale in your state of
residence. We charge no fee for exchanges. You should send exchange requests to
MAS Funds, c/o Miller Anderson & Sherrerd, LLP, One Tower Bridge, West
Conshohocken, PA 19428-0868, or by facsimile with a follow-up phone call.
Exchange requests can also be made by telephone, provided the telephone
redemption option has been authorized. We reserve the right to change the terms
or conditions of the exchange privilege upon sixty days' notice.
Frequent trading by shareholders can disrupt management of a Portfolio and raise
its expenses. Therefore, we may not accept any request for an exchange when we
think the exchange privilege is being used as a tool for market timing, and we
may bar a shareholder who trades excessively from making further purchases for
an indefinite period.
TAXES
Income dividends you receive (except from the Municipal Portfolio) will be
taxable as ordinary income, whether you receive them in cash or in additional
shares. Corporate shareholders may be entitled to a dividends-received deduction
for the portion of dividends they receive which are attributable to dividends
received by such portfolios from U.S. corporations. Capital gain distributions
may be taxable at different rates depending on the length of time the Fund holds
its assets.
The Municipal Portfolio intends to pay "exempt-interest" dividends which are
excluded from your gross income for federal income tax purposes. When you
receive exempt-interest dividends they may be subject to state and local taxes,
although some states allow you to exclude that portion of a portfolio's
tax-exempt income which is accountable to municipal securities issued within
your state of residence.
Investment income received by the Portfolios from sources within foreign
countries may be subject to foreign income taxes. The Portfolios may be able to
pass through to you for foreign tax credit purposes the amount of foreign income
taxes that they paid.
Distributions paid in January but declared by a portfolio in October, November
or December of the previous year are taxable to you in the previous year.
Exchanges and redemptions of shares in a Portfolio are taxable events.
36
<PAGE>
GENERAL SHAREHOLDER INFORMATION (Continued)
DIVIDENDS &
DISTRIBUTIONS
The Portfolios normally distribute substantially all of their net investment
income to shareholders as follows:
PORTFOLIO MONTHLY QUARTERLY ANNUALLY
- --------------------------------------------------------------------------------
EQUITY [CHECK MARK]
- --------------------------------------------------------------------------------
MID CAP GROWTH [CHECK MARK]
- --------------------------------------------------------------------------------
MID CAP VALUE [CHECK MARK]
- --------------------------------------------------------------------------------
SMALL CAP GROWTH [CHECK MARK]
- --------------------------------------------------------------------------------
SMALL CAP VALUE [CHECK MARK]
- --------------------------------------------------------------------------------
VALUE [CHECK MARK]
- --------------------------------------------------------------------------------
CASH RESERVES [CHECK MARK]
- --------------------------------------------------------------------------------
DOMESTIC FIXED INCOME [CHECK MARK]
- --------------------------------------------------------------------------------
FIXED INCOME [CHECK MARK]
- --------------------------------------------------------------------------------
FIXED INCOME II [CHECK MARK]
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME [CHECK MARK]
- --------------------------------------------------------------------------------
HIGH YIELD [CHECK MARK]
- --------------------------------------------------------------------------------
INTERMEDIATE DURATION [CHECK MARK]
- --------------------------------------------------------------------------------
INTERNATIONAL FIXED INCOME [CHECK MARK]
- --------------------------------------------------------------------------------
LIMITED DURATION [CHECK MARK]
- --------------------------------------------------------------------------------
MULTI-MARKET FIXED INCOME [CHECK MARK]
- --------------------------------------------------------------------------------
MUNICIPAL [CHECK MARK]
- --------------------------------------------------------------------------------
SPECIAL PURPOSE FIXED INCOME [CHECK MARK]
- --------------------------------------------------------------------------------
TARGETED DURATION [CHECK MARK]
- --------------------------------------------------------------------------------
BALANCED [CHECK MARK]
- --------------------------------------------------------------------------------
MULTI-ASSET-CLASS [CHECK MARK]
If any net gains are realized from the sale of underlying securities, the
portfolios normally distribute the gains with the last distributions for the
calendar year. All dividends and distributions are automatically paid in
additional shares of the portfolio unless you elect otherwise. If you want to
change how your dividends are paid you must notify MAS Funds in writing.
37
<PAGE>
FUND MANAGEMENT
ADVISER
The Investment Adviser to the Fund, Miller Anderson & Sherrerd, LLP ("MAS" or
the "Adviser"), is a Pennsylvania limited liability partnership founded in 1969.
The Adviser is wholly owned by indirect subsidiaries of Morgan Stanley Dean
Witter & Co. (MSDW), and is a division of Morgan Stanley Dean Witter Investment
Management. The Adviser is located at One Tower Bridge, West Conshohocken, PA
19428-0868. The Adviser provides investment advisory services to employee
benefit plans, endowment funds, foundations and other institutional investors.
As of December 31, 1998, Morgan Stanley Dean Witter Investment Management had in
excess of $163 billion in assets under management.
The Adviser makes investment decisions for the Fund's portfolios and places each
portfolio's purchase and sales orders. Each portfolio, in turn, pays the Adviser
an annual advisory fee calculated by applying a quarterly rate. The table below
shows the Adviser's annual contractual and actual rates of compensation for the
Fund's 1998 fiscal year.
SUB-ADVISER
Effective May 3, 1999, Morgan Stanley Dean Witter Advisors Inc. ("MSDW
Advisors") will serve as Sub-Adviser to the Cash Reserves Portfolio. As
Sub-Adviser, MSDW Advisors will make day-to-day investment decisions for the
Cash Reserves Portfolio and place the Portfolio's purchase and sales orders. The
Adviser will pay MSDW Advisors 40% of the fee the Adviser receives from the Cash
Reserves Portfolio as compensation for its sub-advisory services. MSDW Advisors,
located at Two World Trade Center, New York, New York 10048, is a wholly-owned
subsidiary of MSDW. MSDW Advisors develops, markets and manages a broad spectrum
of proprietary mutual funds that are sold by MSDW financial advisors and offers
professional money management services on a customized basis to individuals,
institutional investors and retirement plan sponsors. MSDW Advisors and its
wholly-owned subsidiary, Morgan Stanley Dean Witter Services Company Inc., serve
in various investment advisory and administrative capacities to 100 investment
companies and other portfolios with net assets under management of approximately
$129 billion as of March 31, 1999.
<PAGE>
CONTRACTUAL FY 1998
COMPENSATION ACTUAL
RATE COMPENSATION RATE
- --------------------------------------------------------------------------------
EQUITY PORTFOLIO .500 .500
- --------------------------------------------------------------------------------
MID CAP GROWTH PORTFOLIO .500 .500
- --------------------------------------------------------------------------------
MID CAP VALUE PORTFOLIO .750 .750
- --------------------------------------------------------------------------------
SMALL CAP GROWTH PORTFOLIO* 1.000 .000
- --------------------------------------------------------------------------------
SMALL CAP VALUE PORTFOLIO .750 .750
- --------------------------------------------------------------------------------
VALUE PORTFOLIO .500 .500
- --------------------------------------------------------------------------------
CASH RESERVES PORTFOLIO* .250 .197
- --------------------------------------------------------------------------------
DOMESTIC FIXED INCOME PORTFOLIO* .375 .361
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO .375 .375
- --------------------------------------------------------------------------------
FIXED INCOME II PORTFOLIO .375 .375
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO .375 .375
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO .375 .375
- --------------------------------------------------------------------------------
INTERMEDIATE DURATION PORTFOLIO .375 .375
- --------------------------------------------------------------------------------
INTERNATIONAL FIXED INCOME PORTFOLIO .375 .375
- --------------------------------------------------------------------------------
LIMITED DURATION PORTFOLIO .300 .300
- --------------------------------------------------------------------------------
MULTI-MARKET FIXED INCOME PORTFOLIO* .450 .403
- --------------------------------------------------------------------------------
MUNICIPAL PORTFOLIO* .375 .334
- --------------------------------------------------------------------------------
SPECIAL PURPOSE FIXED INCOME PORTFOLIO .375 .375
- --------------------------------------------------------------------------------
TARGETED DURATION PORTFOLIO* .375 --
- --------------------------------------------------------------------------------
BALANCED PORTFOLIO .450 .450
- --------------------------------------------------------------------------------
MULTI-ASSET-CLASS PORTFOLIO* .650 .608
* The Adviser is voluntarily waiving a portion of its fees and/or reimbursing
certain expenses for the Cash Reserves Portfolio, the Domestic Fixed Income
Portfolio, the Multi-Market Fixed Income Portfolio, the Municipal Portfolio,
the Multi-Asset-Class Portfolio, the Small Cap Growth Portfolio and the
Targeted Duration Portfolio to keep Total Operating Expenses from exceeding
.32%, .50%, 58%, .50%, .78%, 1.15%, and .45% respectively.
38
<PAGE>
FUND MANAGEMENT (Continued)
PORTFOLIO MANAGERS
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:
DALE R. ALBRIGHT, Vice President, MSDW Advisors, has served as Portfolio
Manager/Analyst at MSDW Advisors since 1990. He serves as a Portfolio Manager
for MSDW Advisors' taxable money market funds. He joined the management team for
the Cash Reserves Portfolio in 1999.
ROBERT E. ANGEVINE, Principal, MSDW, joined Morgan Stanley Dean Witter
Investment Management Inc. in 1988 as a Fixed Income Portfolio Manager. He
joined the management team for the High Yield Portfolio in 1996.
ARDEN C. ARMSTRONG, Managing Director, MSDW, joined MAS in 1986. She joined the
management team for the Mid Cap Growth Portfolio in 1990, the Equity Portfolio
in 1994 and the Small Cap Growth Portfolio in 1998.
RICHARD M. BEHLER, Principal, MSDW, joined MAS in 1995. He served as a Portfolio
Manager from 1992 through 1995 for Moore Capital Management. He joined the
management team for the Value Portfolio in 1996.
THOMAS L. BENNETT, Managing Director, MSDW, joined MAS in 1984. He joined the
management team for the Fixed Income Portfolio in 1984, the Domestic Fixed
Income Portfolio in 1987, the High Yield Portfolio in 1985, the Fixed Income II
Portfolio in 1990, the Special Purpose Fixed Income and Balanced Portfolios in
1992, the Multi-Asset-Class Portfolio in 1994 and the Multi-Market Fixed Income
Portfolio in 1997.
BARTON M. BIGGS, Managing Director of MSDW since 1975, Chairman of Morgan
Stanley Dean Witter Investment Management Inc. since 1980 and a director of
Morgan Stanley Group, Inc. He is also a director and chairman of various
registered investment companies to which Morgan Stanley Dean Witter Investment
Management Inc. and certain of its affiliates provide investment advisory
services. He joined the management teams for the Balanced and Multi-Asset-Class
Portfolios in 1999.
DAVID P. CHU, Vice President, MSDW, joined MAS in 1998. He served as Senior
Equity Analyst from 1992 to 1997 and as Co-Portfolio Manager in 1997 for
NationsBank and its subsidiary, TradeStreet Investment Associates. He joined the
management team for the Mid Cap Growth and Small Cap Growth Portfolios in 1998.
BRADLEY S. DANIELS, Principal, MSDW, joined MAS in 1985. He joined the
management team for the Small Cap Value Portfolio in 1986 and the Mid Cap Value
Portfolio in 1994.
KENNETH B. DUNN, Managing Director, MSDW, joined MAS in 1987. He joined the
management team for the Fixed Income and the Domestic Fixed Income Portfolios in
1987, the Fixed Income II Portfolio in 1990, the Special Purpose Fixed Income
Portfolio in 1992 and the Multi-Market Fixed Income Portfolio in 1997.
STEPHEN F. ESSER, Managing Director, MSDW, joined MAS in 1988. He joined the
management team for the High Yield Portfolio in 1989 and the Multi-Market Fixed
Income Portfolio in 1997.
WILLIAM B. GERLACH, Principal, MSDW, joined MAS in 1991. He served as a Research
Associate from 1991 to 1996 and has served as an Equity Portfolio Manager since
1996. He joined the management team for the Small Cap Value and Mid Cap Value
Portfolios in 1996.
39
<PAGE>
FUND MANAGEMENT (Continued)
J. DAVID GERMANY, Managing Director, MSDW, joined MAS in 1991. He joined the
management team for 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.
JAMES J. JOLINGER, Principal, MSDW, joined MAS in 1994. He served as an Equity
Analyst from 1994 to 1997, and has served as an Equity Portfolio Manager and
Director of Research since 1997. He joined the management team for the Equity
Portfolio in 1997.
NICHOLAS J. KOVICH, Managing Director, MSDW, joined MAS in 1988. He joined the
management team for the Equity Portfolio in 1994 and the Value Portfolio in
1997.
BRIAN KRAMP, Vice President, MSDW, joined MAS in 1997. He served as
Analyst/Portfolio Manager for Meridian Asset Management and its successor,
CoreStates Investment Advisors, from 1985 to 1997. He joined the management team
for the Equity Portfolio in 1998.
STEVEN K. KREIDER, Principal, MSDW, joined MAS in 1988. He joined the management
team for the Municipal Portfolio in 1992.
MICHELE A. KREISLER, Principal, MSDW, joined MAS in 1994. She received her Ph.D.
in Finance from the Wharton School of the University of Pennsylvania in 1996.
She served as a Fixed Income Analyst from 1994 to 1995 and as a Portfolio
Manager from 1995 to 1998. She joined the management team of the Targeted
Duration and Limited Duration Portfolios in 1998.
MICHAEL KUSHMA, Principal, MSDW, joined Morgan Stanley Dean Witter Investment
Management Inc. in 1987. He served as a Global Fixed Income Strategist from 1987
to 1995, and has served as the Senior Global Fixed Income Portfolio Manager
since 1995. He joined the management team for the Global Fixed Income and
International Fixed Income Portfolios in 1996.
CHRIS LEAVY, Vice President, MSDW, joined MAS in 1997. He served as a Portfolio
Manager for Capitoline Investment Services from 1995-1997; a Portfolio Manager
for Premier Trust Company from 1994 to 1995; and as a Research Analyst for Leavy
Investment Management from 1993 to 1994. He joined the management team for the
Mid Cap Value and Small Cap Value Portfolios in 1998.
GORDON W. LOERY, Principal, MSDW, joined MAS in 1996. He served as a Fixed
Income Analyst at Morgan Stanley Asset Management Inc. from 1990 to 1996. He
joined the management team for the High Yield Portfolio in 1999.
ANGELO G. MANIOUDAKIS, Principal, MSDW, joined MAS in 1993. He attended Harvard
Graduate School of Business Administration from 1991 to 1993. He served as a
Fixed Income Analyst from 1993 to 1995. From 1995 to 1998, he served as a Fixed
Income Portfolio manager. He joined the management team for the Intermediate
Duration Portfolio in 1998.
ROBERT J. MARCIN, Managing Director, MSDW, joined MAS in 1988. He joined the
management team for the Value Portfolio in 1990 and the Equity Portfolio in
1994.
JONATHAN R. PAGE, Senior Vice President, MSDW Advisors, has served as Portfolio
Manager at MSDW Advisors since 1975. He serves as a Senior Portfolio Manager for
MSDW Advisors' taxable money market funds. He joined the management team for the
Cash Reserves Portfolio in 1999.
PAUL F. O'BRIEN, Principal, MSDW, joined MAS in 1996. He served as Head of
European Economics from 1993 through 1995 for J.P. Morgan. He joined the
management team for the Global Fixed Income and International Fixed Income
Portfolios in 1996.
40
<PAGE>
FUND MANAGEMENT (Continued)
SCOTT F. RICHARD, Managing Director, MSDW, joined MAS in 1992. He joined the
management team for the Limited Duration, Intermediate Duration and Advisory
Mortgage Portfolios in 1995 and the Targeted Duration Portfolio in 1998.
GARY G. SCHLARBAUM, Managing Director, MSDW; Director, MAS Fund Distribution,
Inc. joined MAS in 1987. He joined the management team for the Equity and Small
Cap Value Portfolios in 1987, the Balanced Portfolio in 1992 and the
Multi-Asset-Class and Mid Cap Value Portfolios in 1994.
NEIL STONE, Principal, MSDW, joined MAS in 1996. He served as Director of Fixed
Income Research at CS First Boston Corporation from 1985 to 1995, and as Vice
President of Mortgage Research at Morgan Stanley from 1995 to 1996. He joined
the management team for the Municipal Portfolio in 1998.
HORACIO A. VALEIRAS, Managing Director, MSDW, joined MAS in 1992. He joined the
management team for the Multi-Asset-Class Portfolio in 1994 and the Balanced
Portfolio in 1996.
RAM WILLNER, Principal, MSDW, joined MAS in 1998. He served as a Market
Strategist, Risk Control Manager and Director of International Bond Research for
Pacific Investment Management Company from 1994 to 1998; and as a Senior
Quantitative Analyst for Sanford C. Bernstein & Co. From 1992 to 1994. He joined
the management team for the Global Fixed Income Portfolio in 1998.
RICHARD B. WORLEY, Managing Director, MSDW, joined MAS in 1978. He joined the
management team for the Fixed Income Portfolio in 1984, the Domestic Fixed
Income Portfolio in 1987, the Fixed Income II Portfolio in 1990, the Balanced
and Special Purpose Fixed Income Portfolios in 1992 and the Multi-Asset-Class
Portfolio in 1994. Mr. Worley has also served as President of Morgan Stanley
Dean Witter Investment Management since 1998.
DISTRIBUTOR
Shares of the Fund are distributed exclusively through MAS Fund Distribution,
Inc., a wholly-owned subsidiary of the Adviser.
YEAR 2000 DISCLOSURE STATEMENT
The management and distribution services that the Adviser and Distributor
provide to the Fund 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 some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact on the handling of
securities trades, pricing and account services. The Adviser and 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 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.
41
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights tables are intended to help you understand
the financial performance of each Portfolio for the past five years or, if less
than five years, the life of the Portfolio or Class. Certain information
reflects financial results for a single Portfolio share. The total returns in
the tables represent the rate that an investor would have earned (or lost) on an
investment in each Portfolio (assuming reinvestment of all dividends and
distributions). As of the fiscal year ended September 30, 1998, the Targeted
Duration Portfolio had not commenced operations. This information has been
extracted from the Fund's financial statements which were audited by
PricewaterhouseCoopers LLP whose report, along with the Fund's financial
statements, are incorporated by reference into the Fund's Statement of
Additional Information and are included in the Fund's September 30, 1998 Annual
Report to Shareholders.
