<PAGE> 1
1999 Annual Report
[MAS LOGO]
Morgan Stanley Dean Witter Investment Management
Miller Anderson & Sherrerd, LLP
Value Portfolio
Mid Cap Growth Portfolio
Mid Cap Value Portfolio
Fixed Income Portfolio
High Yield Portfolio
[MAS LOGO]
<PAGE> 2
MAS Funds is pleased to present the Annual Report for the Portfolios as of
September 30, 1999. Please call your Miller Anderson & Sherrerd service
representative at 800-354-8185 with any questions regarding these Financial
Statements.
TABLE OF CONTENTS
<TABLE>
<S> <C>
MAS Overview and Statement of Net Assets
Value Portfolio.......................... 1
Mid Cap Growth Portfolio................. 7
Mid Cap Value Portfolio.................. 13
Fixed Income Portfolio................... 19
High Yield Portfolio..................... 35
Statement of Operations..................... 45
Statement of Changes in Net Assets.......... 47
Financial Highlights........................ 51
Notes to Financial Statements............... 61
Report of Independent Accountants........... 72
</TABLE>
THIS ANNUAL REPORT CONTAINS CERTAIN INVESTMENT RETURN INFORMATION. PAST
PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS AND THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES,
WHEN REDEEMED, MAY BE WORTH EITHER MORE OR LESS THAN THEIR ORIGINAL COST.
THIS REPORT HAS BEEN PREPARED FOR SHAREHOLDERS AND MAY BE DISTRIBUTED TO OTHERS
ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE> 3
PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
VALUE PORTFOLIO
The Value Portfolio combines Miller Anderson & Sherrerd's disciplined stock
valuation process with the judgment gained through considerable experience in
low P/E investing.
MAS's process is executed in two stages. An initial screen identifies companies
with flat or positive earnings growth which have underperformed the broad market
averages, and whose valuations fall into the lower segment of MAS's investment
universe. In the second stage, fundamental analysis is used to determine the
cyclical sustainability of earnings and the competitive dynamics of a company.
This approach is fortified by attention to risk management. MAS emphasizes
portfolio diversification in terms of both sectors and stocks. Maximum sector
and position limitations are imposed, thereby minimizing the risk of any
individual sector or holding.
MAS also utilizes a clearly defined, firmly enforced sell discipline. Many value
managers who are able to identify outstanding securities err by holding
successful investments past their peaks. Perhaps the greatest strategic
advantage of the MAS approach is that the sell discipline mandates the sale of
any stock that satisfies one or more of the three sell criteria--price
appreciation, earnings deterioration, or negative fundamental change.
The past two years have been difficult for low P/E value investing, and this
difficult environment continued in the Portfolio's 1999 fiscal year. The total
return of the MAS Funds Value Portfolio was 8.3%, compared to 27.8% for the S&P
500.
Early in the year, it appeared that the equity markets had become increasingly
"digital." The digital world reduces inputs to streams of 1s or 0s, off or on,
with no mention or measurement of degree. Investors seemed to have reduced their
opinions about companies and their stock prices to the same level of simplicity.
Internet, technology, and mega-cap growth stocks were switched "on" in the
equity markets. Valuations were deemed irrelevant in this new digital investment
world. Most other sectors of the market were deemed "off." Conceptually
unappealing sectors such as small- and mid-caps and economically sensitive
companies of every size were ignored, irrespective of fundamentals or
valuations.
By contrast, the third fiscal quarter represented an excellent period for the
Portfolio and a welcome respite from earlier performance comparisons. The
Portfolio returned 15.3% for that quarter, compared to 7.1% for the S&P 500. The
most important aspect of this quarter was the market's significant rotation
towards a low P/E, value style of investing. For the first time in recent years,
the trend of mega-cap growth outperformance was broken. Generally, everything
that had suffered over the past eighteen months recovered: large stocks
outperformed mega-cap stocks, cyclical stocks outperformed defensive stocks,
value stocks outperformed growth stocks, and low P/E stocks outperformed high
P/E stocks.
However, the brief outperformance of value stocks ended abruptly in the fourth
fiscal quarter of 1999. For the quarter, the Portfolio returned (16.0)% versus
(6.3)% for the S&P 500. Traditional performance attribution reveals that stock
selection contributed about 75% of the performance shortfall, and sector
allocation was responsible for the remainder. The sector allocation shortfall
was due to an underweighting in technology and overweightings in financial,
consumer durable, and transportation stocks. Stock selection in the health care,
technology, financial, heavy industry, and retail groups penalized relative
performance.
Further analysis, however, reveals that the major reason for the significant
underperformance during the quarter was the Portfolio's strict adherence to a
low P/E investment discipline. From June through September, the low P/E
universe, as defined by the two lowest P/E quintiles of all stocks greater than
$2.5 billion in market capitalization, returned (14.1)%. This reversed the
positive momentum that value investing had established in the third fiscal
quarter. It also reestablished the primary trend of the past two years--a
situation in which mega-cap growth stocks with exceptionally high valuations
appreciated, while the vast majority of low valuation shares stagnated or
declined. Unquestionably, the average stock in the Portfolio's investible
universe experienced a severe bear market during the quarter.
1
<PAGE> 4
PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
Sector allocation in the Portfolio remained true to the low P/E investible
universe at the end of the fiscal year. Overweightings remained in the
financial, industrial, durable goods, transportation, and basic materials
sectors. During the year, larger commitments were made to the health care
services sector, and at fiscal year-end, this group also represented a
significant overweighting. MAS believed that this sector, under pressure from
reimbursement and legal concerns, represented exceptional value. Sector
underweightings remained in technology (which MAS believed was in an
Internet-led mania stage), consumer staples, telecommunications, and energy
stocks. In each of these sectors, valuations prevented the Portfolio from
participating without violating its low P/E discipline.