<TABLE>
<CAPTION>
NET GAINS DIVIDEND
NET ASSET OR LOSSES DISTRIBUTIONS CAPITAL GAIN
VALUE- NET ON SECURITIES TOTAL FROM (NET DISTRIBUTIONS
BEGINNING INVESTMENT (REALIZED AND INVESTMENT INVESTMENT (REALIZED NET
OF PERIOD INCOME UNREALIZED) ACTIVITIES INCOME) CAPITAL GAINS)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EQUITY PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 11/14/84)
1998 $29.45 $0.24 ($1.04) ($0.80) ($0.28) ($7.93)
1997 25.67 0.36 8.22 8.58 (0.40) (4.40)
1996 24.43 0.50 3.26 3.76 (0.50) (2.02)
1995 21.05 0.52 4.55 5.07 (0.52) (1.17)
1994 22.82 0.44 0.41 0.85 (0.41) (2.21)
MID CAP GROWTH PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 3/30/90)
1998 $21.84 ($0.03) $0.24 $0.21 -- ($3.43)
1997 20.53 (0.01) 4.75 4.74 -- (3.43)
1996 18.60 0.01 4.70 4.71 (0.03) (2.75)
1995 16.29 0.03 4.21 4.24 (0.03) (1.90)
1994 18.56 0.02 (0.58) (0.56) (0.01) (1.70)
MID CAP VALUE PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 12/30/94)
1998+++ $21.80 $0.08 ($1.53) ($1.45) ($0.04) ($2.19)
1997+++ 14.49 0.05 8.37 8.42 (0.10) (1.01)
1996 13.45 0.11 2.52 2.63 (0.55) (1.04)
1995 10.00 0.55### 2.90 3.45 -- --
SMALL CAP GROWTH PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 6/30/98)
1998 $10.00 ($0.01) ($1.42) ($1.43) -- --
SMALL CAP VALUE PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 7/01/86)
1998 $24.97 $0.16 ($4.33) ($4.17) ($0.14) ($3.29)
1997 19.64 0.15 8.39 8.54 (0.11) (3.10)
1996 18.28 0.18 3.62 3.80 (0.20) (2.24)
1995 17.67 0.19 2.49 2.68 (0.14) (1.93)
1994 17.55 0.16 1.14 1.30 (0.24) (0.94)
NET ASSET NET ASSETS- RATIO OF RATIO OF
VALUE- END OF EXPENSES NET INCOME PORTFOLIO
OTHER TOTAL END OF TOTAL PERIOD TO AVERAGE TO AVERAGE TURNOVER
DISTRIBUTIONS DISTRIBUTIONS PERIOD RETURN** (THOUSANDS) NET ASSETS+ NET ASSETS RATE
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 11/14/84)
1998 -- ($8.21) $20.44 (2.66%) $872,662 0.61% 0.94% 77%
1997 -- (4.80) 29.45 38.46 1,312,547 0.60 1.30 85
1996 -- (2.52) 25.67 16.48 1,442,261 0.60 1.95 67
1995 -- (1.69) 24.43 26.15 1,597,632 0.61 2.39 67
1994 -- (2.62) 21.05 4.11 1,193,017 0.60 2.10 41
MID CAP GROWTH PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 3/30/90)
1998 -- ($3.43) $18.62 2.00% $429,955 0.62% (0.13%) 172%
1997 -- (3.43) 21.84 28.05 446,963 0.63 (0.07) 134
1996 -- (2.78) 20.53 28.81 403,281 0.60 0.04 141
1995 -- (1.93) 18.60 30.56 373,547 0.61 0.21 129
1994 -- (1.71) 16.29 (3.28) 302,995 0.60 0.12 55
MID CAP VALUE PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 12/30/94)
1998+++ -- ($2.23) $18.12 (6.92%) $420,555 0.90% 0.40% 213%
1997+++ -- (1.11) 21.80 61.40 220,260 0.90++ 0.28 184
1996 -- (1.59) 14.49 22.30 50,449 0.88++ 1.61 377
1995 -- -- 13.45 34.50 4,507 0.93*++ 10.13*### 639###
SMALL CAP GROWTH PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 6/30/98)
1998 -- -- $8.57 (14.30%) $3,004 1.16%*++ (0.46%*) 67%
SMALL CAP VALUE PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 7/01/86)
1998 -- ($3.43) $17.37 (18.34%) $716,729 0.86% 0.71% 163%
1997 -- (3.21) 24.97 49.81 897,396 0.86 0.70 107
1996 -- (2.44) 19.64 24.00 585,457 0.86 0.99 145
1995 -- (2.07) 18.28 18.39 430,368 0.87 1.20 119
1994 -- (1.18) 17.67 8.04 308,156 0.88 0.91 162
</TABLE>
42
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
NET GAINS DIVIDEND
NET ASSET OR LOSSES DISTRIBUTIONS CAPITAL GAIN
VALUE- NET ON SECURITIES TOTAL FROM (NET DISTRIBUTIONS
BEGINNING INVESTMENT (REALIZED AND INVESTMENT INVESTMENT (REALIZED NET
OF PERIOD INCOME UNREALIZED) ACTIVITIES INCOME) CAPITAL GAINS)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
VALUE PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 11/05/84)
1998 $20.37 $0.34 ($3.38) ($3.04) ($0.36) ($1.81)
1997+++ 15.61 0.34 5.75 6.09 (0.30) (1.03)
1996 14.89 0.30 2.20 2.50 (0.32) (1.46)
1995 12.63 0.31 3.34 3.65 (0.31) (1.08)
1994 12.76 0.30 0.59 0.89 (0.29) (0.73)
CASH RESERVES PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 8/29/90)
1998 $1.000 $.053 -- $.053 ($.053) --
1997 1.000 .052 -- .052 (.052) --
1996 1.000 .052 -- .052 (.052) --
1995 1.000 .055 -- .055 (.055) --
1994 1.000 .034 -- .034 (.034) --
DOMESTIC FIXED INCOME PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 9/29/87)
1998 $11.27 $0.73 $0.32 $1.05 ($0.79) ($0.13)
1997 10.89 0.74 0.33 1.07 (0.67) (0.02)
1996 11.03 0.56 (0.09) 0.47 (0.57) --
1995 9.87 0.52 0.87 1.39 (0.23) --
1994 11.99 0.94 (1.23) (0.29) (0.95) (0.73)
FIXED INCOME PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 11/14/84)
1998+++ $12.22 $0.78 $0.14 $0.92 ($0.75) ($0.17)
1997+++ 11.83 0.80 0.50 1.30 (0.78) (0.13)
1996 11.82 0.78 0.08 0.86 (0.79) (0.06)
1995 10.93 0.80 0.69 1.49 (0.60) --
1994 12.86 0.77 (1.28) (0.51) (0.82) (0.47)
FIXED INCOME PORTFOLIO II (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 8/31/90)
1998 $11.46 $0.61 $0.40 $1.01 ($0.66) ($0.12)
1997 11.23 0.74 0.39 1.13 (0.79) (0.11)
1996 11.33 0.70 (0.03) 0.67 (0.66) (0.08)
1995 10.42 0.71 0.71 1.42 (0.51) --
1994 11.97 0.63 (1.16) (0.53) (0.67) (0.21)
GLOBAL FIXED INCOME PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 4/30/93)
1998 $10.64 $0.55 $0.38 $0.93 (0.39) ($0.15)
1997+++ 11.01 0.60 (0.22) 0.38 (0.59) (0.16)
1996 11.05 0.63 0.09 0.72 (0.71) (0.05)
1995 10.20 0.71 0.81 1.52 (0.67) --
1994 10.67 0.58 (0.61) (0.03) (0.41) (0.03)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NET ASSET NET ASSETS- RATIO OF RATIO OF
VALUE- END OF EXPENSES NET INCOME PORTFOLIO
OTHER TOTAL END OF TOTAL PERIOD TO AVERAGE TO AVERAGE TURNOVER
DISTRIBUTIONS DISTRIBUTIONS PERIOD RETURN** (THOUSANDS) NET ASSETS+ NET ASSETS RATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
VALUE PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 11/05/84)
1998 -- ($2.17) $15.16 (16.41%) $2,288,236 0.60% 1.76% 56%
1997+++ -- (1.33) 20.37 41.25 3,542,772 0.62 1.93 46
1996 -- (1.78) 15.61 18.41 1,844,740 0.61 2.07 53
1995 -- (1.39) 14.89 32.58 1,271,586 0.60 2.43 56
1994 -- (1.02) 12.63 7.45 981,337 0.61 2.40 54
CASH RESERVES PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 8/29/90)
1998 -- ($.053) $1.000 5.47% $168,228 0.32%++ 5.33% N/A
1997 -- (.052) 1.000 5.32 98,464 0.33++ 5.20 N/A
1996 -- (.052) 1.000 5.35 78,497 0.33++ 5.19 N/A
1995 -- (.055) 1.000 5.57 44,624 0.33++ 5.45 N/A
1994 -- (.034) 1.000 3.40 37,933 0.32++ 3.70 N/A
DOMESTIC FIXED INCOME PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 9/29/87)
1998 -- ($0.92) $11.40 9.83% $76,042 0.51%++ 6.32% 145%
1997 -- (0.69) 11.27 10.20 96,954 0.51++ 6.48 217
1996 (0.04)# (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 (0.15)# (1.83) 9.87 (2.87) 36,521 0.50++ 7.65 78
FIXED INCOME PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 11/14/84)
1998+++ -- ($0.92) $12.22 7.90% $4,625,015 0.48% 6.49% 121%
1997+++ -- (0.91) 12.22 11.47 3,219,987 0.49 6.73 179
1996 -- (0.85) 11.83 7.63 1,790,146 0.48 6.77 162
1995 -- (0.60) 11.82 14.19 1,487,409 0.49 7.28 140
1994 ($0.13)# (1.42) 10.93 (4.43) 1,194,957 0.49 6.79 100
FIXED INCOME PORTFOLIO II (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 8/31/90)
1998 -- ($0.78) $11.69 9.23% $443,923 0.50% 6.19% 92%
1997 -- (0.90) 11.46 10.58 226,662 0.50 6.54 182
1996 (0.03)# (0.77) 11.23 6.12 191,740 0.50 6.06 165
1995 -- (0.51) 11.33 14.13 176,945 0.51 6.75 153
1994 (0.14)# (1.02) 10.42 (4.76) 129,902 0.51 6.07 137
GLOBAL FIXED INCOME PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 4/30/93)
1998 -- ($0.54) $11.03 9.18% $71,834 0.56% 5.11% 88%
1997+++ -- (0.75) 10.64 3.53 77,493 0.57 5.65 137
1996 -- (0.76) 11.01 6.83 67,282 0.60 5.25 133
1995 -- (0.67) 11.05 15.54 55,147 0.58 6.34 118
1994 -- (0.44) 10.20 (0.29) 43,066 0.57 5.48 117
</TABLE>
43
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
NET GAINS DIVIDEND
NET ASSET OR LOSSES DISTRIBUTIONS CAPITAL GAIN
VALUE- NET ON SECURITIES TOTAL FROM (NET DISTRIBUTIONS
BEGINNING INVESTMENT (REALIZED AND INVESTMENT INVESTMENT (REALIZED NET
OF PERIOD INCOME UNREALIZED) ACTIVITIES INCOME) CAPITAL GAINS)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HIGH YIELD PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 2/28/89)
1998+++ $10.15 $0.85 ($0.93) ($0.08) ($0.82) ($0.26)
1997+++ 9.32 0.86 0.87 1.73 (0.87) (0.03)
1996 9.08 0.88 0.28 1.16 (0.92) --
1995 8.97 0.90 0.19 1.09 (0.85) (0.08)
1994 9.49 0.75 (0.42) 0.33 (0.69) (0.16)
INTERMEDIATE DURATION PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 10/3/94)
1998 $10.48 $0.58 $0.28 $0.86 ($0.56) ($0.10)
1997+++ 10.28 0.61 0.27 0.88 (0.53) (0.15)
1996 10.68 0.60 0.03 0.63 (0.65) (0.38)
1995 10.00 0.69 0.42 1.11 (0.43) --
INTERNATIONAL FIXED INCOME PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 4/29/94)
1998 $10.19 $0.45 $0.56 $1.01 ($0.36) ($0.09)
1997 10.77 0.50 (0.44) 0.06 (0.38) (0.26)
1996 11.01 0.52 0.12 0.64 (0.80) (0.08)
1995 10.05 0.67 0.92 1.59 (0.63) --
1994 10.00 0.21 (0.11) 0.10 (0.05) --
LIMITED DURATION PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 3/31/92)
1998 $10.49 $0.59 $0.03 $0.62 ($0.57) --
1997 10.38 0.62 0.08 0.70 (0.59) --
1996 10.41 0.58 (0.03) 0.55 (0.58) --
1995 10.19 0.56 0.22 0.78 (0.55) --
1994 10.72 0.56 (0.52) 0.04 (0.51) ($0.04)
MULTI-MARKET FIXED INCOME PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 10/1/97)
1998 $10.00 $0.56 ($0.29) $0.27 ($0.40) --
MUNICIPAL PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 10/1/92)
1998 $11.64 $0.54 $0.28 $0.82 ($0.50) --
1997 11.23 0.53 0.40 0.93 (0.52) --
1996 10.75 0.51 0.49 1.00 (0.52) --
1995 10.04 0.59 0.71 1.30 (0.59) --
1994 11.15 0.51 (1.01) (0.50) (0.54) --
SPECIAL PURPOSE FIXED INCOME PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 3/31/92)
1998 $12.58 $0.84 $0.03 $0.87 ($0.85) ($0.27)
1997+++ 12.26 0.85 0.52 1.37 (0.87) (0.18)
1996 12.53 0.83 0.08 0.91 (0.88) (0.30)
1995 11.52 0.91 0.75 1.66 (0.65) --
1994 13.40 0.80 (1.28) (0.48) (0.78) (0.53)
NET ASSET NET ASSETS- RATIO OF RATIO OF
VALUE- END OF EXPENSES NET INCOME PORTFOLIO
OTHER TOTAL END OF TOTAL PERIOD TO AVERAGE TO AVERAGE TURNOVER
DISTRIBUTIONS DISTRIBUTIONS PERIOD RETURN** (THOUSANDS) NET ASSETS+ NET ASSETS RATE
- -----------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 2/28/89)
1998+++ -- ($1.08) $8.99 (1.17%) $703,110 0.50% 8.74% 75%
1997+++ -- (0.90) 10.15 19.90 523,899 0.51 9.05 96
1996 -- (0.92) 9.32 13.83 289,810 0.49 10.04 115
1995 ($0.05)# (0.98) 9.08 13.58 220,785 0.50 10.68 96
1994 -- (0.85) 8.97 3.57 182,969 0.50 9.01 112
INTERMEDIATE DURATION PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 10/3/94)
1998 -- ($0.66) $10.68 8.57% $116,891 0.52% 5.84% 131%
1997+++ -- (0.68) 10.48 8.93 72,119 0.55++ 5.93 204
1996 -- (1.03) 10.28 6.27 12,017 0.56++ 6.17 251
1995 -- (0.43) 10.68 11.39 19,237 0.52*++ 6.56* 168
INTERNATIONAL FIXED INCOME PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 4/29/94)
1998 -- ($0.45) $10.75 10.38% $150,313 0.52% 4.59% 75%
1997 -- (0.64) 10.19 0.44 152,752 0.53 5.27 107
1996 -- (0.88) 10.77 6.13 143,137 0.53 5.39 124
1995 -- (0.63) 11.01 16.36 127,882 0.54 6.35 140
1994 -- (0.05) 10.05 1.01 66,879 0.60*++ 5.83* 31
LIMITED DURATION PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 3/31/92)
1998 -- ($0.57) $10.54 6.13% $252,711 0.42% 5.89% 107%
1997 -- (0.59) 10.49 6.98 155,570 0.43%++ 6.15 130
1996 -- (0.58) 10.38 5.47 123,227 0.43 5.65 174
1995 ($0.01)# (0.56) 10.41 7.95 100,186 0.43++ 5.96 119
1994 (0.02)# (0.57) 10.19 0.40 62,775 0.41 4.16 192
MULTI-MARKET FIXED INCOME PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 10/1/97)
1998 ($0.01) ($0.41) $9.86 2.72% $97,062 0.58%*++ 6.48%* 163%
MUNICIPAL PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 10/1/92)
1998 -- ($0.50) $11.96 7.20% $82,282 0.52%++ 4.58% 140%
1997 -- (0.52) 11.64 8.47 75,120 0.51++ 4.70 54
1996 -- (0.52) 11.23 9.46 54,536 0.51++ 4.66 78
1995 -- (0.59) 10.75 13.37 36,040 0.50++ 5.64 58
1994 ($0.07)## (0.61) 10.04 (4.64) 38,549 0.50++ 4.98 34
SPECIAL PURPOSE FIXED INCOME PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 3/31/92)
1998 -- ($1.12) $12.33 7.31% $552,269 0.49% 6.89% 105%
1997+++ -- (1.05) 12.58 11.78 492,784 0.49 6.88 198
1996 -- (1.18) 12.26 7.74 447,646 0.49 6.75 151
1995 -- (0.65) 12.53 14.97 390,258 0.49 7.33 143
1994 ($0.09)# (1.40) 11.52 (4.00) 384,731 0.50 6.66 100
</TABLE>
44
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
NET GAINS DIVIDEND
NET ASSET OR LOSSES DISTRIBUTIONS CAPITAL GAIN
VALUE- NET ON SECURITIES TOTAL FROM (NET DISTRIBUTIONS
BEGINNING INVESTMENT (REALIZED AND INVESTMENT INVESTMENT (REALIZED NET
OF PERIOD INCOME UNREALIZED) ACTIVITIES INCOME) CAPITAL GAINS)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCED PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 12/31/92)
1998+++ $15.30 $0.48 ($0.11) $0.37 ($0.49) ($1.72)
1997 13.81 0.51 2.91 3.42 (0.54) (1.39)
1996 13.06 0.53 1.15 1.68 (0.50) (0.43)
1995 11.28 0.54 1.78 2.32 (0.47) (0.07)
1994 11.84 0.47 (0.45) 0.02 (0.43) (0.15)
MULTI-ASSET-CLASS PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 7/29/94)
1998+++ $13.64 $0.38 ($0.45) ($0.07) ($0.34) ($1.49)
1997+++ 12.28 0.38 2.57 2.95 (0.51) (1.08)
1996 11.34 0.46 1.05 1.51 (0.42) (0.15)
1995 9.97 0.44 1.33 1.77 (0.40) --
1994 10.00 0.07 (0.10) (0.03) -- --
NET ASSET NET ASSETS- RATIO OF RATIO OF
VALUE- END OF EXPENSES NET INCOME PORTFOLIO
OTHER TOTAL END OF TOTAL PERIOD TO AVERAGE TO AVERAGE TURNOVER
DISTRIBUTIONS DISTRIBUTIONS PERIOD RETURN** (THOUSANDS) NET ASSETS+ NET ASSETS RATE
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 12/31/92)
1998+++ -- ($2.21) $13.46 2.85% $382,339 0.59% 3.36% 100%
1997 -- (1.93) 15.30 27.44 343,284 0.58 3.56 145
1996 -- (0.93) 13.81 13.47 300,868 0.57 3.85 110
1995 -- (0.54) 13.06 21.37 334,630 0.58 4.55 95
1994 -- (0.58) 11.28 0.19 309,596 0.58 4.06 75
MULTI-ASSET-CLASS PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 7/29/94)
1998+++ -- ($1.83) $11.74 (0.46%) $165,039 0.78%++ 2.98% 107%
1997+++ -- (1.59) 13.64 26.50 173,155 0.74++ 3.07 141
1996 -- (0.57) 12.28 13.75 29,558 0.58++ 3.82 122
1995 -- (0.40) 11.34 18.28 96,839 0.58++ 4.56 112
1994 -- -- 9.97 (0.30) 51,877 0.58*++ 4.39* 20
</TABLE>
45
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
NOTES TO THE FINANCIAL HIGHLIGHTS
* Annualized
** Total return figures for partial years are not annualized.
# Represents distributions in excess of net realized gains.
## Represents distributions in excess of net investment income.
### Net Investment Income, the Ratio of Net Investment Income to Average Net
Assets and the Portfolio Turnover Rate reflect activity relating to a
nonrecurring initiative to invest in higher-paying dividend income producing
securities.
+ 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. Where
listed as N/A, if the expense offsets were included, the Ratio of Expenses
to Average Net Assets would not significantly differ.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PORTFOLIO 1995 1996 1997 1998 PORTFOLIO 1995 1996 1997 1998
Equity 0.60 0.60 0.59 0.59 Intermediate Duration 0.52* 0.52 0.52 0.51
Mid Cap Growth 0.60 0.60 0.61 0.60 International Fixed Income 0.54 0.53 0.53 0.52
Mid Cap Value 0.88* 0.88 0.88 0.88 Limited Duration 0.42 0.42 0.42 0.41
Small Cap Value 0.87 0.86 0.86 0.86 Multi-Market Fixed Income 0.58*
Small Cap Growth 1.15* Municipal 0.50 0.50 0.50 0.50
Value 0.60 0.60 0.61 0.59 Special Purpose Fixed Income 0.48 0.49 0.48 0.48
Cash Reserves 0.32 0.32 0.32 0.32 Balanced 0.57 0.57 0.56 0.57
Domestic Fixed Income 0.50 0.50 0.50 0.50 Multi-Asset-Class 0.58 0.58 0.74 0.78
Fixed Income 0.48 0.48 0.48 0.47
Fixed Income II 0.49 0.49 0.49 0.49
Global Fixed Income 0.56 0.58 0.57 0.56
</TABLE>
++ 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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PORTFOLIO 1994 1995 1996 1997 1998
Mid Cap Value -- 2.13* 0.18 0.02 --
Small Cap Growth 3.67*
Cash Reserves 0.14% 0.11 0.09 0.07 0.05
Domestic Fixed Income 0.03 0.09 0.01 0.01 0.01
Intermediate Duration -- 0.08* 0.13 0.05 --
International Fixed Income 0.11* -- -- -- --
Limited Duration -- 0.02 -- 0.00[] --
Multi-Market Fixed Income 0.05*
Municipal 0.06 0.09 0.09 0.05 0.04
Multi-Asset-Class 0.26* 0.14 0.08 0.08 0.04
</TABLE>
+++ Per share amounts for the years ended September 30, 1997 and September 30,
1998, are based on average shares outstanding.
[] Amount is less than 0.01%
46
<PAGE>
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<PAGE>
(This page intentionally left blank)
<PAGE>
(This page intentionally left blank)
<PAGE>
MAS INSTITUTIONAL CLASS PROSPECTUS
- ---------
MAS FUNDS
JANUARY 31, 1999
(AS REVISED APRIL 30, 1999)
TRUSTEES OF THE FUND
--------------------
Thomas L. Bennett, Chairman Thomas L. Gerrity
Joseph P. Healey Joseph J. Kearns
Vincent R. McLean C. Oscar Morong, Jr.
OFFICERS OF THE FUND
--------------------
James D. Schmid, President John H. Grady, Jr., Secretary
Lorraine Truten, Vice President Richard J. Shoch, Compliance Officer
James A. Gallo, Treasurer
In addition to this prospectus, the Fund has a Statement of Additional
Information ("SAI"), dated January 31, 1999, which contains additional, more
detailed information about the Fund and the Portfolios. The SAI is incorporated
by reference into this prospectus and, therefore, legally forms a part of this
prospectus.
The Fund publishes annual and semi-annual reports ("Shareholder Reports") which
contain additional information about each Portfolio's investments. In the Fund's
annual report, you will find a discussion of the market conditions and the
investment strategies that significantly affected each Portfolio's performance
during the last fiscal year.
You may obtain the SAI and Shareholder Reports without charge by contacting the
Fund at the toll-free number below. If you purchased shares through a financial
intermediary, you may also obtain these documents, without charge, by contacting
your financial intermediary.
Information about the Fund, including the SAI and Shareholder Reports, may be
obtained from the Securities and Exchange Commission in any of the following
ways. (1) In person: you may review and copy documents in the Commission's
Public Reference Room in Washington D.C. (for information call 1-800-SEC-0330);
(2) On-line: you may retrieve information from the Commission's web site at
http://www.sec.gov; or (3) By mail: you may request documents, upon payment of a
duplicating fee, by writing to Securities and Exchange Commission, Public
Reference Section, Washington, D.C. 20549-6009. To aid you in obtaining this
information, the Fund's Investment Company Act registration number is 811-03980.
MAS FUNDS
ONE TOWER BRIDGE, WEST CONSHOHOCKEN, PA 19428-0868.
FOR SHAREHOLDER INQUIRIES, CALL CLIENT SERVICES AT 1-800-354-8185.
PRICES AND INVESTMENT RESULTS ARE AVAILABLE AT 1-800-522-1525.
MORGAN STANLEY DEAN WITTER
- --------------------------
INVESTMENT MANAGEMENT ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428
<PAGE>
MAS
- ----------
MAS FUNDS
INVESTMENT CLASS PROSPECTUS
JANUARY 31, 1999
(AS REVISED APRIL 30, 1999)
Client Services: 1-800-354-8185 Prices and Investment Results: 1-800-522-1525
MAS Funds (the "Fund") is a no-load mutual fund consisting of 27 different
investment portfolios, 8 of which are described in this prospectus. Miller
Anderson & Sherrerd, LLP (the "Adviser"), a division of Morgan Stanley Dean
Witter Investment Management, is the Fund's investment adviser. This prospectus
offers Investment Class Shares of the following portfolios (each a "Portfolio"
and collectively the "Portfolios"):
EQUITY PORTFOLIOS
EQUITY
MID CAP VALUE
VALUE
FIXED INCOME PORTFOLIOS
DOMESTIC FIXED INCOME
FIXED INCOME
HIGH YIELD
BALANCED PORTFOLIOS
BALANCED
MULTI-ASSET-CLASS
INVESTMENT ADVISER
MILLER ANDERSON & SHERRERD, LLP
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
MORGAN STANLEY DEAN WITTER
- --------------------------
INVESTMENT MANAGEMENT_____________ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428
<PAGE>
TABLE OF CONTENTS
INVESTMENT SUMMARY
INVESTOR SUITABILITY, INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT
STRATEGIES, RISKS AND PERFORMANCE ............................. 1
EQUITY PORTFOLIOS
EQUITY ............................................................... 2
MID CAP VALUE ........................................................ 3
VALUE ................................................................ 4
FIXED INCOME PORTFOLIOS
DOMESTIC FIXED INCOME ................................................ 5
FIXED INCOME ......................................................... 6
HIGH YIELD ........................................................... 7
BALANCED PORTFOLIOS
BALANCED ............................................................. 8
MULTI-ASSET-CLASS .................................................... 10
IMPORTANT INVESTMENT INFORMATION
DESCRIPTION OF PRINCIPAL INVESTMENTS ................................. 12
FEES AND EXPENSES OF THE PORTFOLIOS
SHAREHOLDER FEES AND ANNUAL PORTFOLIO OPERATING EXPENSES ............. 16
PURCHASING SHARES ....................................................... 17
REDEEMING SHARES ........................................................ 17
VALUATION OF SHARES ..................................................... 18
GENERAL SHAREHOLDER INFORMATION
EXCHANGE PRIVILEGE, TAXES, DIVIDENDS AND DISTRIBUTIONS ............... 19
FUND MANAGEMENT
INFORMATION ABOUT THE ADVISER, THE PORTFOLIO MANAGERS, AND THE
DISTRIBUTOR ................................................... 20
SERVICE PLAN ............................................................ 22
YEAR 2000 DISCLOSURE STATEMENT .......................................... 23
FINANCIAL HIGHLIGHTS .................................................... 24
<PAGE>
INVESTMENT SUMMARY
This section explains each Portfolio's:
[] Investment Objective
[] Principal Investment Strategy
[] Principal Risks
The discussions on the following pages use a number of important investment
terms. These terms, printed in BOLD, are explained in the section entitled
"Important Investment Information," which follows the individual Portfolio
summaries.
There is more information about the Portfolios in the Statement of Additional
Information ("SAI"), which legally is a part of this prospectus. For details
about how to obtain the SAI, and other reports and information, see the back
cover of this prospectus.
INVESTOR SUITABILITY
[] The Portfolios may be suitable for you if you are a long-term investor who
can accept the risks of investing in the stock and bond markets. In fact,
some of the Portfolios strive to meet their investment objectives over an
extended period. These Portfolios focus on a market cycle of three to five
years. This means that the Portfolios will strive to meet their respective
investment objectives within that period without regard to interim market
fluctuations.
[] The Portfolios are designed principally for investment by fiduciary
investors who are entrusted with the responsibility of investing assets held
for the benefit of others.
[] While the Portfolios consider whether their securities transactions will
generate distributions taxable at capital gain or ordinary income rates,
minimizing such taxes is not a principal investment strategy.
1
<PAGE>
EQUITY PORTFOLIO
OBJECTIVE
The Equity Portfolio seeks above-average total return over a market
cycle of three to five years.
APPROACH
The Portfolio invests primarily in common stocks and other
EQUITY SECURITIES of large companies. The Portfolio also makes targeted
investments in stocks of small companies and invests to a limited extent in
FOREIGN EQUITY SECURITIES. The Adviser may use DERIVATIVES in managing the
Portfolio.
PROCESS
A team of portfolio managers, organized into "value" and "growth"
units, manages the Portfolio. While the Portfolio's overall sector allocation is
driven by bottom-up stock selection, the Adviser tries to diversify the
Portfolio's investments across market sectors, seeking the best values within
each sector. In determining whether securities should be sold, the Adviser
considers factors such as high price/earnings ratios and relative valuations.
PRINCIPAL RISKS
The prices of common stocks and other equity securities will
rise and fall in response to events that affect entire financial markets or
industries, and to events that affect a particular issuer. Investments in
smaller companies may involve greater risk than investments in larger, more
established companies, and smaller companies' securities may be subject to more
abrupt or erratic price movements. The Portfolio also may be subject to the
risks associated with derivatives. The Portfolio's investments in foreign
securities are subject to certain risks, including the risks associated with
fluctuating currency exchange rates. Please read the section entitled "Important
Investment Information" for more information about these risks.
GENERALLY AT LEAST 65% INVESTED IN
EQUITY SECURITIES
- ------------------------------------------
EQUITY CAPITALIZATION GENERALLY
GREATER THAN $1 BILLION
- ------------------------------------------
BENCHMARK: S&P 500 INDEX
- ------------------------------------------
TICKER SYMBOL: NOT AVAILABLE
- ------------------------------------------
CUSIP NO.: 552-913-584
PORTFOLIO MANAGERS
ARDEN C. ARMSTRONG, JAMES J. JOLINGER,
NICHOLAS J. KOVICH, BRIAN KRAMP,
ROBERT J. MARCIN AND GARY G.
SCHLARBAUM
EQUITY PORTFOLIO
COMMENCED OPERATIONS ON APRIL 10, 1996
25.58% 19.52%
1997 1998
HIGH (QUARTER) LOW (QUARTER)
QUARTER ENDED 12/31/98 QUARTER ENDED 9/30/98
21.29% -14.45%
- ------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- ------------------------------------------------------------------------
EQUITY PORTFOLIO S&P 500 INDEX
- ------------------------------------------------------------------------
ONE YEAR 19.52 28.57
- ------------------------------------------------------------------------
SINCE INCEPTION
4/10/96 22.19 29.83
The bar chart and table above show the Portfolio's Investment Class Shares
performance year-by-year, best and worst performance for a quarter, and average
annual total return for the past 1 year period and since inception. The table
also shows the corresponding returns of the Portfolio's benchmark index. The
variability of performance over time provides an indication of the risks of
investing in the Portfolio. How the Portfolio has performed in the past does not
necessarily indicate how the Portfolio will perform in the future.
2
<PAGE>
MID CAP VALUE PORTFOLIO
OBJECTIVE
The Mid Cap Value Portfolio seeks above-average total return over a
market cycle of three to five years.
APPROACH
The Portfolio invests primarily in common stocks and other EQUITY
SECURITIES having capitalizations in the range of companies included in the S&P
MidCap 400 Index. The Portfolio focuses on stocks that are undervalued based on
the Adviser's proprietary measures of value. While VALUE STOCKS typically pay
dividends, the Portfolio may purchase stocks that do not pay dividends based on
other value characteristics. The Portfolio may invest to a limited extent in
FOREIGN EQUITY SECURITIES. The Adviser may use DERIVATIVES in managing the
Portfolio.
PROCESS
The Adviser continually measures the relative attractiveness of the
Portfolio's current holdings against potential purchases, analyzing each
security on a fundamental basis. The Portfolio's holdings typically will have
lower price/earnings ratios than the average stock included in the S&P MidCap
400 Index. In determining whether securities should be sold, the Adviser
considers factors such as high valuations relative to other investment
opportunities and deteriorating short or long-term earnings growth projections.
Sector weightings normally are kept within 5% of those of the S&P MidCap 400
Index.
PRINCIPAL RISKS
The prices of common stocks and other equity securities will
rise and fall in response to events that affect entire financial markets or
industries, and to events that affect a particular issuer. Investments in
smaller companies may involve greater risk than investments in larger, more
established companies, and smaller companies' securities may be subject to more
abrupt or erratic price movements. Certain market conditions may favor value
stocks or stocks of mid-sized companies, while other conditions may favor growth
stocks or stocks of larger or smaller companies. Accordingly, a portfolio of mid
cap value stocks may, over certain periods of time, underperform a portfolio of
growth stocks or stocks of larger or smaller companies. The Portfolio also may
be subject to the risks associated with derivatives. The Portfolio's investments
in foreign securities are subject to certain risks, including the risks
associated with fluctuating currency exchange rates. Please read the section
entitled "Important Investment Information" for more information about these
risks.
<PAGE>
GENERALLY AT LEAST 65% INVESTED
IN EQUITY SECURITIES OF MID CAP
COMPANIES
- ----------------------------------------
FOCUS ON VALUE SECURITIES
- ----------------------------------------
EQUITY CAPITALIZATION GENERALLY
MATCHING THE BENCHMARK (CURRENTLY
$500 MILLION TO $6 BILLION)
- ----------------------------------------
BENCHMARK: S&P MIDCAP
400 INDEX
- ----------------------------------------
TICKER SYMBOL: MPMIX
- ----------------------------------------
CUSIP NO.: 552-913-477
PORTFOLIO MANAGERS:
BRADLEY S. DANIELS, WILLIAM B. GERLACH,
CHRIS LEAVY AND GARY G. SCHLARBAUM
MID CAP VALUE PORTFOLIO
COMMENCED OPERATIONS ON MAY 10, 1996
39.28% 15.93%
1997 1998
HIGH (QUARTER) LOW (QUARTER)
QUARTER ENDED 12/31/98 QUARTER ENDED 9/30/98
22.48% -13.80%
- ------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- ------------------------------------------------------------------------
MID CAP S&P MIDCAP
VALUE PORTFOLIO 400 INDEX
- ------------------------------------------------------------------------
ONE YEAR 15.93 19.12
- ------------------------------------------------------------------------
SINCE INCEPTION
5/10/96 28.17 22.72
The bar chart and table above show the Portfolio's Investment Class Shares
performance year-by-year, best and worst performance for a quarter, and average
annual total return for the past 1 year period and since inception. The table
also shows the corresponding returns of the Portfolio's benchmark index. The
variability of performance over time provides an indication of the risks of
investing in the Portfolio. How the Portfolio has performed in the past does not
necessarily indicate how the Portfolio will perform in the future.
3
<PAGE>
VALUE PORTFOLIO
OBJECTIVE
The Value Portfolio seeks above-average total return over a market cycle of
three to five years.
APPROACH
The Portfolio invests primarily in common stocks and other EQUITY SECURITIES
with equity capitalizations greater than $1.5 billion. The Portfolio focuses on
stocks that are undervalued in comparison with the stock market as a whole, as
measured by the S&P 500 Index. While VALUE STOCKS typically pay dividends, the
Portfolio may purchase stocks that do not pay dividends based on other value
characteristics. The Portfolio may invest in FOREIGN EQUITY SECURITIES to a
limited extent. The Adviser may use DERIVATIVES in managing the Portfolio.
PROCESS
The Adviser narrows the Portfolio's universe of possible investments through a
three part analysis. The Adviser selects stocks having the lowest price/earnings
ratios. The Adviser applies fundamental analysis and its investment judgment to
determine which of those securities are the most attractive. The Adviser also
may favor securities of companies that are in undervalued industries. The
Adviser employs a formal sell discipline, under which the Portfolio sells
securities when their price/earnings ratios rise.
PRINCIPAL RISKS
The prices of common stocks and other equity securities will rise and fall in
response to events that affect entire financial markets or industries, and to
events that affect a particular issuer. Investments in smaller companies may
involve greater risk than investments in larger, more established companies, and
smaller companies' securities may be subject to more abrupt or erratic price
movements. Certain market conditions may favor value stocks, while other
conditions may favor growth stocks. Accordingly, a portfolio of value stocks
may, over certain periods of time, underperform a portfolio of growth stocks.
The Portfolio also may be subject to the risks associated with derivatives. The
Portfolio's investments in foreign securities are subject to certain risks,
including the risks associated with fluctuating currency exchange rates. Please
read the section entitled "Important Investment Information" for more
information about these risks.
<PAGE>
GENERALLY AT LEAST 65% INVESTED IN
EQUITIES
- ------------------------------------
EQUITY CAPITALIZATION GENERALLY
GREATER THAN $1.5 BILLION
- ------------------------------------
FOCUS ON VALUE SECURITIES
- ------------------------------------
BENCHMARK: S&P 500 INDEX
- ------------------------------------
TICKER SYMBOL: MPVIX
- ------------------------------------
CUSIP NO.: 552-913-576
- ------------------------------------
PORTFOLIO MANAGERS:
RICHARD M. BEHLER, NICHOLAS J. KOVICH
AND ROBERT J. MARCIN
VALUE PORTFOLIO
COMMENCED OPERATIONS ON MAY 6, 1996
23.18% -3.02%
1997 1998
HIGH (QUARTER) LOW (QUARTER)
QUARTER ENDED 6/30/97 QUARTER ENDED 9/30/98
14.62% -19.08%
- ------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- ------------------------------------------------------------------------
VALUE PORTFOLIO S&P 500 INDEX
- ------------------------------------------------------------------------
ONE YEAR -3.02 28.57
- ------------------------------------------------------------------------
SINCE INCEPTION
5/6/96 13.54 30.13
The bar chart and table above show the Portfolio's Investment Class Shares
performance year-by-year, best and worst performance for a quarter, and average
annual total return for the past 1 year period and since inception. The table
also shows the corresponding returns of the Portfolio's benchmark index. The
variability of performance over time provides an indication of the risks of
investing in the Portfolio. How the Portfolio has performed in the past does not
necessarily indicate how the Portfolio will perform in the future.
4
<PAGE>
DOMESTIC FIXED INCOME PORTFOLIO
OBJECTIVE
The Domestic Fixed Income Portfolio seeks above-average total return over a
market cycle of three to five years.
APPROACH
The Portfolio invests exclusively in U.S. Government securities and other
investment grade FIXED INCOME SECURITIES of U.S. issuers, including corporate
bonds and MORTGAGE SECURITIES. The Adviser will use futures, swaps and other
DERIVATIVES in managing the Portfolio.
PROCESS
The Adviser actively manages the maturity and DURATION of the Portfolio in
anticipation of long-term trends in interest rates and inflation. Depending on
the Adviser's outlook for the economy, interest rates and inflation, the Adviser
may lengthen or shorten the Portfolio's average maturity or duration. The
portfolio managers as a team determine the Portfolio's overall maturity and
duration targets and sector allocations. The portfolio managers then
individually select particular securities for the Portfolio in various sectors
within those overall guidelines. The Adviser alters the Portfolio's weightings
in various sectors based on its perception of value. The Adviser may sell
securities when it believes that expected risk-adjusted return is low compared
to other investment opportunities.
PRINCIPAL RISKS
Market prices of the Portfolio's holdings respond to economic developments,
especially changes in interest rates, as well as to perceptions of the
creditworthiness of individual issuers. Generally, fixed income securities
decrease in value as interest rates rise and vice versa. Prices of fixed income
securities also generally will fall if an issuer's credit rating declines, and
rise if it improves. The prices of mortgage securities may be particularly
sensitive to changes in interest rates because of the risk that borrowers will
become more or less likely to refinance their mortgages. For example, an
increase in interest rates generally will reduce prepayments, effectively
lengthening the maturity of some mortgage securities, and make them subject to
more drastic price movements. Because of prepayment issues, it is not possible
to predict the ultimate maturity of mortgage securities. The Portfolio also is
subject to the risks associated with using derivatives. Please read the section
entitled "Important Investment Information" for more information about these
risks.
<PAGE>
100% U.S. ISSUERS
- ------------------------------------
GENERALLY AT LEAST 65% INVESTED IN
FIXED INCOME SECURITIES
- ------------------------------------
80% OF FIXED INCOME SECURITIES RATED
A OR HIGHER (OR EQUIVALENT)
- ------------------------------------
UP TO 20% OF FIXED INCOME SECURITIES
RATED BBB (OR EQUIVALENT)
- ------------------------------------
AVERAGE WEIGHTED MATURITY GENERALLY
GREATER THAN 5 YEARS
- ------------------------------------
MAY INVEST OVER 50% IN MORTGAGE
SECURITIES
- ------------------------------------
BENCHMARK: SALOMON BROAD
INVESTMENT GRADE
INDEX
- ------------------------------------
TICKER SYMBOL: NOT AVAILABLE
- ------------------------------------
CUSIP NO.: 552-913-550
PORTFOLIO MANAGERS:
THOMAS L. BENNETT, KENNETH B. DUNN
AND RICHARD B. WORLEY
DOMESTIC FIXED INCOME PORTFOLIO
COMMENCED OPERATIONS ON SEPTEMBER 29, 1987
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11.22% 7.19% 21.54% 9.12% 13.75% -3.89% 18.85% 3.89% 9.62% 7.23%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
HIGH (QUARTER) LOW (QUARTER)
QUARTER ENDED 9/30/91 QUARTER ENDED 3/31/92
7.48% -2.28%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- --------------------------------------------------------------------
DOMESTIC SALOMON
FIXED INCOME BROAD INVESTMENT
PORTFOLIO GRADE INDEX
- --------------------------------------------------------------------
ONE YEAR 7.23 8.72
- --------------------------------------------------------------------
FIVE YEARS 6.88 7.30
- --------------------------------------------------------------------
TEN YEARS 9.63 9.31
- --------------------------------------------------------------------
SINCE INCEPTION
9/29/87 9.80 9.48
The bar chart and table above show the Portfolio's Institutional Class Shares
performance year-by-year, best and worst performance for a quarter, and average
annual total return for the past 1, 5 and 10 year periods and since inception.
The table also shows the corresponding returns of the Portfolio's benchmark
index. The Investment Class Shares would have had similar annual returns, but
returns would have generally been lower as expenses of this class are higher.
The variability of performance over time provides an indication of the risks of
investing in the Portfolio. How the Portfolio has performed in the past does not
necessarily indicate how the Portfolio will perform in the future.
5
<PAGE>
FIXED INCOME PORTFOLIO
OBJECTIVE
The Fixed Income Portfolio seeks above average total return over a market cycle
of three to five years.
APPROACH
The Portfolio invests in a diversified portfolio of FIXED INCOME
SECURITIES, including U.S. Government securities, corporate bonds, MORTGAGE
SECURITIES, and to a limited extent, FOREIGN FIXED INCOME SECURITIES. The
Portfolio invests primarily in investment grade securities, but also may invest
a portion of its assets in HIGH YIELD SECURITIES, also known as "junk bonds."
The Adviser will use futures, swaps and other DERIVATIVES in managing the
Portfolio.