Portfolio characteristics and global economic trends remained favorable for low
P/E, value-based investors. The Portfolio's P/E ratio at fiscal year-end was
11.2x, compared to 26.4x for the S&P 500. Price-to-cash flow and price-to-book
value ratios were also at substantial discounts to the benchmark, while the
Portfolio's dividend yield was 2.1%, compared to 1.3% for the index. Growth
rates and earnings estimate revisions for the Portfolio's holdings were at
slight discounts to the S&P 500, but well within traditional ranges. U.S.
economic activity was healthy, and global economic recovery continued. These
factors have historically been positive influences on relative price performance
for the Portfolio's low P/E investible universe.
2
<PAGE> 5
PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
[MAS Funds 1999 Value Graph]
<TABLE>
<CAPTION>
MAS FUNDS VALUE S&P 500
--------------- -------
<S> <C> <C>
89 1000.00 1000.00
959.00 1021.00
929.00 990.00
957.00 1052.00
90 801.00 908.00
900.00 989.00
1053.00 1133.00
1073.00 1130.00
91 1166.00 1190.00
1239.00 1290.00
1240.00 1258.00
1269.00 1282.00
92 1316.00 1322.00
1420.00 1389.00
1499.00 1449.00
1508.00 1456.00
93 1574.00 1494.00
1623.00 1528.00
1598.00 1471.00
1621.00 1477.00
94 1692.00 1549.00
1680.00 1549.00
1860.00 1699.00
2078.00 1862.00
95 2243.00 2010.00
2331.00 2131.00
2494.00 2245.00
2552.00 2346.00
96 2656.00 2418.00
2975.00 2620.00
3024.00 2690.00
3466.00 3159.00
97 3752.00 3396.00
3670.00 3494.00
4023.00 3981.00
3873.00 4112.00
98 3136.00 3703.00
3564.00 4492.00
3505.00 4716.00
4041.00 5048.00
99 3396.00 4733.00
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS ENDED 9/30/99*
<TABLE>
<CAPTION>
MAS VALUE S&P
------------------------------------------------ 500
INSTITUTIONAL - INVESTMENT = ADVISER + INDEX
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One Year 8.30% 8.20% 8.10% 27.80%
Five Years 14.96% 14.84% 14.78% 25.03%
Ten Years 13.01% 12.95% 12.92% 16.82%
</TABLE>
Total returns are net of all fees. Total returns represent past
performance and are not indicative of future results.
The investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth
either more or less than their original cost.
- Represents an investment in the Institutional Class.
= Represents an investment in the Investment Class which commenced
operations 5/6/96. Total returns for periods beginning prior to this
date are based on the performance of the Institutional Class and do
not include the 0.15% Shareholder Servicing Fee applicable to the
Investment Class.
+ Represents an investment in the Adviser Class which commenced
operations 7/17/96. Total returns for periods beginning prior to this
date are based on the performance of the Institutional Class and do
not include the 0.25% 12b-1 Fee applicable to the Adviser Class.
Total returns for the Investment Class of the Portfolio reflect
expenses reimbursed by the Adviser for certain periods. Without such
reimbursements, total returns would have been lower.
* Total returns are compared to the S&P 500 Index, an unmanaged market
index.
3
<PAGE> 6
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
VALUE
PORTFOLIO
STATEMENT OF NET ASSETS
COMMON STOCKS (97.2%)
<TABLE>
<CAPTION>
- ----------------------------------------------------
VALUE
SEPTEMBER 30, 1999 SHARES (000)!
- ----------------------------------------------------
<S> <C> <C>
BANKS (13.9%)
Bank of America Corp. 401,600 $ 22,364
Bank One Corp. 398,100 13,859
BankBoston Corp. 269,300 11,681
Chase Manhattan Corp. 633,006 47,713
First Union Corp. 271,013 9,638
KeyCorp 489,500 12,635
PNC Bank Corp. 582,400 30,685
Washington Mutual, Inc. 1,293,100 37,823
- ----------------------------------------------------
GROUP TOTAL 186,398
- ----------------------------------------------------
BASIC RESOURCES (6.4%)
Eastman Chemical Co. 39,400 1,576
Engelhard Corp. 1,034,100 18,808
IMC Global, Inc. 831,994 12,116
Lubrizol Corp. 802,000 20,601
Solutia, Inc. 658,800 11,776
* W.R. Grace & Co. 907,700 14,580
Weyerhaeuser Co. 114,100 6,575
- ----------------------------------------------------
GROUP TOTAL 86,032
- ----------------------------------------------------
CONSUMER DURABLES (11.3%)
Dana Corp. 533,051 19,790
Ford Motor Co. 735,530 36,914
General Motors Corp. 1,017,609 64,046
Owens Corning 700,041 15,182
Whirlpool Corp. 246,200 16,080
- ----------------------------------------------------
GROUP TOTAL 152,012
- ----------------------------------------------------
CONSUMER SERVICES (0.7%)
Service Corp. International 916,500 9,681
- ----------------------------------------------------
ENERGY (4.1%)
* Nabors Industries, Inc. 895,800 22,395
Tosco Corp. 206,600 5,216
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)!
- ----------------------------------------------------
- ----------------------------------------------------
<S> <C> <C>
Transocean Offshore, Inc. 313,200 $ 9,592
Ultramar Diamond Shamrock
Corp. 700,590 17,865
- ----------------------------------------------------
GROUP TOTAL 55,068
- ----------------------------------------------------
FOOD, TOBACCO & OTHER (3.4%)
IBP, Inc. 375,903 9,280
Nabisco Group Holdings Corp. 1,005,390 15,081
R.J. Reynolds Tobacco
Holdings, Inc. 212,230 5,730
Universal Foods Corp. 665,294 15,260
- ----------------------------------------------------
GROUP TOTAL 45,351
- ----------------------------------------------------
HEALTH CARE (10.5%)
Beckman Coulter, Inc. 335,999 15,162
Columbia/HCA Healthcare Corp. 405,261 8,586
* Foundation Health Systems,
Inc., Class A 882,184 8,326
* Health Management
Associates, Inc., Class A 545,700 4,024
* HEALTHSOUTH Corp. 8,511,100 51,599
*@ LifePoint Hospitals, Inc. 1 --
* Tenet Healthcare Corp. 2,002,000 35,160
*@ Triad Hospitals, Inc. 1 --
United HealthCare Corp. 268,500 13,073
* Wellpoint Health Networks,
Inc. 101,700 5,797
- ----------------------------------------------------
GROUP TOTAL 141,727
- ----------------------------------------------------
HEAVY INDUSTRY/TRANSPORTATION (18.7%)
* AMR Corp. 507,480 27,658
Burlington Northern Santa Fe,
Inc. 262,400 7,216
CNF Transportation, Inc. 126,200 4,701
Cooper Industries, Inc. 304,200 14,221
Cummins Engine Co., Inc. 796,686 39,685
Delta Air Lines, Inc. 562,100 27,262
Eaton Corp. 184,102 15,890
* FMC Corp. 306,665 14,797
* Navistar International
Corp. 351,700 16,354
Parker-Hannifin Corp. 532,837 23,878
Ryder System, Inc. 387,200 7,889
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
4
<PAGE> 7
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)!
- ----------------------------------------------------
<S> <C> <C>
Tecumseh Products Co., Class
A 396,476 $ 19,873
TRW, Inc. 400,618 19,931
Waste Management, Inc. 584,600 11,253
- ----------------------------------------------------
GROUP TOTAL 250,608
- ----------------------------------------------------
INSURANCE (5.7%)
Ace Ltd. 803,800 13,614
Allstate Corp. 572,740 14,283
American General Corp. 158,355 10,006
Everest Reinsurance Holdings,
Inc. 377,291 8,984
Hartford Financial Services
Group, Inc. 339,106 13,861
ReliaStar Financial Corp. 476,743 15,852
- ----------------------------------------------------
GROUP TOTAL 76,600
- ----------------------------------------------------
RETAIL (6.0%)
Dillard's, Inc., Class A 251,009 5,099
Liz Claiborne, Inc. 756,600 23,454
* Office Depot, Inc. 772,400 7,869
Springs Industries, Inc.,
Class A 61,518 2,088
* Toys 'R' Us, Inc. 806,551 12,098
V.F. Corp. 987,006 30,597
- ----------------------------------------------------
GROUP TOTAL 81,205
- ----------------------------------------------------
TECHNOLOGY (7.1%)
* Arrow Electronics, Inc. 608,000 10,716
Avnet, Inc. 337,200 14,162
First Data Corp. 609,500 26,742
International Business
Machines Corp. 124,088 15,061
* Quantum Corp.-DLT & Storage
Systems 1,017,500 14,309
Xerox Corp. 328,200 13,764
- ----------------------------------------------------
GROUP TOTAL 94,754
- ----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)!
- ----------------------------------------------------
<S> <C> <C>
UTILITIES (9.4%)
Bell Atlantic Corp. 431,700 $ 29,059
Cinergy Corp. 167,607 4,745
Coastal Corp. 141,100 5,776
DTE Energy Co. 257,740 9,311
Duke Energy Corp. 140,422 7,741
Entergy Corp. 264,345 7,650
GPU, Inc. 235,204 7,674
GTE Corp. 244,200 18,773
PECO Energy Co. 198,900 7,459
Southern Co. 333,300 8,582
U.S. West, Inc. 345,400 19,709
- ----------------------------------------------------
GROUP TOTAL 126,479
- ----------------------------------------------------
TOTAL COMMON STOCKS (Cost $1,401,253) 1,305,915
- ----------------------------------------------------
CASH EQUIVALENT (3.0%)
- ----------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
-------
<S> <C> <C>
REPURCHASE AGREEMENT (3.0%)
Chase Securities, Inc. 5.20%
dated 9/30/99, due 10/1/99,
to be repurchased at
$40,318, collateralized by
various U.S. Government
Obligations, due
10/1/99-8/15/01, valued at
$40,357 (Cost $40,312) $40,312 40,312
- ----------------------------------------------------
TOTAL INVESTMENTS (100.2%) (Cost
$1,441,565) 1,346,227
- ----------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
5
<PAGE> 8
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
VALUE
PORTFOLIO
<TABLE>
<CAPTION>
VALUE
(CONT'D) (000)!
- ----------------------------------------------------
<S> <C> <C>
OTHER ASSETS AND LIABILITIES (-0.2%)
Dividends Receivable $ 1,474
Interest Receivable 6
Receivable for Investments Sold 7,403
Receivable for Fund Shares Sold 1,140
Investments Held as Collateral for
Loaned Securities 120,570
Other Assets 164
Payable for Fund Shares Redeemed (10,335)
Payable for Investment Advisory Fees (2,038)
Payable for Administrative Fees (96)
Payable for Distribution Fees-Adviser
Class (56)
Payable for Shareholder Servicing
Fees-Investment Class (1)
Payable for Trustees' Deferred
Compensation Plan-Note F (163)
Collateral on Securities Loaned, at
Value (120,570)
Other Liabilities (213)
----------
(2,715)
- ----------------------------------------------------
NET ASSETS (100%) $1,343,512
- ----------------------------------------------------
INSTITUTIONAL CLASS
- ----------------------------------------------------
NET ASSETS
Applicable to 79,408,494 outstanding
shares of beneficial interest
(unlimited authorization, no par
value) $1,079,356
- ----------------------------------------------------
NET ASSET VALUE PER SHARE $ 13.59
- ----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)!
- ----------------------------------------------------
<S> <C> <C>
INVESTMENT CLASS
- ----------------------------------------------------
NET ASSETS
Applicable to 712,385 outstanding shares
of beneficial interest (unlimited
authorization, no par value) $ 9,673
- ----------------------------------------------------
NET ASSET VALUE PER SHARE $ 13.58
- ----------------------------------------------------
ADVISER CLASS
- ----------------------------------------------------
NET ASSETS
Applicable to 18,758,517 outstanding
shares of beneficial interest
(unlimited authorization, no par
value) $ 254,483
- ----------------------------------------------------
NET ASSET VALUE PER SHARE $ 13.57
- ----------------------------------------------------
NET ASSETS CONSIST OF:
Paid in Capital $1,317,498
Undistributed Net Investment Income
(Loss) 5,140
Undistributed Realized Net Gain (Loss) 116,212
Unrealized Appreciation (Depreciation)
on Investment Securities (95,338)
- ----------------------------------------------------
NET ASSETS $1,343,512
- ----------------------------------------------------
</TABLE>
! See Note A1 to Financial Statements.