PROCESS
The Adviser actively manages the maturity and DURATION of the
Portfolio in anticipation of long-term trends in interest rates and inflation.
Depending on the Adviser's outlook for the economy, interest rates and
inflation, the Adviser may lengthen or shorten the Portfolio's average maturity
or duration. The portfolio managers as a team determine the Portfolio's overall
maturity and duration targets and sector allocations. The portfolio managers
then individually select particular securities for the Portfolio in various
sectors within those overall guidelines. The Adviser alters the Portfolio's
weightings in various sectors based on its perception of value. The Adviser may
sell securities when it believes that expected risk-adjusted return is low
compared to other investment opportunities.
PRINCIPAL RISKS
Market prices of the Portfolio's holdings respond to economic
developments, especially changes in interest rates, as well as to perceptions of
the creditworthiness of individual issuers. Generally, fixed income securities
decrease in value as interest rates rise and vice versa. Prices of fixed income
securities also generally will fall if an issuer's credit rating declines, and
rise if it improves.
The prices of mortgage securities may be particularly sensitive to changes in
interest rates because of the risk that borrowers will become more or less
likely to refinance their mortgages. For example, an increase in interest rates
generally will reduce prepayments, effectively lengthening the maturity of some
mortgage securities, and make them subject to more drastic price movements.
Because of prepayment issues, it is not possible to predict the ultimate
maturity of mortgage securities.
The Portfolio's investments in high yield securities expose it to a substantial
degree of credit risk. Prices of high yield securities will rise and fall
primarily in response to changes in the issuer's financial health, although
changes in market interest rates also will affect prices. High yield securities
may experience reduced liquidity, and sudden and substantial decreases in price,
during certain market conditions.
The Portfolio also is subject to the risks of investing in derivatives and, to a
limited extent, foreign fixed income securities. Foreign fixed income securities
may be denominated in foreign currencies, which will fluctuate in value relative
to the U.S. dollar. The Portfolio may use derivatives to hedge some or all of
the risks associated with foreign currencies. Certain hedging strategies or
instruments may not be available or practical in certain markets or under
certain conditions. Hedging the Portfolio's currency risks involves certain
risks, including the possibility of mismatching the Portfolio's obligations
under a forward or futures contract with the value of securities denominated in
a particular currency. Please read the section entitled "Important Investment
Information" for more information about these risks.
<PAGE>
GENERALLY AT LEAST 65% INVESTED IN
FIXED INCOME SECURITIES
- --------------------------------------------
AVERAGE WEIGHTED MATURITY GENERALLY
GREATER THAN 5 YEARS
- --------------------------------------------
80% INVESTMENT GRADE SECURITIES
- --------------------------------------------
UP TO 20% HIGH YIELD SECURITIES
- --------------------------------------------
MAY INVEST OVER 50% IN MORTGAGE SECURITIES
- --------------------------------------------
BENCHMARK: SALOMON BROAD
INVESTMENT
GRADE INDEX
- --------------------------------------------
TICKER SYMBOL: NOT AVAILABLE
- --------------------------------------------
CUSIP NO.: 552-913-568
PORTFOLIO MANAGERS:
THOMAS L. BENNETT, KENNETH B. DUNN
AND RICHARD B. WORLEY
FIXED INCOME PORTFOLIO
COMMENCED OPERATIONS ON OCTOBER 15, 1996
9.52% 6.72%
1997 1998
HIGH (QUARTER) LOW (QUARTER)
QUARTER ENDED 6/30/97 QUARTER ENDED 3/31/97
3.98% -0.09%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- --------------------------------------------------------------------
FIXED SALOMON
INCOME BROAD INVESTMENT
PORTFOLIO GRADE INDEX
- --------------------------------------------------------------------
One Year 6.72 8.72
- --------------------------------------------------------------------
Since Inception
10/15/96 8.60 9.28
The bar chart and table above show the Portfolio's Investment Class Shares
performance year-by-year, best and worst performance for a quarter, and average
annual total return for the past 1 year period and since inception. The table
also shows the corresponding returns of the Portfolio's benchmark index. The
variability of performance over time provides an indication of the risks of
investing in the Portfolio. How the Portfolio has performed in the past does not
necessarily indicate how the Portfolio will perform in the future.
6
<PAGE>
HIGH YIELD PORTFOLIO
OBJECTIVE
The High Yield Portfolio seeks above average total return over a
market cycle of three to five years.
APPROACH
The Portfolio invests primarily in HIGH YIELD SECURITIES (commonly
referred to as "junk bonds"). The Portfolio also may invest in other FIXED
INCOME SECURITIES, including U.S. Government securities, and investment grade
corporate bonds and, to a limited extent, MORTGAGE SECURITIES. The Portfolio may
invest to a limited extent in FOREIGN FIXED INCOME SECURITIES, including
EMERGING MARKET securities. The Adviser will use futures, swaps and other
DERIVATIVES in managing the Portfolio.
PROCESS
The Adviser uses equity and fixed income valuation techniques, together with
analyses of economic and industry trends, to determine the Portfolio's overall
structure, sector allocation and desired maturity. The Adviser emphasizes
securities of companies that have strong industry positions and favorable
outlooks for cash flow and asset values. The Adviser conducts a credit analysis
for each security considered for investment to evaluate its attractiveness
relative to the level of risk it presents. The Portfolio maintains a high level
of diversification to minimize its exposure to the risks associated with any
particular issuer. The Adviser may sell securities when it believes that
expected risk-adjusted return is low compared to other investment opportunities.
PRINCIPAL RISKS
Market prices of the Portfolio's fixed income securities holdings respond to
economic developments, especially changes in interest rates, as well as to
perceptions of the creditworthiness of individual issuers. The Portfolio's
investments in high yield securities expose it to a substantial degree of credit
risk. These investments are considered speculative under traditional investment
standards. Prices of high yield securities will rise and fall primarily in
response to changes in the issuer's financial health, although changes in market
interest rates also will affect prices. Generally, fixed income securities
decrease in value as interest rates rise and vice versa. High yield securities
may experience reduced liquidity, and sudden and substantial decreases in price,
during certain market conditions.
The Portfolio also is subject to the risks associated with using derivatives.
Foreign fixed income securities may be denominated in foreign currencies, which
will fluctuate in value relative to the U.S. dollar. The Portfolio may use
derivatives to hedge some or all of the risks associated with foreign
currencies. Certain hedging strategies or instruments may not be available or
practical in certain markets or under certain conditions. Hedging the
Portfolio's currency risks involves certain risks, including the possibility of
mismatching the Portfolio's obligations under a forward or futures contract with
the value of securities denominated in a particular currency. Please read the
section entitled "Important Investment Information" for more information about
these risks.
<PAGE>
AVERAGE WEIGHTED MATURITY GENERALLY
GREATER THAN 5 YEARS
- --------------------------------------------------
GENERALLY AT LEAST 65% INVESTED IN
HIGH YIELD SECURITIES
- --------------------------------------------------
BENCHMARK: SALOMON HIGH YIELD
INDEX
- --------------------------------------------------
TICKER SYMBOL: NOT AVAILABLE
- --------------------------------------------------
CUSIP NO.: 552-913-527
PORTFOLIO MANAGERS:
ROBERT E. ANGEVINE, THOMAS L. BENNETT, STEPHEN F. ESSER AND GORDON W. LOERY
HIGH YIELD PORTFOLIO
COMMENCED OPERATIONS ON MAY 21, 1996
15.73% 2.94%
1997 1998
HIGH (QUARTER) LOW (QUARTER)
QUARTER ENDED 6/30/97 QUARTER ENDED 9/30/98
6.90% -6.35%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
- ---------------------------------------------------------------
HIGH SALOMON
YIELD HIGH YIELD
PORTFOLIO INDEX
- ---------------------------------------------------------------
ONE YEAR 2.94 3.61
- ---------------------------------------------------------------
SINCE INCEPTION
5/21/96 10.85 9.73
The bar chart and table above show the Portfolio's Investment Class Shares
performance year-by-year, best and worst performance for a quarter, and average
annual total return for the past 1 year period and since inception. The table
also shows the corresponding returns of the Portfolio's benchmark index. The
variability of performance over time provides an indication of the risks of
investing in the Portfolio. How the Portfolio has performed in the past does not
necessarily indicate how the Portfolio will perform in the future.
7
<PAGE>
BALANCED PORTFOLIO
OBJECTIVE
The Balanced Portfolio seeks above average total return over a market cycle of
three to five years.
APPROACH
The Portfolio invests in a mix of EQUITY and FIXED INCOME SECURITIES.
The Portfolio normally invests 45-75% of its assets in equity securities and
25-55% of its assets in fixed income securities. The Portfolio may invest up to
25% of its assets in FOREIGN EQUITY and FOREIGN FIXED INCOME SECURITIES,
including EMERGING MARKET SECURITIES. Equity securities generally will be issued
by larger corporations. Fixed income securities will include U.S. Government
securities, corporate bonds, MORTGAGE SECURITIES, HIGH YIELD SECURITIES
(commonly called "junk bonds") and foreign fixed income securities. The Adviser
will use futures, swaps and other DERIVATIVES in managing the Portfolio.
PROCESS
The Adviser determines the Portfolio's equity and fixed income investment
strategies separately and then determines the mix of those strategies that will
maximize the return available from both the stock and bond markets, based on
proprietary valuation disciplines and analysis. The Adviser evaluates
international economic developments in determining the amount to invest in
foreign securities. In determining whether securities should be sold, the
Adviser considers factors such as deteriorating earnings, cash flows and other
fundamentals, as well as high valuations relative to the Portfolio's investment
universe.
PRINCIPAL RISKS
The prices of common stocks and other equity securities will rise and fall in
response to events that affect entire financial markets or industries, and to
events that affect a particular issuer.
Market prices of the Portfolio's fixed income securities respond to economic
developments, especially changes in interest rates, as well as to perceptions of
the creditworthiness of individual issuers. The prices of mortgage securities
may be particularly sensitive to changes in interest rates because of the risk
that borrowers will become more or less likely to refinance their mortgages. For
example, an increase in interest rates generally will reduce prepayments,
effectively lengthening the maturity of some mortgage securities, and make them
subject to more drastic price movements. Because of prepayment issues, it is not
possible to predict the ultimate maturity of mortgage securities.
The Portfolio is subject to the risks of investing in foreign securities. News
and events unique to a country or region will affect those markets and their
issuers, yet may have little or no effect on the U.S. economy or similar issuers
located in the United States. Emerging market countries are generally considered
to be less economically mature than developed nations. Emerging market countries
may be more likely to experience political turmoil or rapid changes in economic
conditions, and issuers in those countries may be in more precarious financial
condition. These characteristics can cause securities in emerging market
countries to experience significant price volatility. Brady Bonds are subject to
certain risks, including the risk of default by the issuer.
GENERALLY 45-75% INVESTED IN EQUITIES, 25-55% IN FIXED INCOME SECURITIES
- -------------------------------------------------------------------------------
AT LEAST 25% INVESTED IN SENIOR FIXED INCOME SECURITIES
- -------------------------------------------------------------------------------
UP TO 25% INVESTED IN FOREIGN EQUITY AND FOREIGN FIXED INCOME SECURITIES
- -------------------------------------------------------------------------------
UP TO 10% INVESTED IN BRADY BONDS (A TYPE OF EMERGING MARKET FIXED INCOME
SECURITY)
- -------------------------------------------------------------------------------
EQUITY CAPITALIZATION GENERALLY GREATER THAN $1 BILLION
- -------------------------------------------------------------------------------
AVERAGE WEIGHTED MATURITY OF FIXED INCOME SECURITIES GENERALLY GREATER THAN
5 YEARS
- -------------------------------------------------------------------------------
BENCHMARK: WEIGHTED BLEND OF QUARTERLY RETURNS OF
60% S&P 500 INDEX
40% SALOMON BROAD INVESTMENT GRADE INDEX
- -------------------------------------------------------------------------------
TICKER SYMBOL: NOT AVAILABLE
- -------------------------------------------------------------------------------
CUSIP NO.: 552-913-493
PORTFOLIO MANAGERS:
THOMAS L. BENNETT, BARTON M. BIGGS, GARY G. SCHLARBAUM, HORACIO A. VALEIRAS AND
RICHARD B. WORLEY
8
<PAGE>
BALANCED PORTFOLIO (Continued)
Many of the Portfolio's foreign securities will be denominated in a foreign
currency. Brady Bonds also may be denominated in a foreign currency. Changes in
the values of those currencies compared to the U.S. dollar may affect the value
of the Portfolio's investments. These changes may happen separately from and in
response to events that do not otherwise affect the value of the security in the
issuer's home country. The Adviser may use derivatives and other techniques to
manage these risks. The Adviser may, in its discretion, use derivatives to hedge
currency risk. However, the Adviser cannot guarantee that it will succeed in
doing so. Certain hedging strategies or instruments may not be available or
practical in certain markets or under certain conditions. Hedging the
Portfolio's currency risks involves certain risks, including the possibility of
mismatching the Portfolio's obligations under a forward or futures contract with
the value of securities denominated in a particular currency.
The Portfolio's investments in high yield securities expose it to a substantial
degree of credit risk. Prices of high yield securities will rise and fall
primarily in response to changes in the issuer's financial health, although
changes in market interest rates also will affect prices. High yield securities
may experience reduced liquidity, and sudden and substantial decreases in price,
during certain market conditions.
At various times, equity securities may perform better or worse than fixed
income securities. There is a risk that the Portfolio could invest too much or
too little in an asset class, which could adversely affect performance.
The Portfolio also is subject to the risks of using derivatives. Please read the
section entitled "Important Investment Information" for more information about
these risks.
BALANCED PORTFOLIO
COMMENCED OPERATIONS ON APRIL 4, 1997
15.09%
1998
HIGH (QUARTER) LOW (QUARTER)
QUARTER ENDED 12/31/98 QUARTER ENDED 9/30/98
12.08% -6.73%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
SALOMON BROAD 60/40
BALANCED S&P 500 INVESTMENT GRADE BLENDED
PORTFOLIO INDEX INDEX INDEX*
- -------------------------------------------------------------------------------
ONE YEAR 15.09 28.57 8.72 21.24
- -------------------------------------------------------------------------------
SINCE INCEPTION
4/4/97 19.31 34.83 10.75 25.40
*The 60/40 Blended Index is an unmanaged index comprised of 60% S&P 500 Index
and 40% Salomon Broad Investment Grade Index.
The bar chart and table above show the Portfolio's Investment Class Shares
pesrformance year-by-year, best and worst performance for a quarter, and average
annual total return for the past 1 year period and since inception. The table
also shows the corresponding returns of the Portfolio's benchmark index. The
variability of performance over time provides an indication of the risks of
investing in the Portfolio. How the Portfolio has performed in the past does not
necessarily indicate how the Portfolio will perform in the future.
9
<PAGE>
MULTI-ASSET-CLASS PORTFOLIO
OBJECTIVE
The Multi-Asset-Class Portfolio seeks above average total return over a market
cycle of three to five years.
APPROACH
The Portfolio seeks to invest in a combination of asset classes that
do not move in tandem with each other in order to improve potential return and
control the Portfolio's overall risk. The Portfolio invests in EQUITY SECURITIES
and FIXED INCOME SECURITIES of U.S. and foreign issuers, including EMERGING
MARKET SECURITIES, in accordance with the Adviser's target allocation among
certain asset classes. The Portfolio's equity securities generally will be
issued by larger corporations. Fixed income securities will include U.S.
Government securities, foreign government securities, corporate bonds, MORTGAGE
SECURITIES and HIGH YIELD SECURITIES (commonly called "junk bonds"). The
Portfolio's neutral position is generally 50% domestic equity securities, 24%
domestic fixed income securities, 14% foreign equity securities, 6% FOREIGN
FIXED INCOME SECURITIES and 6% high yield securities. The Adviser will use
futures, swaps and other DERIVATIVES in managing the Portfolio.
PROCESS
The Adviser makes strategic judgments based on proprietary measures used to
compare the relative risks and returns of stock and bond markets around the
world. The Adviser's asset allocation team sets the target exposures for
domestic and international equity and fixed income securities, high yield
securities and cash, depending on the Adviser's appraisal of the relative
attractiveness of each type of investment. In determining whether securities
should be sold, the Adviser considers factors such as deteriorating earnings,
cash flows and other fundamentals, as well as high valuations relative to the
Portfolio's investment universe.
PRINCIPAL RISKS
The prices of common stocks and other equity securities will rise and fall in
response to events that affect entire financial markets or industries, and to
events that affect a particular issuer.
Market prices of the Portfolio's fixed income securities respond to economic
developments, especially changes in interest rates, as well as to perceptions of
the creditworthiness of individual issuers. The prices of mortgage securities
may be particularly sensitive to changes in interest rates because of the risk
that borrowers will become more or less likely to refinance their mortgages. For
example, an increase in interest rates generally will reduce prepayments,
effectively lengthening the maturity of some mortgage securities, and make them
subject to more drastic price movements. Because of prepayment issues, it is not
possible to predict the ultimate maturity of mortgage securities.
The Portfolio is subject to the risks of investing in foreign securities. News
and events unique to a country or region will affect those markets and their
issuers, yet may have little or no effect on the U.S. economy or similar issuers
located in the United States. Emerging market countries are generally considered
to be less economically mature than developed nations. Emerging market countries
may be more likely to experience political turmoil or rapid changes in economic
conditions, and issuers in those countries may be in a more precarious financial
condition. These characteristics can cause securities in emerging market
countries to experience significant price volatility.
GENERALLY AT LEAST 65% INVESTED IN ISSUERS LOCATED IN AT LEAST 3 COUNTRIES,
INCLUDING THE U.S.
- -------------------------------------------------------------------------------
EQUITY CAPITALIZATION GENERALLY GREATER THAN $1 BILLION
- -------------------------------------------------------------------------------
AVERAGE WEIGHTED MATURITY OF FIXED INCOME SECURITIES GENERALLY GREATER THAN 5
YEARS
- -------------------------------------------------------------------------------
BENCHMARK: A WEIGHTED BLEND OF QUARTERLY RETURNS OF
50% S&P 500 INDEX
14% MSCI EAFE-GDP
WEIGHTED INDEX
24% SALOMON BROAD INVESTMENT GRADE INDEX
6% SALOMON WORLD GOVERNMENT BOND EX-U.S. INDEX
6% SALOMON HIGH YIELD MARKET INDEX
- -------------------------------------------------------------------------------
TICKER SYMBOL: NOT AVAILABLE
- -------------------------------------------------------------------------------
CUSIP NO.: 552-913-485
PORTFOLIO MANAGERS:
THOMAS L. BENNETT, BARTON M. BIGGS, J. DAVID GERMANY, GARY G. SCHLARBAUM,
HORACIO A. VALEIRAS AND RICHARD B. WORLEY
10
<PAGE>
MULTI-ASSET-CLASS PORTFOLIO (Continued)
Many of the Portfolio's foreign securities will be denominated in a foreign
currency. Changes in the values of those currencies compared to the U.S. dollar
may affect the value of the Portfolio's investments. These changes may happen
separately from and in response to events that do not otherwise affect the value
of the security in the issuer's home country. The Adviser may use derivatives
and other techniques to manage these risks. However, the Adviser cannot
guarantee that it will succeed in doing so. Certain hedging strategies or
instruments may not be available or practical in certain markets or under
certain conditions. Hedging the Portfolio's currency risks involves certain
risks, including the possibility of mismatching the Portfolio's obligations
under a forward or futures contract with the value of securities denominated in
a particular currency.
The Portfolio's investments in high yield securities expose it to a substantial
degree of credit risk. Prices of high yield securities will rise and fall
primarily in response to changes in the issuer's financial health, although
changes in market interest rates also will affect prices. High yield securities
may experience reduced liquidity, and sudden and substantial decreases in price,
during certain market conditions.
At various times, some asset classes will perform better or worse than others.
There is a risk that the Portfolio could invest too much or too little in
particular asset classes, which could adversely affect performance.
The Portfolio also is subject to the risks of using derivatives. Please read the
section entitled "Important Investment Information" for more information about
these risks.
MULTI-ASSET-CLASS PORTFOLIO
COMMENCED OPERATIONS ON JUNE 10, 1996
17.21% 13.80%
1997 1998
HIGH (QUARTER) LOW (QUARTER)
QUARTER ENDED 12/31/98 QUARTER ENDED 9/30/98
12.83% -8.71%
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
<TABLE>
<CAPTION>
SALOMON BROAD MSCI EAFE-GDP
MULTI-ASSET-CLASS S&P 500 INVESTMENT WEIGHTED BLENDED
PORTFOLIO INDEX GRADE INDEX INDEX INDEX*
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ONE YEAR 13.80 28.57 8.72 26.71 22.05
- -----------------------------------------------------------------------------------------------
SINCE INCEPTION
6/10/96 15.36 28.84 9.86 13.86 19.98
</TABLE>
* The Blended Index is an unmanaged index comprised of 50% S&P 500 Index, 24%
Salomon Broad Investment Grade Index, 14% MSCI EAFE-GDP Weighted Index, 6%
Salomon High Yield Index and 6% Salomon World Government Bond Ex-U.S. Index.
The bar chart and table above show the Portfolio's Investment Class Shares
performance year-by-year, best and worst performance for a quarter, and average
annual total return for the past 1 year period and since inception. The table
also shows the corresponding returns of the Portfolio's benchmark index. The
variability of performance over time provides an indication of the risks of
investing in the Portfolio. How the Portfolio has performed in the past does not
necessarily indicate how the Portfolio will perform in the future.
11
<PAGE>
IMPORTANT INVESTMENT INFORMATION
Each Portfolio involves the risk that an investor may lose money. Some of the
Portfolios may actively trade their securities to achieve their investment
objectives. High levels of portfolio turnover are likely to lead to increased
transaction costs and possible tax conquences. Nonetheless, short-term trading
activities represented by high portfolio turnover rates are not incompatible
with these Portfolios' stated objectives of achieving long-term capital
appreciation or other multi-year goals, in that short-term trading can lead to
gains that ultimately will increase the value of the investors shares.
The following section describes the principal types of investments that various
Portfolios may make and some of the risks associated with those investments.
More information about these investments and risks is contained in the Statement
of Additional Information.
EQUITY SECURITIES
Equity securities include common stock, preferred stock, convertible securities,
ADRs, rights, warrants and shares of investment companies. Equity securities in
which the Portfolios may invest may be publicly traded on securities exchanges
or over-the-counter. The Portfolios also may invest in securities that are not
publicly traded. These securities may be more difficult to sell than other
equity securities and their value may fluctuate more dramatically than other
securities. Each Portfolio may purchase shares of other investment companies
subject to limits imposed by the Investment Company Act of 1940 ("1940 Act") and
any other applicable law.
Equity securities are subject to the risk that prices will fluctuate in response
to events affecting particular issuers, or entire industries or markets. Smaller
companies are subject to additional risks because they may have more limited
markets and financial resources, narrower product lines or lack of depth of
management. Smaller companies' securities also may be less liquid, and subject
to more abrupt or erratic price movements. ADRs are U.S. dollar-denominated
securities that represent claims to shares of foreign stocks. The Fund treats
ADRs as U.S. securities for purposes of foreign investment limitations.
Growth stocks generally are characterized by higher growth rates, betas, and
price/earnings ratios, and lower yields than the stock market in general as
measured by an appropriate stock market index. Value stocks are those stocks
that 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
characteristics such as price/earnings 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.
FIXED INCOME SECURITIES
Fixed income securities include a wide variety of investments, such as U.S.
Government securities, securities issued by federal or federally sponsored
agencies ("agencies"), corporate bonds, asset-backed securities, mortgage
securities, high yield securities, municipal bonds, loan participations and
assignments, zero coupon bonds, convertible securities, Yankee bonds, repurchase
agreements, commercial paper and cash equivalents.
Fixed income securities generally are subject to risks related to changes in
interest rates and in the financial health or credit rating of the issuers. The
value of a fixed income security typically moves in the opposite direction of
prevailing interest rates: if rates rise, the value of a fixed income security
falls; if rates fall, the value increases. The maturity and duration of a fixed
income instrument also affects the extent to which the price of the security
will change in response to these and other factors. Longer term securities tend
to experience larger price changes than shorter term securities because they are
more sensitive to changes in interest rates or in the credit ratings of the
issuers. Certain types of fixed income securities, such as inverse floaters, are
designed to respond differently to changes in interest rates.
12
<PAGE>
IMPORTANT INVESTMENT INFORMATION (CONTINUED)
Certain fixed income securities pay a floating or variable rate of interest. The
interest rates on these securities will vary with changes in specified market
rates or indices, such as the prime rate, or at specified intervals. The
variation in the interest rate may enable an investor to trade a floating or
variable rate security at par on a daily or periodic basis. Some obligations
carry a demand feature permitting the holder to tender them back to the issuer
or to a third party at par value before maturity. If the demand feature is an
obligation of a foreign entity, it will be subject to certain risks described in
the section below entitled "Foreign Securities."
Some fixed income securities may be called (redeemed by the issuer) prior to
final maturity. The risk of holding a callable security is that if it is called,
a Portfolio may have to reinvest the proceeds at a lower rate of interest.
DURATION
The average duration of a fixed income portfolio measures its exposure to the
risk of changing interest rates. A Portfolio with a lower average duration
generally will experience less price volatility in response to changes in
interest rates as compared with a Portfolio with a higher average duration.
MORTGAGE SECURITIES
Mortgage securities are subject to the risk that as interest rates fall,
borrowers will refinance their mortgages, resulting in prepayment of principal.
A Portfolio holding mortgage securities that are experiencing prepayments will
have to reinvest these principal payments at lower prevailing interest rates. On
the other hand, when interest rates rise, borrowers are less likely to
refinance, resulting in lower prepayments. This can effectively extend the
maturity of a Portfolio's mortgage securities, resulting in greater price
volatility.
HIGH YIELD SECURITIES
Fixed income securities that are not investment grade are commonly referred to
as junk bonds or high yield, high risk securities. These securities offer a
higher yield than other, higher rated securities, but they carry a greater
degree of risk and are considered speculative by the major credit rating
agencies. High yield securities may be issued by companies that are
restructuring, are smaller and less credit worthy or are more highly indebted
than other companies. This means that they may have more difficulty making
scheduled payments of principal and interest. Changes in the value of high yield
securities are influenced more by changes in the financial and business position
of the issuing company than by changes in interest rates when compared to
investment grade securities.
YANKEE BONDS
Yankee bonds are U.S.-dollar denominated fixed income instruments issued by
foreign governments and corporations and sold in the United States. They are
considered U.S. securities for purposes of the Portfolios' investment policies
(except for the Domestic Fixed Income Portfolio).
FOREIGN SECURITIES
While many of the characteristics and risks of foreign equity and fixed income
securities are similar to those of domestic securities, investing in foreign
securities involves certain additional risks. Foreign issuers generally are
subject to different accounting, auditing and financial reporting standards than
U.S. companies. There may be less information available to the public about
foreign issuers. Securities of foreign issuers can be less liquid and experience
greater price movements. Foreign stock exchanges, broker-dealers, and listed
issuers may be subject to less government regulation and oversight. The cost of
investing in foreign securities, including brokerage commissions and custodial
expenses, can be higher than in the United States. In some foreign countries,
there is also the risk of government expropriation, excessive taxation,
political or social instability, the imposition of currency controls, or
diplomatic developments that could affect the Portfolios' investments in those
countries. There also can be difficulty obtaining and enforcing judgments in
foreign countries.
Foreign securities are denominated in foreign currencies. The value of foreign
currencies fluctuates relative to the value of the U.S. dollar. Since the
Portfolios must convert the value of foreign securities into dollars, changes in
currency exchange rates can increase or decrease the U.S. dollar value of the
13
<PAGE>
IMPORTANT INVESTMENT INFORMATION (CONTINUED)
Portfolios' assets. The Adviser may use certain derivatives to offset this risk.
The risks of hedging currency risk are described in the section below entitled
"Derivatives and Other Investments." The Adviser may in its discretion choose
not to hedge against currency risks. In addition, certain market conditions may
make it impossible or uneconomical to hedge against currency risk.
EMERGING MARKET
SECURITIES
Investing in emerging market securities enhances the risks of foreign investing.
The risk of political or social upheaval, expropriation, and restrictive
controls on foreign investors' ability to repatriate capital is greater in
emerging markets. Emerging market securities generally are less liquid and
subject to wider price and currency fluctuations than securities issued in more
developed countries. In certain countries, there may be few publicly traded
securities, and the market may be dominated by a few issuers or sectors. Fixed
income securities issued by emerging markets issuers are more likely to be
considered equivalent to risky high yield securities. Investment funds and
structured investments are mechanisms for U.S. and other investors to invest in
certain emerging markets that have laws precluding or limiting direct
investments in their securities by foreign investors. Brady Bonds are debt
obligations created as part of the restructuring of commercial bank loans to
entities in emerging market countries. Brady Bonds may be collateralized or not,
and may be issued in various currencies (most are U.S.-dollar denominated).
DERIVATIVES AND OTHER INVESTMENTS
The Portfolios may use derivatives to pursue portfolio strategies and
objectives. Derivatives are financial instruments whose value and performance
are based on the value and performance of another security or financial
instrument. Derivatives include futures, options, forward contracts, swaps,
collateralized mortgage obligations ("CMOs"), stripped mortgage-backed
securities ("SMBS"), and structured notes. Derivatives sometimes offer the most
economical way of pursuing a particular investment strategy, limiting certain
risks, or enhancing potential returns.
Certain derivative instruments are publicly traded on exchanges or
over-the-counter, while others are privately negotiated. The Portfolios may
enter into public or private over-the-counter derivatives transactions with
counterparties that meet the Fund's requirements for credit quality and
collateral. A Portfolio will not use derivatives to increase a Portfolio's level
of risk above the level that could be achieved using only traditional investment
securities. A Portfolio will not use derivatives as an indirect way of investing
in assets that it cannot, as a matter of policy, invest in directly. Forward
contracts are used to protect against uncertainty in the level of future foreign
currency exchange rates. The Portfolios may use futures to gain exposure to an
entire market (e.g., stock index futures) or to control their exposure to
changing foreign currency exchange rates. Portfolios investing in fixed income
securities will use futures to control their exposure to changes in interest
rates and to manage the overall maturity and duration of their securities
holdings. If a Portfolio buys an option, it buys a legal contract giving it the
right to buy or sell a specific amount of a security or futures contract at an
agreed-upon price. If a Portfolio "writes" an option, it sells to another person
the right to buy from or sell to the Portfolio a specific amount of a security
or futures contract at an agreed-upon price. The Portfolios may enter into swap
transactions which are contracts in which a Portfolio agrees to exchange the
return or interest rate on one instrument for the return or interest rate on
another instrument. Payments may be based on currencies, interest rates,
securities indices and commodity indices. Swaps may be used to manage the
maturity and duration of a fixed income portfolio, or to gain exposure to a
market without directly investing in securities traded in that market.
Structured investments are units representing an interest in assets held in a
trust that is not an investment company as defined in the 1940 Act. The trust
may pay a return based on the income it receives from those assets, or it may
pay a return based on a specified index.
RISKS OF DERIVATIVES
The primary risks of derivatives are: (i) changes in the market value of
securities held by a Portfolio, and of derivatives relating to those securities,
may not be proportionate, (ii) there may not be a liquid market for a Portfolio
to sell a derivative, which could result in difficulty closing a position, and
(iii) certain
14
<PAGE>
IMPORTANT INVESTMENT INFORMATION
derivatives can magnify the extent of losses incurred due to changes in the
market value of the securities to which they relate. See the Statement of
Additional Information for more about the risks of different types of
derivatives.
The amount that a Portfolio may invest in futures and options depends on the
type of portfolio. The limitations are as follows:
Any Fixed Income Portfolio may enter into futures contracts and options on
futures contracts for bona fide hedging purposes to an unlimited extent. It also
can enter into futures contracts and options thereon for other purposes,
provided that no more than 5% of the Portfolio's total assets at the time of the
transaction are required as margin and option premiums to secure the Portfolio's
obligations under such contracts.
Any Equity Portfolio or Balanced Portfolio may enter into futures contracts
subject to the limitation that it cannot incur obligations to purchase
securities under futures and options contracts in excess of 50% of the
Portfolio's total assets. It also is subject to the limit that no more than 5%
of the Portfolio's total assets at the time of the transaction may be required
as margin and option premiums to secure the Portfolio's obligations under
futures contracts and options thereon entered into for purposes other than bona
fide hedging.
Each Portfolio may invest in certain derivatives, such as forwards, futures,
options and mortgage derivatives as well as when-issued securities which require
the Portfolio to segregate some or all of its cash or liquid securities to cover
its obligations under those instruments. At certain levels, this can cause a
Portfolio to lose flexibility in managing its investments properly, responding
to shareholder redemption requests, or meeting other obligations. A Portfolio in
that position could be forced to sell other securities that it wanted to retain
or to realize unintended gains or losses.
MORTGAGE DERIVATIVES
CMOs and SMBS are derivatives based on mortgage securities. CMOs are issued in a
number of series (known as "tranches"), each of which has a stated maturity.
Cash flow from the underlying mortgages is allocated to the tranches in a
predetermined, specified order. SMBS are multi-class mortgage securities issued
by U.S. government agencies and instrumentalities and financial institutions.
They usually have two classes, one receiving most of the principal payments from
the mortgages, and one receiving most of the interest. In some cases, classes
may receive interest only (called "IOs") or principal only (called "POs"). Both
CMOs and SMBS are subject to the risks of price movements in response to
changing interest rates and the level of prepayments made by borrowers.
Depending on the class of CMO or SMBS that a Portfolio holds, these price
movements may be significantly greater than that experienced by mortgage
securities generally, depending on whether the payments are predominantly based
on principal or interest paid on the underlying mortgages. In addition, the
yield to maturity of IOs and POs is extremely sensitive to prepayment levels. As
a result, a high rate of prepayments can have a material effect on a Portfolio's
yield to maturity and could cause a Portfolio to lose money on the investment.
ADDITIONAL INFORMATION
When the Adviser believes that changes in economic, financial or political
conditions warrant, each Portfolio may invest without limit in certain fixed
income securities for temporary defensive purposes. See the Statement of
Additional Information for more information about the types of fixed income
securities in which the Portfolios may invest. If the Adviser incorrectly
predicts the effects of these changes, such defensive investments may adversely
affect the Portfolios' performance. Consistent with their investment policies,
the Portfolios also will purchase and sell securities without regard to the
effect on portfolio turnover. Higher portfolio turnover (e.g., over 100% per
year) will cause the Portfolio to incur additional transaction costs and may
result in taxable gains being passed through to shareholders.
15
<PAGE>
FEES AND EXPENSES OF THE PORTFOLIOS
ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)
The Securities and Exchange Commission (the "Commission") requires all funds to
disclose in the table to the right the fees and expenses that you may pay if you
buy and hold shares of the Portfolios. The Portfolios do not charge any sales
loads or similar fees when you purchase or redeem shares.
<TABLE>
<CAPTION>
OTHER TOTAL
EXPENSES SHAREHOLDER ANNUAL FUND
MANAGEMENT DISTRIBUTION (EX SHAREHOLDER SERVICING OPERATING
FEES (12B-1) FEES SERVICING FEES) FEES EXPENSES
<S> <C> <C> <C> <C>
EQUITY PORTFOLIO .500% NONE .110% 0.15% .760%
- -----------------------------------------------------------------------------------------------------------------
MID CAP VALUE PORTFOLIO .750% NONE .154% 0.15% 1.054%
- -----------------------------------------------------------------------------------------------------------------
VALUE PORTFOLIO .500% NONE .096% 0.15% .746%
- -----------------------------------------------------------------------------------------------------------------
DOMESTIC FIXED INCOME
PORTFOLIO .375% NONE .142%* 0.15% .667%**
- -----------------------------------------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO .375% NONE .109% 0.15% .634%
- -----------------------------------------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO .375% NONE .125% 0.15% .650%
- -----------------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO .450% NONE .137% 0.15% .737%
- -----------------------------------------------------------------------------------------------------------------
MULTI-ASSET-CLASS
PORTFOLIO .650% NONE .174% 0.15% .974%**
</TABLE>
Total Annual Fund Operating Expenses reflected in the table above may be
higher than the expenses actually deducted from portfolio assets because of
the effect of expense offset arrangements.
* Other expenses are based on estimated amounts for the current year.
** The Adviser has voluntarily agreed to reduce its advisory fee and/or
reimburse the Portfolios so that total expenses will not exceed the rates
shown in the table below. Fee waivers and/or expense reimbursements are
voluntary and the Adviser reserves the right to terminate any waiver and/or
reimbursement at any time and without notice.
TOTAL ANNUAL FUND OPERATING EXPENSES
AFTER MAS WAIVER/REIMBURSEMENT & OFFSETS
- --------------------------------------------------------------------------------
DOMESTIC FIXED INCOME PORTFOLIO .650%
- --------------------------------------------------------------------------------
MULTI-ASSET-CLASS PORTFOLIO .930%
EXAMPLE
The example assumes that you invest $10,000 in each Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example assumes that your investment has a 5% return each year and
that each Portfolio's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be
equal to the amounts reflected in the table to the right.
This example is intended to help you compare the cost of investing in each
Portfolio with the cost of investing in other mutual funds.
EXAMPLE
1 YEAR 3 YEARS 5 YEARS 10 YEARS
EQUITY PORTFOLIO $ 78 $243 $422 $942
- --------------------------------------------------------------------------------
MID CAP VALUE PORTFOLIO $107 $335 $582 $1,287
- --------------------------------------------------------------------------------
VALUE PORTFOLIO $ 76 $238 $415 $926
- --------------------------------------------------------------------------------
DOMESTIC FIXED INCOME PORTFOLIO $ 68 $213 $372 $831
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO $ 65 $203 $353 $791
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO $ 66 $206 $358 $802
- --------------------------------------------------------------------------------
BALANCED PORTFOLIO $ 75 $236 $410 $915
- --------------------------------------------------------------------------------
MULTI-ASSET-CLASS PORTFOLIO $ 99 $310 $538 $1,194
16
<PAGE>
PURCHASING SHARES
Investment Class Shares are available to clients of the Adviser with combined
investments of $1,000,000 and corporations or other institutions, such as
trusts, foundations or broker-dealers, who have a contractual arrangement with
the Fund or its Distributor and who purchase shares for the accounts of others
(Shareholder Organizations).
Investment Class Shares of each portfolio may be purchased at the net asset
value per share (NAV) next determined after we receive your purchase order.
INITIAL PURCHASE
BY MAIL
You may open an account, subject to acceptance by MAS Funds, by completing and
signing an Account Registration Form provided by MAS Funds' Client Services
Group ("Client Services") and mailing it to MAS Funds c/o Miller Anderson &
Sherrerd, LLP, One Tower Bridge, West Conshohocken, PA 19428-0868 together with
a check payable to MAS Funds.
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. You can avoid this delay by purchasing
shares by wire.
INITIAL PURCHASE
BY WIRE
You may purchase Investment Class Shares of each portfolio by wiring Federal
Funds to Chase. You should forward a completed Account Registration Form to
Client Services in advance of the wire. For all portfolios, notification must be
given to Client Services at 1-800-354-8185 prior to the determination of NAV.
See the section below entitled "Valuation of Shares." (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 Chase using the following
wire 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
You may make additional investments in Investment Class Shares (minimum
additional investment $1,000) at the NAV next determined after the request is
received in good order, by mailing a check (payable to MAS Funds) to Client
Services at the address noted under Initial Purchase by Mail or by wiring
Federal Funds to Chase as outlined above.
OTHER PURCHASE
INFORMATION
We may suspend the offering of shares, or any class of shares, of any Portfolio
or reject any purchase orders when we think it is in the best interest of the
Fund. We may waive the minimum initial and additional investment amounts in
certain cases.
Purchases of a Portfolio's shares will be made in full and fractional shares of
the Portfolio calculated to three decimal places. Certificates for shares will
not be issued unless you request them in writing. Certificates for fractional
shares, however, will not be issued.
REDEEMING SHARES
You may redeem shares of each Portfolio by mail, or, if authorized, by telephone
at no charge. The value of shares redeemed may be more or less than the purchase
price, depending on the NAV at the time of redemption.
BY MAIL
Each Portfolio will redeem shares at the NAV 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.
17
<PAGE>
REDEEMING SHARES (CONTINUED)
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. 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 Client Services for further details; and
(d) Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianship, corporations, pension and profit sharing
plans and other organizations.
BY TELEPHONE
If you have authorized the Telephone Redemption Option on the Account
Registration Form, you may request a redemption of shares by calling Client
Services at 1-800-354-8185 and requesting that the redemption proceeds be mailed
or wired to you. You cannot redeem shares by telephone if you hold share
certificates for those shares.
BY FACSIMILE
Written requests in good order for redemptions, exchanges and transfers may be
forwarded to the Fund via facsimile at (610) 940-5284. If you make a request via
facsimile, you must call Client Services to ensure that the Fund properly
received your instructions. The original request must be promptly mailed to MAS
Funds, c/o Miller Anderson & Sherrerd, LLP, One Tower Bridge, West Conshohocken,
PA 19428-0868.
We will ordinarily pay redemption proceeds within three business days after
receipt of your request. We 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 or under any emergency circumstances.
In certain cases, we may determine that it is in the best interest of other
shareholders not to pay redemption proceeds in cash. We may pay you partly or
entirely by distributing to you readily marketable securities held by the
portfolio from which you are redeeming. You may incur brokerage charges when you
sell those securities.