* Non-income producing security
@ Value is less than $500.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
6
<PAGE> 9
PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
MID CAP GROWTH PORTFOLIO
The Mid Cap Growth Portfolio seeks to capitalize on the relative inefficiencies
of the small- and mid-cap equity markets. The Portfolio targets companies with
sustainable growth that exceeds market expectations by focusing on those whose
growth surpasses Wall Street analysts' estimates. MAS looks to capture the
return potential of rapidly growing companies while avoiding stocks that are
likely to disappoint. To identify such companies, MAS's mid-cap growth strategy
employs a disciplined four-part process that incorporates quantitative,
fundamental and valuation analysis as well as a strict sell discipline.
First, MAS conducts a quantitative screen that sorts the stocks within each
economic sector based on earnings-estimate revisions and growth potential. This
screening process limits investment choices to a statistically advantaged pool.
MAS then conducts extensive fundamental research on a group of eligible stocks
to find candidates for purchase. Only high-quality companies with strong sales
growth, rising profit margins, and high returns on capital are included in the
Portfolio. Qualitative measures are then examined, including management quality
and a company's strategic position within its industry.
MAS supplements fundamental analysis with valuation analysis. In addition to
examining measures such as price/earnings, price/sales, and price/cash flow,
valuation analysis uses a discounted-cash-flow model. Each stock's valuation is
assessed relative to its growth prospects. The goal of this valuation work is to
identify and weed out the most overvalued securities.
The sell discipline mandates an ongoing reevaluation of securities and produces
a portfolio that always holds only those securities that are currently most
attractive. If a holding falls into one of the bottom two
earnings-estimate-revision quintiles of MAS's universe, it will be sold. MAS
also sells stocks when fundamental research uncovers unfavorable trends.
Analysts are often more reluctant to lower estimates than to raise them.
Therefore, companies that are having difficulties may first experience small
negative estimate revisions; such companies are frequently sold before larger
revisions materialize. Finally, holdings are sold or trimmed back when their
valuations exceed the level believed to be reasonable given their growth
prospects.
During fiscal 1999, the Portfolio returned 64.3% versus 25.5% for its benchmark.
The market environment was extremely volatile as the Internet bubble grew, oil
prices spiked, and inflation fears in the spring began to put pressure on stock
prices. The simultaneous interest rate cuts by central banks around the world in
the early fall of 1998 provided much-needed liquidity to the markets. MAS viewed
these interest rate cuts as extremely bullish, given the attractive valuation
levels in early October. The Portfolio's emphasis was shifted from stable growth
stocks to more aggressive stocks following the market sell-off in early October.
New purchases were focused in the following areas: long duration, high beta
securities such as Internet stocks; cyclical growth companies; and companies
that were mispriced because of their ongoing need for capital. The market
rewarded these aggressive actions, and while the Portfolio's exposure to long
duration securities was maintained, the other two areas were subsequently
reduced or eliminated.
In April, fears of rising interest rates caused the market to rotate violently
to traditional value and cyclical stocks. This cyclical/value rally was
short-lived as growth equities re-established their dominance six weeks later.
When the Federal Reserve raised the federal funds rate by 25 basis points in
June and again in August, equity prices came under pressure. The Portfolio was
positioned slightly in favor of cyclical growth and companies showing improving
profitability, and away from domestic stable growers. Sectors with largely
domestic earnings streams experienced significant underperformance in the early
summer, as did those adversely affected by rising interest rates, including
consumer non-durables, health care, financial services and electric utilities.
Conversely, outperforming sectors included those that stood to benefit from an
improving Asian economy, such as semiconductors.
7
<PAGE> 10
PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
Over the course of the Portfolio's fiscal year, sector selection benefited
performance. The overweighted telephone services, technology, consumer services,
and energy sectors and underweighted utilities, food & tobacco, financial
services, basic resources, and consumer durables sectors all contributed
significantly to performance. The underweight in transportation detracted
slightly from performance, with most of the other sectors modestly adding to
performance.
Stock selection was also strong, contributing over half of the outperformance
against the index. In technology, exposure to the rapid growth areas of the
Internet and communications-related technology companies, especially wireless
communications, drove performance. In consumer services, although the sector as
a whole underperformed, superior stock selection allowed holdings to be additive
to performance. In addition, the Portfolio's energy focus was rewarded as the
sector rebounded from severely depressed levels, aided by the rise in oil
prices. In health care, two of the Portfolio's holdings, Lincare and Health
Management Associates, detracted from performance, following strong
outperformance during fiscal 1998. Finally, the Portfolio benefited to a small
extent from participation in IPOs.
8
<PAGE> 11
PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
[MAS Funds Mid Cap Growth Line Chart]
<TABLE>
<CAPTION>
MAS MID CAP GROWTH S&P MIDCAP 400
------------------ --------------
<S> <C> <C> <C> <C>
* 1000 1000
1122 1059
90 900 871
1097 979
1327 1204
1347 1195
91 1497 1309
1749 1470
1642 1463
1533 1417
92 1540 1472
1800 1645
1769 1699
1819 1739
93 2062 1826
2128 1875
2004 1804
1832 1738
94 1994 1855
2013 1808
2127 1956
2300 2126
95 2604 2334
2743 2367
3058 2513
3313 2585
96 3354 2660
3258 2821
2956 2779
3565 3188
97 4295 3700
4338 3731
5239 4142
5420 4053
98 4380 3467
5959 4444
6344 4161
7193 4750
99 7196 4350
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS ENDED 9/30/99*
<TABLE>
<CAPTION>
MAS MID CAP GROWTH
------------------------------------ S&P MIDCAP
INSTITUTIONAL - ADVISER + 400 INDEX
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
One Year 64.27% 63.87% 25.49%
Five Years 29.26% 29.11% 18.58%
Since Inception 23.08% 23.00% 16.73%
</TABLE>
Total returns are net of all fees. Total returns represent past
performance and are not indicative of future results.