VALUATION OF SHARES
We determine the NAV of the following portfolios at the following times on each
day the portfolios are open for business:
/ / Equity Portfolios as of the close of the NYSE (normally 4:00 p.m. Eastern
Time).
/ / Fixed Income Portfolios as of one hour after the close of the bond markets
(normally 4:00 p.m. Eastern Time).
/ / Balanced and Multi-Asset-Class Portfolios as of the later of the close of
the NYSE or one hour after the close of the bond markets (normally 4:00 p.m.
Eastern Time).
Each Portfolio values its securities at market value. When no quotations are
readily available for securities or when the value of securities has been
materially affected by events occurring after the close of the market, we will
determine the value for those securities in good faith at fair value using
methods approved by the Board of Trustees.
18
<PAGE>
VALUATION OF SHARES (CONTINUED)
The NAV of Investment Class Shares may differ from that of other classes because
of class-specific expenses that each class may pay, the distribution fees
charged to Adviser Class Shares and the shareholder servicing fees charged to
Investment Class Shares.
The Fund is closed for business on weekends and the following holidays: New
Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The value
of certain portfolio securities may change on a day when you can't purchase or
redeem shares because some portfolios invest in foreign securities that trade on
days when the Fund is closed.
GENERAL SHAREHOLDER INFORMATION
EXCHANGE PRIVILEGE
You may exchange each Portfolio's Investment Class Shares for Investment Class
Shares of the Fund's other Portfolios based on their respective NAVs. The
exchange privilege is only available with respect to Portfolios offering
Investment Class Shares that are qualified for sale in your state of residence.
We charge no fee for exchanges. You should send exchange requests to MAS Funds,
c/o Miller Anderson & Sherrerd, LLP, One Tower Bridge, West Conshohocken, PA
19428-0868, or by facsimile with a follow-up phone call. Exchange requests can
also be made by telephone, provided the telephone redemption option has been
authorized. We reserve the right to change the terms or conditions of the
exchange privilege upon sixty days' notice.
Frequent trading by shareholders can disrupt management of a Portfolio and raise
its expenses. Therefore, we may not accept any request for an exchange when we
think the exchange privilege is being used as a tool for market timing, and we
may bar a shareholder who trades excessively from making further purchases for
an indefinite period.
TAXES
Income dividends you receive will be taxable as ordinary income, whether you
receive them in cash or in additional shares. Corporate shareholders may be
entitled to a dividends-received deduction for the portion of dividends they
receive which are attributable to dividends received by such portfolios from
U.S. corporations. Capital gains distributions may be taxable at different rates
depending on the length of time the Fund holds its assets.
Investment income received by the Portfolios from sources within foreign
countries may be subject to foreign income taxes. The Portfolios may be able to
pass through to you for foreign tax credit purposes the amount of foreign income
taxes that they paid.
Distributions paid in January but declared by a portfolio in October, November
or December of the previous year are taxable to you in the previous year.
Exchanges and redemptions of shares in a Portfolio are taxable events.
19
<PAGE>
GENERAL SHAREHOLDER INFORMATION (CONTINUED)
DIVIDENDS AND
DISTRIBUTIONS
The Portfolios normally distribute substantially all of their net investment
income to shareholders as follows:
PORTFOLIO QUARTERLY ANNUALLY
- -------------------------------------------------------------------------------
EQUITY /X/
- -------------------------------------------------------------------------------
MID CAP VALUE /X/
- -------------------------------------------------------------------------------
VALUE /X/
- -------------------------------------------------------------------------------
DOMESTIC FIXED INCOME /X/
- -------------------------------------------------------------------------------
FIXED INCOME /X/
- -------------------------------------------------------------------------------
HIGH YIELD /X/
- -------------------------------------------------------------------------------
BALANCED /X/
- -------------------------------------------------------------------------------
MULTI-ASSET-CLASS /X/
If any net gains are realized from the sale of underlying securities, the
portfolios normally distribute the gains with the last distributions for the
calendar year. All dividends and distributions are automatically paid in
additional shares of the portfolio unless you elect otherwise. If you want to
change how your dividends are paid you must notify MAS Funds in writing.
FUND MANAGEMENT
ADVISER
The Investment Adviser to the Fund, Miller Anderson & Sherrerd, LLP ("MAS" or
the "Adviser"), is a Pennsylvania limited liability partnership founded in 1969.
The Adviser is wholly owned by indirect subsidiaries of Morgan Stanley Dean
Witter, & Co. (MSDW), and is a division of Morgan Stanley Dean Witter Investment
Management. The Adviser is located at One Tower Bridge, West Conshohocken, PA
19428-0868. The Adviser provides investment advisory services to employee
benefit plans, endowment funds, foundations and other institutional investors.
as of December 31, 1998, Morgan Stanley Dean Witter Investment Management had in
excess of $163 billion in assets under management.
The Adviser makes investment decisions for the Fund's portfolios and places each
portfolio's purchase and sales orders. Each portfolio, in turn, pays the Adviser
an annual advisory fee calculated by applying a quarterly rate. The following
table shows the Adviser's annual contractual and actual rates of compensation
for the Fund's 1998 fiscal year.
CONTRACTUAL FY 1998
COMPENSATION ACTUAL
RATE COMPENSATION RATE
- -------------------------------------------------------------------------------
EQUITY PORTFOLIO .500 .500
- -------------------------------------------------------------------------------
MID CAP VALUE PORTFOLIO .750 .750
- -------------------------------------------------------------------------------
VALUE PORTFOLIO .500 .500
- -------------------------------------------------------------------------------
DOMESTIC FIXED INCOME PORTFOLIO* .375 .361
- -------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO .375 .375
- -------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO .375 .375
- -------------------------------------------------------------------------------
BALANCED PORTFOLIO .450 .450
- -------------------------------------------------------------------------------
MULTI-ASSET-CLASS PORTFOLIO* .650 .608
* The Adviser is voluntarily waiving a portion of its fee and/or reimbursing
certain expenses for the Domestic Fixed Income Portfolio and Multi-Asset-Class
Portfolio to keep Total Operating Expenses from exceeding 0.650% and 0.930%,
respectively.
20
<PAGE>
FUND MANAGEMENT (CONTINUED)
PORTFOLIO MANAGERS
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, MSDW, joined Morgan Stanley Dean Witter
Investment Management Inc. in 1988 as a Fixed Income Portfolio Manager. He
joined the management team for the High Yield Portfolio in 1996.
ARDEN C. ARMSTRONG, Managing Director, MSDW, joined MAS in 1986. She joined the
management team for the Mid Cap Growth Portfolio in 1990 and the Equity
Portfolio in 1994.
RICHARD M. BEHLER, Principal, MSDW, joined MAS in 1995. He served as a Portfolio
Manager from 1992 through 1995 for Moore Capital Management. He joined the
management team for the Value Portfolio in 1996.
THOMAS L. BENNETT, Managing Director, MSDW, joined MAS in 1984. He joined the
management team for the Fixed Income Portfolio in 1984, the Domestic Fixed
Income Portfolio in 1987, the High Yield Portfolio in 1985, the Fixed Income II
Portfolio in 1990, the Special Purpose Fixed Income and Balanced Portfolios in
1992, the Multi-Asset-Class Portfolio in 1994 and the Multi-Market Fixed Income
Portfolio in 1997.
BARTON M. BIGGS, Managing Director of MSDW since 1975, Chairman of Morgan
Stanley Dean Witter Investment Management Inc. since 1980 and director of Morgan
Stanley Group, Inc. He is also a director and chairman of various registered
investment companies to which Morgan Stanley Dean Witter Investment Management
Inc. and certain of its affiliates provide investment advisory services. He
joined the management teams for the Balanced and Multi-Asset-Class Portfolios in
1999.
BRADLEY S. DANIELS, Vice President, MSDW, joined MAS in 1985. He joined the
management team for the Small Cap Value Portfolio in 1986 and the Mid Cap Value
Portfolio in 1994.
KENNETH B. DUNN, Managing Director, MSDW, joined MAS in 1987. He joined the
management team for the Fixed Income and the Domestic Fixed Income Portfolios in
1987, the Fixed Income II Portfolio in 1990, the Special Purpose Fixed Income
Portfolio in 1992 and the Multi-Market Fixed Income Portfolio in 1997.
STEPHEN F. ESSER, Managing Director, MSDW, joined MAS in 1988. He joined the
management team for the High Yield Portfolio in 1989 and the Multi-Market Fixed
Income Portfolio in 1997.
WILLIAM B. GERLACH, Principal, MSDW, joined MAS in 1991. He served as a Research
Associate from 1991 to 1996 and has served as an Equity Portfolio Manager since
1996. He joined the management team for the Small Cap Value and Mid Cap Value
Portfolios in 1996.
J. DAVID GERMANY, Managing Director, MSDW, joined MAS in 1991. He joined the
management team for 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.
JAMES J. JOLINGER, Principal, MSDW, joined MAS in 1994. He served as an Equity
Analyst from 1994 to 1997, and has served as an Equity Portfolio Manager and
Director of Research since 1997. He joined the management team for the Equity
Portfolio in 1997.
NICHOLAS J. KOVICH, Managing Director, MSDW, joined MAS in 1988. He joined the
management team for the Equity Portfolio in 1994 and the Value Portfolio in
1997.
BRIAN KRAMP, Vice President, MSDW, joined MAS in 1997. He served as
Analyst/Portfolio Manager for Meridian Asset Management and its successor,
CoreStates Investment Advisors, from 1985 to 1997. He joined the management team
for the Equity Portfolio in 1998.
21
<PAGE>
GENERAL SHAREHOLDER INFORMATION (CONTINUED)
CHRIS LEAVY, Vice President, MSDW, joined MAS in 1997. He served as a Portfolio
Manager for Capitoline Investment Services from 1995-1997; a Portfolio Manager
for Premier Trust Company from 1994 to 1995; and as a Research Analyst for Leavy
Investment Management from 1993-1994. He joined the management team for the Mid
Cap Value and Small Cap Value Portfolios in 1998.
GORDON W. LOERY, Principal, MSDW, joined MAS in 1996. He served as a Fixed
Income Analyst at Morgan Stanley Asset Management Inc. from 1990 to 1996. He
joined the management team for the High Yield Portfolio in 1999.
ROBERT J. MARCIN, Managing Director, MSDW, joined MAS in 1988. He joined the
management team for the Value Portfolio in 1990 and the Equity Portfolio in
1994.
GARY G. SCHLARBAUM, Managing Director, MSDW; Director, MAS Fund Distribution,
Inc., joined MAS in 1987. He joined the management team for the Equity and Small
Cap Value Portfolios in 1987, the Balanced Portfolio in 1992 and the
Multi-Asset-Class and Mid Cap Value Portfolios in 1994.
HORACIO A. VALEIRAS, Managing Director, MSDW, joined MAS in 1992. He joined the
management team for the Multi-Asset-Class Portfolio in 1994 and the Balanced
Portfolio in 1996.
RICHARD B. WORLEY, Managing Director, MSDW, joined MAS in 1978. He joined the
management team for the Fixed Income Portfolio in 1984, the Domestic Fixed
Income Portfolio in 1987, the Fixed Income II Portfolio in 1990, the Balanced
and Special Purpose Fixed Income Portfolios in 1992 and the Multi-Asset-Class
Portfolio in 1994. Mr. Worley has served as President of Morgan Stanley Dean
Witter Investment Management since 1998.
DISTRIBUTOR
Shares of the Fund are distributed exclusively through MAS Fund Distribution,
Inc., a wholly-owned subsidiary of the Adviser.
SERVICE PLAN
The Fund has adopted a Service Plan (the "Service Plan") for each Portfolio's
Investment Class Shares. Under the Service Plan, each Portfolio pays the
Distributor a monthly shareholder servicing fee at an annual rate of 0.15% of
the Portfolio's average daily net assets attributable to Investment Class
Shares. The Distributor may compensate other parties for providing shareholder
support services to investors who purchase Investment Class Shares. Shareholder
servicing fees 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.
22
<PAGE>
YEAR 2000 DISCLOSURE STATEMENT
The management and distribution services that the Adviser and Distributor
provide to the Fund 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 some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact on the handling of
securities trades, pricing and account services. The Adviser and 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 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.
23
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights tables are intended to help you understand
the financial performance of each Portfolio for the past five years or, if less
than five years, the life of the Portfolio or Class. The total returns in the
tables represent the rate that an investor would have earned (or lost) on an
investment in each Portfolio (assuming reinvestment of all dividends and
distributions). This information has been extracted from the Fund's financial
statements which were audited by PricewaterhouseCoopers LLP, whose report, along
with the Fund's financial statements, are incorporated by reference into the
Fund's Statement of Additional Information and are included in the Fund's
September 30, 1998 Annual Report to Shareholders.
The Investment Class Shares of the Domestic Fixed Income Portfolio had not
commenced operations as of September 30, 1998, 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.
<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 TOTAL
OF PERIOD INCOME UNREALIZED) ACTIVITIES INCOME) CAPITAL GAINS) DISTRIBUTIONS DISTRIBUTIONS
EQUITY PORTFOLIO (COMMENCEMENT OF INVESTMENT CLASS OPERATIONS 04/10/96)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $29.42 $0.20 ($1.03) ($0.83) ($0.24) ($7.93) -- ($8.17)
1997 25.66 0.34 8.17 8.51 (0.35) (4.40) -- (4.75)
1996 24.31 0.22 1.24 1.46 (0.11) -- -- (0.11)
MID CAP VALUE PORTFOLIO (COMMENCEMENT OF INVESTMENT CLASS OPERATIONS 05/10/96)
1998+++ $21.75 $0.05 ($1.53) ($1.48) ($0.03) ($2.19) -- ($2.22)
1997+++ 14.48 0.01 8.36 8.37 (0.09) (1.01) -- (1.10)
1996 13.77 0.04 0.67 0.71 -- -- -- --
VALUE PORTFOLIO (COMMENCEMENT OF INVESTMENT CLASS OPERATIONS 05/06/96)
1998 $20.36 $0.31 ($3.38) ($3.07) ($0.33) ($1.81) -- ($2.14)
1997+++ 15.60 0.31 5.75 6.06 (0.27) (1.03) -- (1.30)
1996 14.97 0.12 0.59 0.71 (0.08) -- -- (0.08)
DOMESTIC FIXED INCOME PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 9/29/87)
1998 $11.27 $0.73 $0.32 $1.05 ($0.79) ($0.13) -- ($0.92)
1997 10.89 0.74 0.33 1.07 (0.67) (0.02) -- (0.69)
1996 11.03 0.56 (0.09) 0.47 (0.57) -- (0.04)# (0.61)
1995 9.87 0.52 0.87 1.39 (0.23) -- -- (0.23)
1994 11.99 0.94 (1.23) (0.29) (0.95) ($0.73) (0.15)# (1.83)
FIXED INCOME PORTFOLIO (COMMENCEMENT OF INVESTMENT CLASS OPERATIONS 10/15/96)
1998+++ $12.22 $0.76 $0.14 $0.90 ($0.73) ($0.17) -- ($0.90)
1997+++ 11.80 0.75 0.40 1.15 (0.60) (0.13) -- (0.73)
HIGH YIELD PORTFOLIO (COMMENCEMENT OF INVESTMENT CLASS OPERATIONS 5/21/96)
1998+++ $10.16 $0.83 ($0.93) ($0.10) ($0.80) ($0.26) -- ($1.06)
1997+++ 9.31 0.84 0.88 1.72 (0.84) (0.03) -- (0.87)
1996 9.06 0.31 0.16 0.47 (0.22) -- -- (0.22)
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
NET ASSET NET ASSETS- RATIO OF RATIO OF
VALUE- END OF EXPENSES NET INCOME PORTFOLIO
END OF TOTAL PERIOD TO AVERAGE TO AVERAGE TURNOVER
PERIOD RETURN** (THOUSANDS) NET ASSETS+ NET ASSETS RATE
EQUITY PORTFOLIO (COMMENCEMENT OF INVESTMENT CLASS OPERATIONS 04/10/96)
<S> <C> <C> <C> <C> <C> <C>
1998 $20.42 (2.78%) $2,029 0.76% 0.78% 77%
1997 29.42 38.12 2,354 0.80++ 1.12 85
1996 25.66 6.02 113 0.75* 1.83* 67
MID CAP VALUE PORTFOLIO (COMMENCEMENT OF INVESTMENT CLASS OPERATIONS 05/10/96)
1998+++ $18.05 (7.08%) $18,861 1.05% 0.25% 213%
1997+++ 21.75 61.05 1,238 1.09++ 0.04 184
1996 14.48 5.16 127 1.03*++ 0.86* 377
VALUE PORTFOLIO (COMMENCEMENT OF INVESTMENT CLASS OPERATIONS 05/06/96)
1998 $15.15 (16.55%) $24,527 0.75% 1.62% 56%
1997+++ 20.36 41.01 29,847 0.80++ 1.75 46
1996 15.60 4.78 9,244 0.76* 2.05* 53
DOMESTIC FIXED INCOME PORTFOLIO (COMMENCEMENT OF INSTITUTIONAL CLASS OPERATIONS 9/29/87)
1998 $11.40 9.83% $76,042 0.51%++ 6.32% 145%
1997 11.27 10.20 96,954 0.51++ 6.48 217
1996 10.89 4.41 95,362 0.52++ 5.73 168
1995 11.03 14.33 36,147 0.51++ 6.80 313
1994 9.87 (2.87) 36,521 0.50++ 7.65 78
FIXED INCOME PORTFOLIO (COMMENCEMENT OF INVESTMENT CLASS OPERATIONS 10/15/96)
1998+++ $12.22 7.72% $48,944 0.63% 6.31% 121%
1997+++ 12.22 10.07 9,527 0.66*++ 6.57* 179
HIGH YIELD PORTFOLIO (COMMENCEMENT OF INVESTMENT CLASS OPERATIONS 5/21/96)
1998+++ $9.00 (1.37%) $11.262 0.65% 8.58% 75%
1997+++ 10.16 19.77 10,916 0.70%++ 8.84% 96
1996 9.31 5.34 5,139 0.62* 11.06* 115
</TABLE>
24
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<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 TOTAL
OF PERIOD INCOME UNREALIZED) ACTIVITIES INCOME) CAPITAL GAINS) DISTRIBUTIONS DISTRIBUTIONS
BALANCED PORTFOLIO (COMMENCEMENT OF INVESTMENT CLASS OPERATIONS 04/04/97)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998+++ $15.30 $0.46 ($0.13) $0.33 ($0.46) ($1.72) -- ($2.18)
1997 13.11 0.30 2.09 2.39 (0.20) -- -- (0.20)
MULTI-ASSET-CLASS PORTFOLIO (COMMENCEMENT OF INVESTMENT CLASS OPERATIONS 6/10/96)
1998+++ $13.63 $0.36 ($0.45) ($0.09) ($0.31) ($1.49) -- ($1.80)
1997+++ 12.27 0.36 2.57 2.93 (0.49) (1.08) -- (1.57)
1996 12.17 0.13 0.08 0.21 (0.11) -- -- (0.11)
</TABLE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
NET ASSET NET ASSETS- RATIO OF RATIO OF
VALUE- END OF EXPENSES NET INCOME PORTFOLIO
END OF TOTAL PERIOD TO AVERAGE TO AVERAGE TURNOVER
PERIOD RETURN** (THOUSANDS) NET ASSETS+ NET ASSETS RATE
BALANCED PORTFOLIO (COMMENCEMENT OF INVESTMENT CLASS OPERATIONS 04/04/97)
<S> <C> <C> <C> <C> <C> <C>
1998+++ $13.45 2.56% $445 0.74% 3.24% 100%
1997 15.30 18.40 3,943 0.73* 3.32* 145
MULTI-ASSET-CLASS PORTFOLIO (COMMENCEMENT OF INVESTMENT CLASS OPERATIONS 6/10/96)
1998+++ $11.74 (0.61%) $6,233 0.93%++ 2.86% 107%
1997+++ 13.63 26.32 5,075 0.96++ 2.85 141
1996 12.27 1.75 3,074 0.73*++ 3.68* 122
</TABLE>
NOTES TO THE FINANCIAL HIGHLIGHTS
* Annualized
** Total return figures for partial years are not annualized.
# Represents distribution in excess of net realized gains.
+ 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 1998
Equity -- 0.75%* 0.80% 0.74%
Mid Cap Value -- 1.03* 1.07 1.03
Value -- 0.75* 0.79 0.74
Domestic Fixed Income 0.50% 0.50 0.50 0.50
Fixed Income -- -- 0.65* 0.62
High Yield -- 0.61* 0.69 0.63
Balanced -- -- 0.70* 0.72
Multi-Asset-Class -- 0.73* 0.96 0.93
++ 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 1998
Equity -- -- -- 1.28% --
Mid Cap Value -- -- 0.14%* 4.60 --
Value -- -- -- 0.09 --
Domestic Fixed Income 0.03% 0.09% 0.01 0.01 0.01%
Fixed Income -- -- -- 0.12* --
High Yield -- -- -- 0.22 --
Multi-Asset-Class -- -- 0.08* 0.55 0.04
+++ Per share amounts for the years ended September 30, 1997, and September 30,
1998 are based on average shares outstanding.