Small-capitalization stock prices have experienced a greater degree of
market volatility than those of large-capitalization companies.
The investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth
either more or less than their original cost.
- Represents an investment in the Institutional Class.
+ Represents an investment in the Adviser Class which commenced
operations 1/31/97. Total returns for periods beginning prior to
this date are based on the performance of the Institutional Class
and do not include the 0.25% 12b-1 Fee applicable to the Adviser
Class.
* The Mid Cap Growth Portfolio commenced operations on 3/30/90. Total
returns are compared to the S&P MidCap 400 Index, an unmanaged
market index.
As of 9/30/99, the Portfolio's holdings in Lincare and Health
Management Associates were 1.7% and 0.0%, respectively.
9
<PAGE> 12
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
MID CAP GROWTH
PORTFOLIO
STATEMENT OF NET ASSETS
COMMON STOCKS (94.0%)
<TABLE>
<CAPTION>
- ----------------------------------------------------
VALUE
SEPTEMBER 30, 1999 SHARES (000)!
- ----------------------------------------------------
<S> <C> <C>
BANKS (2.8%)
* Concord EFS, Inc. 372,300 $ 7,679
First Tennessee National
Corp. 203,700 5,729
National Commerce Bancorp. 405,900 8,917
Zions Bancorp. 124,200 6,846
- ----------------------------------------------------
GROUP TOTAL 29,171
- ----------------------------------------------------
BASIC RESOURCES (0.4%)
* CK Witco Corp. 94,101 1,370
* Cytec Industries, Inc. 121,700 2,921
- ----------------------------------------------------
GROUP TOTAL 4,291
- ----------------------------------------------------
BEVERAGE & PERSONAL PRODUCTS (2.4%)
* Beringer Wine Estates
Holdings, Inc., Class B 230,400 9,461
Dial Corp. 294,700 7,515
Estee Lauder Cos., Inc.,
Class A 209,900 8,199
- ----------------------------------------------------
GROUP TOTAL 25,175
- ----------------------------------------------------
CONSUMER DURABLES (1.6%)
Danaher Corp. 177,200 9,336
* SPX Corp. 86,700 7,868
- ----------------------------------------------------
GROUP TOTAL 17,204
- ----------------------------------------------------
CONSUMER SERVICES (18.7%)
* AT&T Corp.-Liberty Media
Group, Class A 487,386 18,094
Cablevision Systems Corp.,
Class A 110,700 8,053
* Cinar Corp., Class B 417,400 12,626
* Citadel Communications
Corp. 216,300 7,381
* DoubleClick, Inc. 70,600 8,410
* Fox Entertainment Group,
Inc., Class A 314,400 6,642
* Hispanic Broadcasting Corp. 151,200 11,510
Houghton Mifflin Co. 190,000 7,719
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)!
- ----------------------------------------------------
- ----------------------------------------------------
<S> <C> <C>
* Imax Corp. 328,900 $ 6,578
* Insight Communications Co.,
Inc. 233,400 6,681
* Jones Intercable, Inc.,
Class A 298,000 16,111
* Liberty Digital, Inc.,
Class A 351,300 8,190
* Premier Parks, Inc. 422,900 12,264
* Sinclair Broadcast Group,
Inc., Class A 214,700 1,946
* TV Guide, Inc. 335,100 13,111
* Univision Communications,
Inc., Class A 164,000 13,345
* USA Networks, Inc. 279,700 10,838
* Valassis Communications,
Inc. 309,250 13,588
Young & Rubicam, Inc. 289,700 12,747
- ----------------------------------------------------
GROUP TOTAL 195,834
- ----------------------------------------------------
CREDIT & FINANCE/ INVESTMENT COMPANIES (2.3%)
Allied Capital Corp. 324,500 7,281
Charles Schwab Corp. 177,100 5,966
Heller Financial, Inc. 301,700 6,788
* Knight/Trimark Group, Inc.,
Class A 146,800 4,349
- ----------------------------------------------------
GROUP TOTAL 24,384
- ----------------------------------------------------
ENERGY (5.5%)
* Barrett Resources Corp. 104,800 3,871
* BJ Services Co. 220,200 7,005
* Cooper Cameron Corp. 153,300 5,787
Devon Energy Corp. 203,000 8,412
EOG Resources, Inc. 383,000 8,139
* Forest Oil Corp. 474,900 8,103
* Grey Wolf, Inc. 2,056,400 6,169
* Nabors Industries, Inc. 391,900 9,798
- ----------------------------------------------------
GROUP TOTAL 57,284
- ----------------------------------------------------
HEALTH CARE (7.4%)
* Biogen, Inc. 186,700 14,714
* Foundation Health Systems,
Inc., Class A 483,000 4,558
* Genentech, Inc. 65,000 9,510
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
10
<PAGE> 13
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)!
- ----------------------------------------------------
<S> <C> <C>
* Lincare Holdings, Inc. 683,400 $ 18,217
* MedImmune, Inc. 70,700 7,046
* MedQuist, Inc. 275,300 9,206
* MiniMed, Inc. 75,600 7,428
* VISX, Inc. 92,500 7,316
- ----------------------------------------------------
GROUP TOTAL 77,995
- ----------------------------------------------------
HEAVY INDUSTRY/TRANSPORTATION (7.7%)
Cintas Corp. 190,100 10,990
CNF Transportation, Inc. 186,300 6,940
* Dycom Industries, Inc. 271,100 11,437
* Fiserv, Inc. 334,387 10,868
General Dynamics Corp. 165,500 10,333
* Loral Space &
Communications Ltd. 372,600 6,404
* TMP Worldwide, Inc. 180,300 10,976
* United Rentals, Inc. 607,400 13,211
- ----------------------------------------------------
GROUP TOTAL 81,159
- ----------------------------------------------------
RETAIL (6.4%)
* Abercrombie & Fitch Co.,
Class A 190,100 6,476
* barnesandnoble.com, Inc. 357,500 6,904
* Cheap Tickets, Inc. 349,800 11,325
Dollar General Corp. 366,700 11,322
* eBay, Inc. 63,200 8,915
* eToys, Inc. 170,400 11,342
Tandy Corp. 207,500 10,725
- ----------------------------------------------------
GROUP TOTAL 67,009
- ----------------------------------------------------
TECHNOLOGY (27.5%)
Adobe Systems, Inc. 114,100 12,950
* ANTEC Corp. 162,700 8,643
* Applied Micro Circuits
Corp. 207,500 11,828
* At Home Corp., Class A 201,950 8,368
* Broadcom Corp., Class A 83,300 9,080
* Citrix Systems, Inc. 180,800 11,198
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)!
- ----------------------------------------------------
<S> <C> <C>
* General Instrument Corp. 173,700 $ 8,359
* Inktomi Corp. 94,900 11,391
* JDS Uniphase Corp. 178,600 20,327
* KLA-Tencor Corp. 161,900 10,524
Linear Technology Corp. 164,700 9,681
* Maxim Integrated Products,
Inc. 161,300 10,177
* Network Solutions Inc.,
Class A 126,600 11,631
* PMC-Sierra, Inc. 128,300 11,868
* PSINet, Inc. 248,900 8,953
* QLogic Corp. 109,900 7,679
* QUALCOMM, Inc. 90,000 17,027
* Rational Software Corp. 348,100 10,193
* Sapient Corp. 121,700 11,470
* Teradyne, Inc. 264,400 9,320
* USWeb Corp. 230,600 7,913
* Verio, Inc. 256,800 7,961
* VERITAS Software Corp. 150,300 11,413
* Xilinx, Inc. 180,900 11,855
* Yahoo Japan Corp. 40 14,618
* Yahoo! Inc. 74,919 13,457
- ----------------------------------------------------
GROUP TOTAL 287,884
- ----------------------------------------------------
UTILITIES (11.3%)
* Calpine Corp. 114,500 9,740
* Global Crossing Ltd. 633,040 16,776
* Globalstar
Telecommunications Ltd. 250,904 5,771
* McLeodUSA, Inc., Class A 479,800 20,421
* Nextel Communications,
Inc., Class A 152,600 10,348
* NEXTLINK Communications,
Inc., Class A 281,200 14,578
* VoiceStream Wireless Corp. 365,200 22,540
* Western Wireless Corp.,
Class A 398,300 17,861
- ----------------------------------------------------
GROUP TOTAL 118,035
- ----------------------------------------------------
TOTAL COMMON STOCKS (Cost $858,400) 985,425
- ----------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
11
<PAGE> 14
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
MID CAP GROWTH
PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(CONT'D) (000) (000)!
- ----------------------------------------------------
<S> <C> <C>
CASH EQUIVALENT (12.9%)
- ----------------------------------------------------
REPURCHASE AGREEMENT (12.9%)
Chase Securities, Inc. 5.20%,
dated 9/30/99, due 10/1/99,
to be repurchased at
$135,604, collateralized by
various U.S. Government
Obligations, due
10/1/99-8/15/01, valued at
$135,734 (Cost $135,584) $ 135,584 $ 135,584
- ----------------------------------------------------
TOTAL INVESTMENTS (106.9%) (Cost $993,984) 1,121,009
- ----------------------------------------------------
OTHER ASSETS AND LIABILITIES (-6.9%)
Cash 1,305
Dividends Receivable 150
Interest Receivable 20
Receivable for Investments Sold 14,415
Receivable for Fund Shares Sold 13,720
Other Assets 31
Payable for Investments Purchased (98,883)
Payable for Fund Shares Redeemed (1,423)
Payable for Investment Advisory Fees (1,145)
Payable for Administrative Fees (61)
Payable for Distribution Fees-Adviser
Class (51)
Payable for Trustees' Deferred
Compensation Plan-Note F (31)
Other Liabilities (85)
----------
(72,038)
- ----------------------------------------------------
NET ASSETS (100%) $1,048,971
- ----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)!
- ----------------------------------------------------
- ----------------------------------------------------
<S> <C> <C>
INSTITUTIONAL CLASS
- ----------------------------------------------------
NET ASSETS
Applicable to 30,484,235 outstanding
shares of beneficial interest
(unlimited authorization, no par
value) $ 785,659
- ----------------------------------------------------
NET ASSET VALUE PER SHARE $ 25.77
- ----------------------------------------------------
ADVISER CLASS
- ----------------------------------------------------
NET ASSETS
Applicable to 10,287,803 outstanding
shares of beneficial interest
(unlimited authorization, no par
value) $ 263,312
- ----------------------------------------------------
NET ASSET VALUE PER SHARE $ 25.59
- ----------------------------------------------------
NET ASSETS CONSIST OF:
Paid in Capital $ 729,758
Undistributed Net Investment Income
(Loss) 2
Undistributed Realized Net Gain (Loss) 192,186
Unrealized Appreciation (Depreciation)
on Investment Securities 127,025
- ----------------------------------------------------
NET ASSETS $1,048,971
- ----------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
! See Note A1 to Financial Statements.
* Non-income producing security
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
12
<PAGE> 15
PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
MID CAP VALUE PORTFOLIO
The Mid Cap Value Portfolio applies Miller Anderson & Sherrerd's value
investment philosophy to the medium-sized equity universe, combining fundamental
research with a disciplined, quantitative investment process. MAS generally
keeps sector weights within five percentage points of those of the S&P MidCap
400 Index, with strategic over- and under-weightings assigned to different
sectors based on their relative investment attractiveness. Decisions about
portfolio composition and structure are made by a team of MAS equity
professionals who specialize in the small- and mid-cap market segments.