25
<PAGE>
MAS INVESTMENT CLASS PROSPECTUS
- ---------
MAS FUNDS
JANUARY 31, 1999
(AS REVISED APRIL 30, 1999)
TRUSTEES OF THE FUND
--------------------
Thomas L. Bennett, Chairman Thomas L. Gerrity
Joseph P. Healey Joseph J. Kearns
Vincent R. McLean C. Oscar Morong, Jr.
OFFICERS OF THE FUND
--------------------
James D. Schmid, President John H. Grady, Jr., Secretary
Lorraine Truten, Vice President Richard J. Shoch, Compliance Officer
James A. Gallo, Treasurer
In addition to this prospectus, the Fund has a Statement of Additional
Information ("SAI"), dated January 31, 1999, which contains additional, more
detailed information about the Fund and the Portfolios. The SAI is incorporated
by reference into this prospectus and, therefore, legally forms a part of this
prospectus.
The Fund publishes annual and semi-annual reports ("Shareholder Reports") which
contain additional information about each Portfolio's investments. In the Fund's
annual report, you will find a discussion of the market conditions and the
investment strategies that significantly affected each Portfolio's performance
during the last fiscal year.
You may obtain the SAI and Shareholder Reports without charge by contacting the
Fund at the toll-free number below. If you purchased shares through a financial
intermediary, you may also obtain these documents, without charge, by contacting
your financial intermediary.
Information about the Fund, including the SAI and Shareholder Reports, may be
obtained from the Securities and Exchange Commission in any of the following
ways. (1) In person: you may review and copy documents in the Commission's
Public Reference Room in Washington D.C. (for information call 1-800-SEC-0330);
(2) On-line: you may retrieve information from the Commission's web site at
http://www.sec.gov; or (3) By mail: you may request documents, upon payment of a
duplicating fee, by writing to Securities and Exchange Commission, Public
Reference Section, Washington, D.C. 20549-6009. To aid you in obtaining this
information, the Fund's Investment Company Act registration number is 811-03980.
MAS FUNDS
ONE TOWER BRIDGE, WEST CONSHOHOCKEN, PA 19428-0868.
FOR SHAREHOLDER INQUIRIES, CALL CLIENT SERVICES AT 1-800-354-8185.
PRICES AND INVESTMENT RESULTS ARE AVAILABLE AT 1-800-522-1525.
MORGAN STANLEY DEAN WITTER
- --------------------------
INVESTMENT MANAGEMENT_____________ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428
<PAGE>
MAS ADVISORY PORTFOLIOS PROSPECTUS
- ---------
MAS FUNDS
JANUARY 31, 1999
(AS REVISED APRIL 30, 1999)
- --------------------------------------------------------------------------------
Client Services: 1-800-354-8185 Prices and Investment Results: 1-800-522-1525
- --------------------------------------------------------------------------------
MAS Funds (the "Fund") is a no-load mutual fund consisting of 27 different
investment portfolios, 2 of which are described in this prospectus. Miller
Anderson & Sherrerd, LLP (the "Adviser"), a division of Morgan Stanley Dean
Witter Investment Management, is the Fund's investment adviser. This prospectus
offers shares of the following portfolios (each a "Portfolio" and collectively
the "Portfolios"):
ADVISORY FOREIGN FIXED INCOME PORTFOLIO
ADVISORY MORTGAGE PORTFOLIO
INVESTMENT ADVISER
MILLER ANDERSON & SHERRERD, LLP
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
MORGAN STANLEY DEAN WITTER
- --------------------------
INVESTMENT MANAGEMENT ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428
<PAGE>
TABLE OF CONTENTS
INVESTMENT SUMMARY
INVESTOR SUITABILITY ......................................... 1
ADVISORY FOREIGN FIXED INCOME PORTFOLIO ...................... 2
ADVISORY MORTGAGE PORTFOLIO .................................. 3
IMPORTANT INVESTMENT INFORMATION
DESCRIPTION OF PRINCIPAL INVESTMENTS ......................... 4
FEES AND EXPENSES OF THE PORTFOLIOS
SHAREHOLDER FEES AND ANNUAL PORTFOLIO OPERATING EXPENSES ..... 7
PURCHASING SHARES ............................................... 8
REDEEMING SHARES ................................................ 8
VALUATION OF SHARES ............................................. 8
GENERAL SHAREHOLDER INFORMATION
DIVIDENDS AND DISTRIBUTIONS AND TAXES ........................ 9
FUND MANAGEMENT
INFORMATION ABOUT THE ADVISER, THE PORTFOLIO MANAGERS
AND THE DISTRIBUTOR .......................................... 9
YEAR 2000 DISCLOSURE STATEMENT .................................. 10
FINANCIAL HIGHLIGHTS ............................................ 11
<PAGE>
INVESTMENT SUMMARY
This section explains each Portfolio's:
[ ] Investment Objective
[ ] Principal Investment Strategy
[ ] Principal Risks
The discussions on the following pages use a number of important investment
terms. These terms, printed in BOLD, are explained in the section entitled
"Important Investment Information," which follows the individual Portfolio
summaries.
There is more information about the Portfolios in the Statement of Additional
Information ("SAI"), which legally is a part of this prospectus. For details
about how to obtain the SAI, and other reports and information, see the back
cover of this prospectus.
INVESTOR SUITABILITY
[ ] The Portfolios may be suitable for you if you are a long-term investor who
can accept the risks of investing in the stock and bond markets. In fact,
some of the Portfolios strive to meet their investment objectives over an
extended period. These Portfolios focus on a market cycle of three to five
years. This means that the Portfolios will strive to meet their respective
investment objectives within that period without regard to interim market
fluctuations.
[ ] The Portfolios are designed principally for investment by fiduciary
investors who are entrusted with the responsibility of investing assets held
for the benefit of others.
[ ] While the Portfolios consider whether their securities transactions will
generate distributions taxable at capital gain or ordinary income rates,
minimizing such taxes is not a principal investment strategy.
1
<PAGE>
ADVISORY FOREIGN FIXED INCOME PORTFOLIO
OBJECTIVE
The Advisory Foreign Fixed Income Portfolio seeks above average total return
over a market cycle of three to five years.
APPROACH
This Portfolio is available only to the Adviser's private advisory clients. It
invests primarily in high grade FOREIGN FIXED INCOME SECURITIES. The Portfolio
may invest to a limited degree in EMERGING MARKET FIXED INCOME SECURITIES that
meet the Portfolio's rating requirements. The Adviser will use futures, swaps
and other DERIVATIVES in managing the Portfolio. The Portfolio may at times
invest all or a portion of its assets in U.S. securities as a defensive
strategy.
PROCESS
The portfolio management team determines the desired country, currency and
DURATION exposures for the Portfolio. The Adviser manages the Portfolio's
duration and exposure to particular countries and currencies by conducting
fundamental research on relative values and analyzing economic, interest rate
and exchange rate trends. The Adviser selects particular securities for the
Portfolio in various sectors within the overall guidelines set by the team. The
Adviser may sell securities when it believes that expected risk-adjusted return
is low compared to other investment opportunities.
PRINCIPAL RISKS
The Portfolio is subject to the risks of investing in foreign fixed income
securities. News and events unique to a country or region will affect those
markets and their issuers, yet may have little or no effect on the U.S. economy
or similar issuers located in the United States. Many of the Portfolio's
investments will be denominated in a foreign currency. Changes in the values of
those currencies compared to the U.S. dollar may affect the value of the
Portfolio's investments. These changes may happen separately from, and in
response to, events that do not otherwise affect the value of the security in
the issuer's home country. The Adviser may use derivatives and other techniques
to manage these risks. However, the Adviser cannot guarantee that it will
succeed in doing so. Certain hedging strategies or instruments may not be
available or practical in certain markets or under certain conditions. Hedging
the Portfolio's currency risks involves certain risks, including the possibility
of mismatching the Portfolio's obligations under a forward or futures contract
with the value of securities denominated in a particular currency.
Market prices of fixed income securities respond to economic developments,
especially changes in interest rates, and perceptions of the creditworthiness of
individual issuers. Generally, fixed income securities decrease in value as
interest rates rise and vice versa. Prices of fixed income securities also
generally will fall if an issuer's credit rating declines, and rise if it
improves.
The Portfolio is a non-diversified portfolio that may invest in a relatively
limited number of issuers. As a result, the Portfolio's performance may be
affected by the rise and fall in the price of fixed income securities of a
relatively small number of issuers. The Portfolio also is subject to the risks
associated with investing in derivatives and emerging market securities. Please
read the section entitled "Important Investment Information" for more
information about these risks.
<PAGE>
GENERALLY AT LEAST 65% INVESTED IN FIXED INCOME SECURITIES OF ISSUERS IN AT
LEAST 3 COUNTRIES OTHER THAN THE U.S.
- --------------------------------------------------------------------------------
100% OF SECURITIES RATED A OR HIGHER
- --------------------------------------------------------------------------------
TICKER SYMBOL: NOT AVAILABLE
- --------------------------------------------------------------------------------
AVERAGE WEIGHTED MATURITY GENERALLY GREATER THAN 5 YEARS
- --------------------------------------------------------------------------------
BENCHMARK: SALOMON BROAD INVESTMENT GRADE INDEX
- --------------------------------------------------------------------------------
CUSIP NO.: 552-913-626
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
J. DAVID GERMANY, MICHAEL KUSHMA AND PAUL F. O'BRIEN
- --------------------------------------------------------------------------------
ADVISORY FOREIGN FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
COMMENCED OPERATIONS ON OCTOBER 7, 1994
1995 - 17.50%
1996 - 14.98%
1997 - 9.83%
1998 - 10.74%
- --------------------------------------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
- --------------------------------------------------------------------------------
10/95 - 12/95 1/96 - 3/96
6.58% 0.46%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (AS OF 12/31/98)
- --------------------------------------------------------------------------------
ADVISORY FOREIGN SALOMON BROAD
FIXED INCOME INVESTMENT
PORTFOLIO GRADE INDEX
- --------------------------------------------------------------------------------
ONE YEAR 10.74 8.72
- --------------------------------------------------------------------------------
SINCE INCEPTION
10/7/94 12.90 9.61
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1 year period and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The variability of
performance over time provides an indication of the risks of investing in the
Portfolio. How the Portfolio has performed in the past does not necessarily
indicate how the Portfolio will perform in the future.
2
<PAGE>
ADVISORY MORTGAGE PORTFOLIO
OBJECTIVE
The Advisory Mortgage Portfolio seeks returns consistent with returns generated
by the market for mortgage securities.
APPROACH
This Portfolio is available only to the Adviser's private advisory clients. It
invests primarily in investment grade MORTGAGE SECURITIES of U.S. Government and
private issuers, and in MORTGAGE DERIVATIVES. The Portfolio also may invest in
other U.S. Government securities and investment grade FIXED INCOME SECURITIES.
The Adviser will use futures, swaps and other derivatives in managing the
Portfolio.
PROCESS
The Adviser sets targets for how the Portfolio should respond to changes in
interest rates, the yield curve, and prepayment rates on underlying mortgages.
The Adviser may make the Portfolio more sensitive to changes in interest rates
when bonds offer greater value based on interest rates adjusted for inflation.
Similarly, the Adviser may increase the Portfolio's sensitivity to changes in
the yield curve when long maturity interest rates offer exceptional value
relative to short maturity interest rates. The Adviser also may increase the
Portfolio's exposure to prepayments on underlying mortgages when mortgage
yields, adjusted for the expected level of prepayments, indicate unusual value
in mortgage securities. The Adviser may sell securities when it believes that
expected risk-adjusted return is low compared to other investment opportunities.
PRINCIPAL RISKS
The Portfolio is primarily exposed to the risks associated with investing in
mortgage securities. Market prices of the Portfolio's holdings respond to
economic developments, especially changes in interest rates, as well as to
perceptions of the creditworthiness of individual issuers. Generally, fixed
income securities decrease in value as interest rates rise and vice versa.
Prices of fixed income securities also generally will fall if an issuer's credit
rating declines, and rise if it improves. The prices of mortgage securities may
be particularly sensitive to changes in interest rates because of the risk that
borrowers will become more or less likely to refinance their mortgages. For
example, an increase in interest rates generally will reduce prepayments,
effectively lengthening the maturity of some mortgage securities, and make them
subject to more drastic price movements. Because of prepayment issues, it is not
possible to predict the ultimate maturity of mortgage securities. The Portfolio
also is subject to the risks associated with using derivatives. Please read the
section entitled "Important Investment Information" for more information about
these risks.
GENERALLY AT LEAST 65% INVESTED
IN MORTGAGE SECURITIES
- --------------------------------------
100% INVESTMENT GRADE SECURITIES
- --------------------------------------
TICKER SYMBOL: NOT AVAILABLE
- --------------------------------------
AVERAGE WEIGHTED MATURITY GENERALLY
GREATER THAN 7 YEARS
- --------------------------------------
AVERAGE DURATION GENERALLY 2- 7 YEARS
- --------------------------------------
BENCHMARK: LEHMAN MORTGAGE
INDEX
- --------------------------------------
CUSIP NO.: 552-913-592
PORTFOLIO MANAGERS
KENNETH B. DUNN AND SCOTT F. RICHARD
<PAGE>
- -------------------------------------------
ADVISORY MORTGAGE PORTFOLIO
COMMENCED OPERATIONS ON APRIL 12, 1995
1996 1997 1998
- -------------------------------------------
6.52% 10.43% 7.60%
HIGH (QUARTER) LOW (QUARTER)
- -------------- -------------
4/97-6/97 1/96-3/96
3.76% -0.10%
- -------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (AS OF 12/31/98)
ADVISORY MORTGAGE LEHMAN MORTGAGE
PORTFOLIO INDEX
- --------------------------------------------------------------------------------
ONE YEAR 7.60 6.96
- --------------------------------------------------------------------------------
SINCE INCEPTION
4/12/95 9.20 8.54
- --------------------------------------------------------------------------------
The bar chart and table above show the Portfolio's performance year-by-year,
best and worst performance for a quarter, and average annual total return for
the past 1 year period and since inception. The table also shows the
corresponding returns of the Portfolio's benchmark index. The variability of
performance over time provides an indication of the risks of investing in the
Portfolio. How the Portfolio has performed in the past does not necessarily
indicate how the Portfolio will perform in the future.
3
<PAGE>
IMPORTANT INVESTMENT INFORMATION
Each Portfolio involves the risk that an investor may lose money. Some of the
Portfolios may actively trade their securities to achieve their investment
objectives. High levels of portfolio turnover are likely to lead to increased
transaction costs and possible tax consequences. Nonetheless, short-term trading
activities represented by high portfolio turnover rates are not incompatible
with these Portfolios' stated objectives of achieving long-term capital
appreciation or other multi-year goals, in that short-term trading can lead to
gains that ultimately will increase the value of the investor's shares.
The following section describes the principal types of investments that various
Portfolios may make and some of the risks associated with those investments.
More information about these investments and risks is contained in the Statement
of Additional Information.
FIXED INCOME SECURITIES
Fixed income securities include a wide variety of investments, such as U.S.
Government securities, securities issued by federal or federally sponsored
agencies ("agencies"), corporate bonds, asset-backed securities, mortgage
securities, high yield securities, municipal bonds, loan participations and
assignments, zero coupon bonds, convertible securities, Yankee bonds, repurchase
agreements, commercial paper and cash equivalents.
Fixed income securities generally are subject to risks related to changes in
interest rates and in the financial health or credit rating of the issuers. The
value of a fixed income security typically moves in the opposite direction of
prevailing interest rates: if rates rise, the value of a fixed income security
falls; if rates fall, the value increases. The maturity and duration of a fixed
income instrument also affects the extent to which the price of the security
will change in response to these and other factors. Longer term securities tend
to experience larger price changes than shorter term securities because they are
more sensitive to changes in interest rates or in the credit ratings of the
issuers. Certain types of fixed income securities, such as inverse floaters, are
designed to respond differently to changes in interest rates.
Certain fixed income securities pay a floating or variable rate of interest. The
interest rates on these securities will vary with changes in specified market
rates or indices, such as the prime rate, or at specified intervals. The
variation in the interest rate may enable an investor to trade a floating or
variable rate security at par on a daily or periodic basis. Some obligations
carry a demand feature permitting the holder to tender them back to the issuer
or to a third party at par value before maturity. If the demand feature is an
obligation of a foreign entity, it will be subject to certain risks described
below in the section entitled "Foreign Securities".
Some fixed income securities may be called (redeemed by the issuer) prior to
final maturity. The risk of holding a callable security is that if it is called,
a Portfolio may have to reinvest the proceeds at a lower rate of interest.
DURATION
The average duration of a fixed income portfolio measures its
exposure to the risk of changing interest rates. A Portfolio with a lower
average duration generally will experience less price volatility in response to
changes in interest rates as compared with a Portfolio with a higher average
duration.
MORTGAGE SECURITIES
Mortgage securities are subject to the risk that as interest rates fall,
borrowers will refinance their mortgages, resulting in prepayment of principal.
A Portfolio holding mortgage securities that are experiencing prepayments will
have to reinvest these principal payments at lower prevailing interest rates. On
the other hand, when interest rates rise, borrowers are less likely to
refinance, resulting in lower prepayments. This can effectively extend the
maturity of a Portfolio's mortgage securities, resulting in greater price
volatility.
HIGH YIELD SECURITIES
Fixed income securities that are not investment grade are commonly referred to
as junk bonds or high yield, high risk securities. These securities offer a
higher yield than other, higher rated securities, but they carry a greater
degree of risk and are considered speculative by the major credit rating
4
<PAGE>
IMPORTANT INVESTMENT INFORMATION (Continued)
agencies. High yield securities may be issued by companies that are
restructuring, are smaller and less credit worthy or are more highly indebted
than other companies. This means that they may have more difficulty making
scheduled payments of principal and interest. Changes in the value of high yield
securities are influenced more by changes in the financial and business position
of the issuing company than by changes in interest rates when compared to
investment grade securities.
YANKEE BONDS
Yankee bonds are U.S.-dollar denominated fixed income instruments issued by
foreign governments and corporations and sold in the United States. They are
considered U.S. securities for purposes of the Portfolios' investment policies.
FOREIGN SECURITIES
While many of the characteristics and risks of foreign fixed income securities
are similar to those of domestic securities, investing in foreign securities
involves certain additional risks. Foreign issuers generally are subject to
different accounting, auditing and financial reporting standards than U.S.
issuers. There may be less information available to the public about foreign
issuers. Securities of foreign issuers can be less liquid and experience greater
price movements. Foreign stock exchanges, broker-dealers, and listed issuers may
be subject to less government regulation and oversight. The cost of investing in
foreign securities, including brokerage commissions and custodial expenses, can
be higher than in the United States. In some foreign countries, there is also
the risk of government expropriation, excessive taxation, political or social
instability, the imposition of currency controls, or diplomatic developments
that could affect the Advisory Foreign Fixed Income Portfolio's investments in
those countries. There also can be difficulty obtaining and enforcing judgments
in foreign countries.
Foreign securities are denominated in foreign currencies. The value of foreign
currencies fluctuates relative to the value of the U.S. dollar. Since the
Advisory Foreign Fixed Income Portfolio must convert the value of foreign
securities into dollars, changes in currency exchange rates can increase or
decrease the U.S. dollar value of the Portfolios' assets. The Adviser may use
certain derivatives to offset this risk. The risks of hedging currency risk are
described below in the section entitled "Derivatives and Other Investments". The
Adviser may in its discretion choose not to hedge against currency risk. In
addition, certain market conditions may make it impossible or uneconomical to
hedge against currency risk.
EMERGING MARKET
SECURITIES
Investing in emerging market securities enhances the risks of foreign investing.
The risk of political or social upheaval, expropriation, and restrictive
controls on foreign investors' ability to repatriate capital is greater in
emerging markets. Emerging market securities generally are less liquid and
subject to wider price and currency fluctuations than securities issued in more
developed countries. In certain countries, there may be few publicly traded
securities, and the market may be dominated by a few issuers or sectors. Fixed
income securities issued by emerging markets issuers are more likely to be
considered equivalent to risky high yield securities. Investment funds and
structured investments are mechanisms for U.S. and other investors to invest in
certain emerging markets that have laws precluding or limiting direct
investments in their securities by foreign investors. Brady Bonds are debt
obligations created as part of the restructuring of commercial bank loans to
entities in emerging market countries. Brady Bonds may be collateralized or not,
and may be issued in various currencies (most are U.S.-dollar denominated).