MAS's investment process is driven chiefly by bottom-up considerations, although
broad macroeconomic trends that influence the outlook for certain industries are
taken into account during the decision-making process. As a value-oriented fund,
the Portfolio emphasizes stocks with below-average valuations. However, unlike
many value strategies, MAS's methodology also includes additional quality and
growth factors such as the expected future growth in earnings and dividends, the
recent pattern of earnings estimate revisions, and subjective judgments
regarding the quality of a company's business franchise. As a result, the
Portfolio will generally look similar to the S&P MidCap 400 Index in the quality
and growth characteristics of its holdings, while the overall valuation of the
Portfolio will generally be lower.
Mid-cap stocks, as represented by the S&P MidCap 400 Index, appreciated over 20%
during the twelve months ended September 30, 1999. This performance was
reflective of improving global economic conditions abroad and a better earnings
outlook for small- and mid-sized companies. The valuation gap between growth and
value stocks continued to approach record levels. MAS believes that an eventual
narrowing of this gap is possible, as an improving global economic environment
has had a positive impact on the earnings prospects for many small- and
mid-sized companies.
For the fiscal year, the Portfolio outperformed the S&P MidCap 400 Index by 395
basis points. Both stock selection and sector allocation decisions had a
positive impact on performance. Stock selection was strongest within the
technology, consumer services, telephone services, and energy sectors. Valassis
Communications, a top ten holding during the past fiscal year, was a strong
performer during the period, contributing nearly 100 basis points to the
Portfolio's outperformance. Although the Portfolio had less-than-index exposure
to technology during the year, stock selection within that sector also had a
positive effect on performance. During recent months, the investment team
increased the Portfolio's exposure to telephone services, and at fiscal
year-end, the Portfolio held an overweight position in that sector relative to
the S&P MidCap 400 Index. McLeod, Voicestream Wireless, and Western Wireless
were the top contributing stocks within the telephone services sector.
During the second half of the fiscal year, the Portfolio's greater-than-index
exposure to the energy sector, predominantly oil service companies, had a
favorable impact on performance. Top performing stocks within the energy sector
included Nabors Industries and Baker Hughes. Additionally, less-than-index
exposure to utilities, heavy industry, and basic resources enhanced Portfolio
performance. Finally, the decision to underweight technology stocks during the
period detracted from results, as did stock selection within health care.
13
<PAGE> 16
PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
[MAS Funds Mid Cap Value Line Chart]
<TABLE>
<CAPTION>
MAS MID CAP VALUE S&P MIDCAP 400
----------------- --------------
<S> <C> <C> <C> <C>
* 1000.00 1000.00
1107.00 1082.00
1217.00 1176.00
95 1345.00 1291.00
1327.00 1309.00
1446.00 1390.00
1545.00 1430.00
96 1645.00 1472.00
1868.00 1561.00
1873.00 1538.00
2202.00 1764.00
97 2655.00 2047.00
2608.00 2064.00
2923.00 2291.00
2867.00 2242.00
98 2471.00 1918.00
3026.00 2459.00
2914.00 2302.00
3431.00 2628.00
99 3199.00 2407.00
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS ENDED 9/30/99*
<TABLE>
<CAPTION>
MAS MID CAP VALUE
------------------------------------------------ S&P MIDCAP
INSTITUTIONAL - INVESTMENT = ADVISER + 400 INDEX
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One Year 29.44% 29.30% 29.12% 25.49%
Since Inception 27.73% 27.58% 27.67% 20.31%
</TABLE>
Total returns are net of all fees. Total returns represent past
performance and are not indicative of future results.
Small-capitalization stock prices have experienced a greater degree of
market volatility than those of large-capitalization companies.
The investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth
either more or less than their original cost.
- Represents an investment in the Institutional Class.
= Represents an investment in the Investment Class which commenced
operations 5/10/96. Total returns for periods beginning prior to this
date are based on the performance of the Institutional Class and do
not include the 0.15% Shareholder Servicing Fee applicable to the
Investment Class.
+ Represents an investment in the Adviser Class which commenced
operations 07/17/98. Total returns for periods beginning prior to
this date are based on the performance of the Institutional Class and
do not include the 0.25% 12b-1 Fee applicable to the Adviser Class.
It is expected that, over time, returns for the Adviser Class will be
lower than for the other classes due to the higher expenses charged.
Total returns for the Institutional and Investment Classes of the
Portfolio reflect expenses reimbursed by the Adviser for certain
periods. Without such waivers and/or reimbursements, total returns
would have been lower.
* The Mid Cap Value Portfolio commenced operations on 12/30/94. Total
returns are compared to the S&P MidCap 400 Index, an unmanaged market
index.
As of 9/30/99, the Portfolio's holdings in Valassis Communications,
McLeod, Voicestream Wireless, Western Wireless, Nabors Industries, and
Baker Hughes were 2.1%, 1.1%, 0.0%, 0.6%, 1.6%, and 0.1%, respectively.
14
<PAGE> 17
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
MID CAP VALUE
PORTFOLIO
STATEMENT OF NET ASSETS
COMMON STOCKS (88.4%)
<TABLE>
<CAPTION>
- -----------------------------------------------------
VALUE
SEPTEMBER 30, 1999 SHARES (000)!
- -----------------------------------------------------
<S> <C> <C>
BANKS (6.0%)
Charter One Financial, Inc. 179,760 $ 4,157
Comerica, Inc. 139,900 7,082
Dime Bancorp, Inc. 150,800 2,639
First Security Corp. 156,300 3,717
GreenPoint Financial Corp. 42,200 1,121
KeyCorp. 93,600 2,416
Marshall & Ilsley Corp. 53,400 3,047
Mellon Bank Corp. 316,000 10,665
Mercantile Bankshares Corp. 117,489 3,635
Old Kent Financial Corp. 78,750 2,924
Pacific Century Financial Corp. 9,400 192
SouthTrust Corp. 100,900 3,620
UnionBanCal Corp. 53,000 1,921
- -----------------------------------------------------
GROUP TOTAL 47,136
- -----------------------------------------------------
BASIC RESOURCES (4.2%)
AK Steel Holding Corp. 79,300 1,447
* American National Can Group,
Inc. 331,000 5,234
Barrick Gold Corp. 73,200 1,592
CK Witco Corp. 258,684 3,767
* Cytec Industries, Inc. 34,300 823
Engelhard Corp. 103,100 1,875
* Gaylord Container Corp., Class
A 581,500 4,143
Georgia-Pacific Corp. (Timber
Group) 64,900 1,485
Lubrizol Corp. 81,200 2,086
M.A. Hanna Co. 156,800 1,784
RPM, Inc. 149,600 1,823
USX-U.S. Steel Group, Inc. 140,600 3,621
* W.R. Grace & Co. 185,900 2,986
- -----------------------------------------------------
GROUP TOTAL 32,666
- -----------------------------------------------------
BEVERAGE & PERSONAL PRODUCTS (0.1%)
* Suiza Foods Corp. 20,700 776
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)!