DERIVATIVES AND OTHER INVESTMENTS
The Portfolios may use derivatives to pursue portfolio strategies and
objectives. Derivatives are financial instruments whose value and performance
are based on the value and performance of another security or financial
instrument. Derivatives include futures, options, forward contracts, swaps,
collateralized mortgage obligations ("CMOs"), stripped mortgage-backed
securities ("SMBS"), and structured notes. Derivatives sometimes offer the most
economical way of pursuing a particular investment strategy, limiting certain
risks, or enhancing potential returns.
5
<PAGE>
IMPORTANT INVESTMENT INFORMATION (Continued)
Certain derivative instruments are publicly traded on exchanges or
over-the-counter, while others are privately negotiated. The Portfolios may
enter into public or private over-the-counter derivatives transactions with
counterparties that meet the Fund's requirements for credit quality and
collateral. A Portfolio will not use derivatives to increase a Portfolio's level
of risk above the level that could be achieved using only traditional investment
securities. A Portfolio will not use derivatives as an indirect way of investing
in assets that it cannot, as a matter of policy, invest in directly.
Forward contracts are used to protect against uncertainty in the level of future
foreign currency exchange rates. The Portfolios may use futures to gain exposure
to an entire market (e.g., stock index futures) or to control their exposure to
changing foreign currency exchange rates. Portfolios investing in fixed income
securities will use futures to control their exposure to changes in interest
rates and to manage the overall maturity and duration of their securities
holdings. If a Portfolio buys an option, it buys a legal contract giving it the
right to buy or sell a specific amount of a security or futures contract at an
agreed-upon price. If a Portfolio "writes" an option, it sells to another person
the right to buy from or sell to the Portfolio a specific amount of a security
or futures contract at an agreed-upon price. The Portfolios may enter into swap
transactions which are contracts in which a Portfolio agrees to exchange the
return or interest rate on one instrument for the return or interest rate on
another instrument. Payments may be based on currencies, interest rates,
securities indices or commodity indices. Swaps may be used to manage the
maturity and duration of a fixed income portfolio, or to gain exposure to a
market without directly investing in securities traded in that market.
Structured investments are units representing an interest in assets held in a
trust that is not an investment company as defined in the 1940 Act. The trust
may pay a return based on the income it receives from those assets, or it may
pay a return based on a specified index.
RISKS OF DERIVATIVES
The primary risks of derivatives are: (i) changes in the market value of
securities held by a Portfolio, and of derivatives relating to those securities,
may not be proportionate, (ii) there may not be a liquid market for a Portfolio
to sell a derivative, which could result in difficulty closing a position, and
(iii) certain derivatives can magnify the extent of losses incurred due to
changes in the market value of the securities to which they relate. See the
Statement of Additional Information for more about the risks of different types
of derivatives.
The amount that a Portfolio may invest in futures and options depends on the
type of portfolio. The limitations are as follows:
Each Portfolio may enter into futures contracts and options on futures contracts
for bona fide hedging purposes to an unlimited extent. It also can enter into
futures contracts and options thereon for other purposes, provided that no more
than 5% of the Portfolio's total assets at the time of the transaction are
required as margin and option premiums to secure the Portfolio's obligations
under such contracts.
Each Portfolio may invest in certain derivatives, such as forwards, futures,
options and mortgage derivatives as well as when-issued securities which require
the Portfolio to segregate some or all of its cash or liquid securities to cover
its obligations under those instruments. At certain levels, this can cause a
Portfolio to lose flexibility in managing its investments properly, responding
to shareholder redemption requests, or meeting other obligations. A Portfolio in
that position could be forced to sell other securities that it wanted to retain
or to realize unintended gains or losses.
MORTGAGE DERIVATIVES
Collateralized mortgage obligations (CMOs) and stripped mortgage backed
securities (SMBS) are derivatives based on mortgage securities. CMOs are issued
in a number of series (known as "tranches"), each of which has a stated
maturity. Cash flow from the underlying mortgages is allocated to the tranches
in a predetermined, specified order. SMBS are multi-class mortgage securities
issued by U.S. government agencies and instrumentalities and financial
institutions. They usually have two classes, one receiving most of the principal
payments from the mortgages, and one receiving most of the interest. In some
cases, classes may receive interest only (called "IOs") or principal only
(called "POs"). Both CMOs and SMBS are subject to the risks of price movements
in response to changing interest rates and the level of prepayments made by
borrowers. Depending on the class of CMO or SMBS that a Portfolio holds, these
price movements may be significantly greater than that experienced by mortgage
securities generally,
6
<PAGE>
IMPORTANT INVESTMENT INFORMATION (Continued)
depending on whether the payments are predominantly based on principal or
interest paid on the underlying mortgages. In addition, the yield to maturity of
IOs and POs is extremely sensitive to prepayment levels. As a result, a high
rate of prepayments can have a material effect on a Portfolio's yield to
maturity and could cause a Portfolio to lose money on the investment.
ADDITIONAL INFORMATION
When the Adviser believes that changes in economic, financial or political
conditions warrant, each Portfolio may invest without limit in certain fixed
income securities for temporary defensive purposes. See the Statement of
Additional Information for more information about the types of fixed income
securities in which the Portfolios may invest. If the Adviser incorrectly
predicts the effects of these changes, such defensive investments may adversely
affect the Portfolios' performance. Consistent with their investment policies,
the Portfolios also will purchase and sell securities without regard to the
effect on portfolio turnover. Higher portfolio turnover (e.g., over 100% per
year) will cause the Portfolio to incur additional transaction costs and may
result in taxable gains being passed through to shareholders.
FEES AND EXPENSES OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
TOTAL
ANNUAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12B-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
ADVISORY FOREIGN FIXED
INCOME PORTFOLIO .375% NONE .120% .495%*
- --------------------------------------------------------------------------------
ADVISORY MORTGAGE PORTFOLIO .375% NONE .117% .492%*
Total Annual Fund Operating Expenses reflected in the table above may be
higher than the expenses actually deducted from portfolio assets because of
the effect of expense offset arrangements.
* The Adviser has voluntarily agreed to reduce its advisory fee and reimburse
the Portfolios so that total expenses will not exceed .150% and .080% for the
Advisory Foreign Fixed Income Portfolio and Advisory Mortgage Portfolio,
respectively. Fee waivers and/or expense reimbursements are voluntary and the
Adviser reserves the right to terminate any waiver and/or reimbursement at any
time and without notice.
- --------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES
AFTER MAS WAIVER/REIMBURSEMENT & OFFSETS
- --------------------------------------------------------------------------------
ADVISORY FOREIGN FIXED
INCOME PORTFOLIO .120%
- --------------------------------------------------------------------------------
ADVISORY MORTGAGE PORTFOLIO .080%
EXAMPLE
This example is intended to help you compare the cost of investing in each
Portfolio with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in each Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example assumes that your investment has a 5% return each year and
that each Portfolio's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
- --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
ADVISORY FOREIGN FIXED INCOME PORTFOLIO $51 $159 $270 $622
- --------------------------------------------------------------------------------
ADVISORY MORTGAGE PORTFOLIO $50 $158 $275 $618
ANNUAL PORTFOLIO
OPERATING
EXPENSES
(expenses that are
deducted from Portfolio
assets)
The Securities and Exchange Commission (the "Commission") requires all funds to
disclose in the table to the right the fees and expenses that you may pay if you
buy and hold shares of the Portfolios. The Portfolios do not charge any sales
loads or similar fees when you purchase or redeem shares.
7
<PAGE>
PURCHASING SHARES
The Advisory Foreign Fixed Income and Advisory Mortgage Portfolios are available
only to private advisory clients of Miller Anderson & Sherrerd, LLP, investment
adviser to the Fund.
Shares of each Portfolio may be purchased at the net asset value per share (NAV)
next determined after we receive your purchase order. Institutional Class shares
are available to clients of the Adviser with combined investments of $5,000,000
(minimum additional investment $1,000).
OTHER PURCHASE
INFORMATION
We may suspend the offering of shares of any Portfolio or reject any purchase
orders when we think it is in the best interest of the Fund. We may waive the
minimum initial and additional investment amounts in certain cases.
Purchases of a Portfolio's shares will be made in full and fractional shares of
the Portfolio calculated to three decimal places. Certificates for shares will
not be issued except if you request them in writing. Certificates for fractional
shares, however, will not be issued.
REDEEMING SHARES
You may redeem shares of each Portfolio at no charge by writing to Miller
Anderson & Sherrerd, LLP, One Tower Bridge, West Conshohocken, PA 19428-0868 or
by calling 1-800-762-1155. The value of shares redeemed may be more or less than
the purchase price, depending on the NAV at the time of redemption.
We will ordinarily pay redemption proceeds within three business days after
receipt of your request. We 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 or under any emergency circumstances.
In certain cases, we may determine that it is in the best interest of other
shareholders not to pay redemption proceeds in cash. We may pay you partly or
entirely by distributing to you readily marketable securities held by the
Portfolio from which you are redeeming. You may incur brokerage charges when you
sell those securities.
VALUATION OF SHARES
We determine the NAV of the Portfolios as of one hour after the close of the
U.S. bond markets (normally 4:00 p.m. Eastern Time).
Each Portfolio values its securities at market value. When no quotations are
readily available for securities or when the value of securities has been
materially affected by events occurring after the close of the primary market
for the securities, we will determine the value for those securities in good
faith at fair value using methods approved by the Board of Trustees.
The Fund is closed for business on weekends and the following holidays: New
Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The value
of certain portfolio securities may change on a day when you can't purchase or
redeem shares because some Portfolios invest in foreign securities that trade on
days when the Fund is closed.
8
<PAGE>
GENERAL SHAREHOLDER INFORMATION
DIVIDENDS AND
DISTRIBUTIONS
The Portfolios normally distribute substantially all of their net investment
income to shareholders as follows:
- --------------------------------------------------------------------------------
PORTFOLIO MONTHLY QUARTERLY
- --------------------------------------------------------------------------------
ADVISORY FOREIGN FIXED INCOME CHECK
- --------------------------------------------------------------------------------
ADVISORY MORTGAGE CHECK
If any net gains are realized from the sale of underlying securities, the
portfolios normally distribute the gains with the last distributions for the
calendar year. All dividends and distributions are automatically paid in
additional shares of the portfolio unless you elect otherwise. If you want to
change how your dividends are paid you must notify MAS Funds in writing.
TAXES
Income dividends you receive will be taxable as ordinary income, whether you
receive them in cash or in additional shares. Corporate shareholders may be
entitled to a dividends-received deduction for the portion of dividends they
receive which are attributable to dividends received by such portfolios from
U.S. corporations. Capital gains distributions may be taxable at different rates
depending on the length of time the Fund holds its assets.
Investment income received by the Advisory Foreign Fixed Income Portfolio from
sources within foreign countries may be subject to foreign income taxes. The
Portfolio may be able to pass through to you for foreign tax credit purposes the
amount of foreign income taxes that it paid.
Distributions paid in January but declared by a portfolio in October, November
or December of the previous year are taxable to you in the previous year.
Exchanges and redemptions of shares in a portfolio are taxable events.
FUND MANAGEMENT
ADVISER
The Investment Adviser to the Fund, Miller Anderson & Sherrerd, LLP ("MAS" or
the "Adviser"), is a Pennsylvania limited liability partnership founded in 1969.
The Adviser is wholly owned by indirect subsidiaries of Morgan Stanley Dean
Witter & Co. (MSDW), and is a division of Morgan Stanley Dean Witter Investment
Management. The Adviser is located at One Tower Bridge, West Conshohocken, PA
19428-0868. The Adviser provides investment advisory services to employee
benefit plans, endowment funds, foundations and other institutional investors.
As of December 31, 1998, Morgan Stanley Dean Witter Investment Management had in
excess of $163 billion in assets under management.
The Adviser makes investment decisions for the Fund's portfolios and places each
portfolio's purchase and sales orders. Each portfolio, in turn, pays the Adviser
an annual advisory fee calculated by applying a quarterly rate. The table below
shows the Adviser's annual contractual and actual rates of compensation for the
Fund's 1998 fiscal year.
- --------------------------------------------------------------------------------
Contractual FY 1998
Compensation Actual
Rate Compensation Rate
- --------------------------------------------------------------------------------
ADVISORY FOREIGN FIXED INCOME PORTFOLIO* .375% .000%
- --------------------------------------------------------------------------------
ADVISORY MORTGAGE PORTFOLIO* .375 .000
* The Adviser is voluntarily waiving a portion of its fee and reimbursing
certain expenses for the Advisory Foreign Fixed Income and Advisory Mortgage
Portfolios to keep Total Operating Expenses from exceeding .150 % and .080 %,
respectively.
PORTFOLIO MANAGERS
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:
KENNETH B. DUNN, Managing Director, MSDW, joined MAS in 1987. He joined the
management team for the Fixed Income and the Domestic Fixed Income Portfolios in
1987, the Fixed Income II Portfolio in 1990,
9
<PAGE>
FUND MANAGEMENT (continued)
the Mortgage-Backed Securities and Special Purpose Fixed Income Portfolios in
1992, the Advisory Mortgage Portfolio in 1995 and the Multi-Market Fixed Income
Portfolio in 1997.
J. DAVID GERMANY, Managing Director, MSDW, joined MAS in 1991. He joined the
management team for the Global Fixed Income and International Fixed Income
Portfolios in 1993, the Multi-Asset-Class and Advisory Foreign Fixed Income
Portfolios in 1994 and the Multi-Market Fixed Income Portfolio in 1997.
MICHAEL KUSHMA, Principal, MSDW, joined MSDW in 1987. He served as a Global
Fixed Income Strategist from 1987 to 1995, and has served as the Senior Global
Fixed Income Portfolio Manager since 1995. He joined the management team for the
Global Fixed Income, International Fixed Income and Advisory Foreign Fixed
Income Portfolios in 1996.
PAUL F. O'BRIEN, Principal, MSDW, joined MAS in 1996. He served as Head of
European Economics from 1993 through 1995 for J.P. Morgan. He joined the
management team for the Global Fixed Income, International Fixed Income and
Advisory Foreign Fixed Income Portfolios in 1996.
SCOTT F. RICHARD, Managing Director, MSDW, joined MAS in 1992. He joined the
management team for the Limited Duration, Intermediate Duration and Advisory
Mortgage Portfolios in 1995, and the Targeted Duration Portfolio in 1998.
DISTRIBUTOR
Shares of the Fund are distributed exclusively through MAS Fund Distribution,
Inc., a wholly-owned subsidiary of the Adviser.
YEAR 2000 DISCLOSURE STATEMENT
The management and distribution services that the Adviser and Distributor
provide to the Fund 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 some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact on the handling of
securities trades, pricing and account services. The Adviser and 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 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.
10
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights tables are intended to help you understand
the financial performance of each Portfolio for the past five years or, if less
than five years, the life of the Portfolio. Certain information reflects
financial results for a single Portfolio share. The total returns in the tables
represent the rate that an investor would have earned (or lost) on an investment
in each Portfolio (assuming reinvestment of all dividends and distributions).
This information has been extracted from the Fund's financial statements which
were audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, are incorporated by reference into the Fund's Statement of
Additional Information and are included in the Fund's September 30, 1998 Annual
Report to Shareholders.
<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>
ADVISORY FOREIGN FIXED INCOME PORTFOLIO (COMMENCEMENT OF OPERATIONS 10/7/94)
1998+++ $10.32 $0.48 $0.48 $0.96 ($1.10) $ -- $--
1997+++ 11.73 0.58 0.80 1.38 (1.88) (0.88) (0.03)#
1996 10.80 0.68 1.02 1.70 (0.66) (0.11) --
1995 10.00 0.74 0.44 1.18 (0.38) -- --
ADVISORY MORTGAGE PORTFOLIO (COMMENCEMENT OF OPERATIONS 4/12/95)
1998 $10.59 $0.69 $0.36 $1.05 ($0.67) ($0.11) $ --
1997 10.29 0.75 0.34 1.09 (0.71) (0.08) --
1996 10.41 0.72 (0.06) 0.66 (0.72) (0.03) (0.03)#
1995 10.00 0.25 0.35 0.60 (0.19) -- --
<CAPTION>
NET ASSET NET ASSETS- RATIO OF RATIO OF
VALUE- END OF EXPENSES NET INCOME PORTFOLIO
TOTAL END OF TOTAL PERIOD TO AVERAGE TO AVERAGE TURNOVER
DISTRIBUTIONS PERIOD RETURN** (THOUSANDS) NET ASSETS+ NET ASSETS RATE
- ------------------------------------------------------------------------------------------------------------------------------------
ADVISORY FOREIGN FIXED INCOME PORTFOLIO (COMMENCEMENT OF OPERATIONS 10/7/94)
1998+++ ($1.10) $10.18 10.19% $ 17,683 0.12%++ 4.84% 318%
1997+++ (2.79) 10.32 14.08 93,939 0.14++ 5.68 208
1996 (0.77) 11.73 16.47 236,092 0.12++ 6.06 170
1995 (0.38) 10.80 12.12 537,133 0.16*++ 7.44* 96
ADVISORY MORTGAGE PORTFOLIO (COMMENCEMENT OF OPERATIONS 4/12/95)
1998 ($0.78) $10.86 10.36% $6,396,764 0.09%++ 6.83% 126%
1997 (0.79) 10.59 11.03 3,071,427 0.09++ 7.55 144
1996 (0.78) 10.29 6.56 1,974,592 0.09++ 7.17 139
1995 (0.19) 10.41 6.03 1,443,038 0.10*++ 6.72* 110
</TABLE>
*Annualized
**Total return figures for partial years are not annualized.
#Represents distribution in excess of net realized gains.
+ For the periods ended September 30, 1995, September 30, 1996, September 30,
1997 and September 30, 1998, the Ratio of Expenses to Average Net Assets for
the Advisory Foreign Fixed Income and Advisory Mortgage Portfolios excludes
the effect of expense offsets. If expense offsets were included, the Ratio
of Expenses to Average Net Assets would be 0.15%* and 0.08%*, respectively,
for 1995, 0.12% and 0.08%, respectively, for 1996, 0.14% and 0.08%,
respectively, for 1997, and 0.12% and 0.08%, respectively, for 1998.
++ The Adviser has 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 Advisory
Foreign Fixed Income and Advisory Mortgage Portfolios from exceeding 0.15%
and 0.08%, respectively. Voluntarily waived and/or reimbursed expenses
totaled 0.38%* and 0.49%*, respectively, for the period ended September 30,
1995, 0.38% and 0.39%, respectively, for the year ended September 30, 1996,
0.38% and 0.40%, respectively, for the year ended September 30, 1997, and
0.38% and 0.40%, respectively for the year ended September 30, 1998.
+++ Per share amounts for the years ended September 30, 1997 and September 30,
1998 are based on average shares outstanding.
11
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MAS ------------------------------------------- ADVISORY PORTFOLIOS PROSPECTUS
- ---------
MAS FUNDS
JANUARY 31, 1999
(AS REVISED APRIL 30, 1999)
TRUSTEES OF THE FUND
Thomas L. Bennett, Chairman Thomas L. Gerrity
Joseph P. Healey Joseph J. Kearns
Vincent R. McLean C. Oscar Morong, Jr.
OFFICERS OF THE FUND
James D. Schmid, President John H. Grady, Jr., Secretary
Lorraine Truten, Vice President Richard J. Shoch, Compliance Officer
James A. Gallo, Treasurer
In addition to this prospectus, the Fund has a Statement of Additional
Information ("SAI"), dated January 31, 1999, which contains additional, more
detailed information about the Fund and the Portfolios. The SAI is incorporated
by reference into this prospectus and, therefore, legally forms a part of this
prospectus.
The Fund publishes annual and semi-annual reports ("Shareholder Reports") which
contain additional information about each Portfolio's investments. In the Fund's
annual report, you will find a discussion of the market conditions and the
investment strategies that significantly affected each Portfolio's performance
during the last fiscal year.
You may obtain the SAI and Shareholder Reports without charge by contacting the
Fund at the toll-free number below.
Information about the Fund, including the SAI and Shareholder Reports, may be
obtained from the Securities and Exchange Commission in any of the following
ways. (1) In person: you may review and copy documents in the Commission's
Public Reference Room in Washington D.C. (for information call 1-800-SEC-0330);
(2) On-line: you may retrieve information from the Commission's web site at
http://www.sec.gov; or (3) By mail: you may request documents, upon payment of a
duplicating fee, by writing to Securities and Exchange Commission, Public
Reference Section, Washington, D.C. 20549-6009. To aid you in obtaining this
information, the Fund's Investment Company Act registration number is 811-03980.
MAS FUNDS
ONE TOWER BRIDGE, WEST CONSHOHOCKEN, PA 19428-0868.
FOR SHAREHOLDER INQUIRIES, CALL CLIENT SERVICES AT 1-800-354-8185.
PRICES AND INVESTMENT RESULTS ARE AVAILABLE AT 1-800-522-1525.
MORGAN STANLEY DEAN WITTER
- --------------------------
INVESTMENT MANAGEMENT ___________ ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428
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