- -----------------------------------------------------
- -----------------------------------------------------
<S> <C> <C>
CONSUMER DURABLES (4.2%)
Arvin Industries, Inc. 48,800 $ 1,510
Johnson Controls, Inc. 29,400 1,950
Meritor Automotive, Inc. 41,900 875
Southdown, Inc. 117,000 6,259
* SPX Corp. 113,900 10,336
* Tower Automotive, Inc. 627,200 12,426
- -----------------------------------------------------
GROUP TOTAL 33,356
- -----------------------------------------------------
CONSUMER SERVICES (8.6%)
* ACNielsen Corp. 219,100 4,971
* Bally Total Fitness Holding
Corp. 537,800 16,437
* Jones Intercable, Inc., Class
A 112,600 6,087
Royal Caribbean Cruises Ltd. 301,300 13,559
Service Corp. International 78,400 828
* Snyder Communications, Inc. 420,100 6,380
* Valassis Communications, Inc. 373,450 16,408
Washington Post Co., Class B 6,300 3,217
- -----------------------------------------------------
GROUP TOTAL 67,887
- -----------------------------------------------------
CREDIT & FINANCE/ INVESTMENT COMPANIES (2.6%)
Bear Stearns Co., Inc. 107,650 4,138
Edwards (A.G.), Inc. 28,600 754
FINOVA Group, Inc. 65,200 2,380
Heller Financial, Inc. 376,600 8,473
* Knight/Trimark Group, Inc.,
Class A 162,900 4,826
- -----------------------------------------------------
GROUP TOTAL 20,571
- -----------------------------------------------------
ENERGY (9.0%)
Baker Hughes, Inc. 34,100 989
* BJ Services Co. 178,300 5,672
Burlington Resources, Inc. 38,800 1,426
* Cooper Cameron Corp. 219,800 8,297
ENSCO International, Inc. 43,200 780
* Global Industries Ltd. 221,600 1,801
* Global Marine, Inc. 673,400 11,069
Halliburton Co. 92,000 3,772
* Nabors Industries, Inc. 511,300 12,782
* Ocean Energy, Inc. 743,360 7,573
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
15
<PAGE> 18
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
MID CAP VALUE
PORTFOLIO
<TABLE>
<CAPTION>
VALUE
(CONT'D) SHARES (000)!
- -----------------------------------------------------
<S> <C> <C>
* Precision Drilling Corp. 89,400 $ 2,073
* Smith International, Inc. 119,100 4,824
Tosco Corp. 232,200 5,863
Ultramar Diamond Shamrock Corp. 48,400 1,234
* Weatherford International,
Inc. 76,300 2,442
- -----------------------------------------------------
GROUP TOTAL 70,597
- -----------------------------------------------------
FOOD, TOBACCO & OTHER (2.5%)
Dean Foods Co. 29,200 1,272
Earthgrains Co. 202,200 4,474
* Fresh Del Monte Produce, Inc. 427,100 4,778
IBP, Inc. 152,400 3,762
Quaker Oats Co. 58,800 3,638
Tyson Foods, Inc., Class A 101,200 1,664
- -----------------------------------------------------
GROUP TOTAL 19,588
- -----------------------------------------------------
HEALTH CARE (8.2%)
Alpharma, Inc., Class A 153,900 5,435
* AmeriSource Health Corp.,
Class A 148,000 3,506
* Caremark Rx, Inc. 337,400 1,898
* Centocor, Inc. 88,800 5,200
* Gilead Sciences, Inc. 71,700 4,602
* Health Management Associates,
Inc., Class A 67,000 494
* Henry Schein, Inc. 432,600 6,165
ICN Pharmaceuticals, Inc. 400,700 6,887
* Lincare Holdings, Inc. 515,100 13,731
McKesson HBOC, Inc. 99,200 2,877
* STERIS Corp. 71,600 984
* Sybron International Corp. 132,200 3,553
Teva Pharmaceutical Industries
Ltd. ADR 77,600 3,904
* Ventiv Health, Inc. 32,233 318
* Watson Pharmaceuticals, Inc. 167,800 5,128
- -----------------------------------------------------
GROUP TOTAL 64,682
- -----------------------------------------------------
HEAVY INDUSTRY/TRANSPORTATION (9.5%)
Airborne Freight Corp. 25,800 543
* Atlas Air, Inc. 154,700 3,384
Canadian National Railway Co. 138,200 4,189
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)!
- -----------------------------------------------------
<S> <C> <C>
COMSAT Corp. 17,594 $ 521
Cummins Engine Co., Inc. 51,400 2,560
* Fiserv, Inc. 277,100 9,006
Flowserve Corp. 12,600 210
General Dynamics Corp. 83,800 5,232
Martin Marietta Materials, Inc. 282,100 11,266
* Navistar International Corp. 115,300 5,362
New Holland NV 620,100 9,922
* Newpark Resources, Inc. 68,200 529
* Republic Services, Inc., Class
A 307,900 3,348
Southwest Airlines Co. 97,425 1,480
Stewart & Stevenson Services,
Inc. 185,100 2,429
Tecumseh Products Co., Class A 61,200 3,068
Teekay Shipping Corp. 71,600 1,119
* United Rentals, Inc. 190,300 4,139
York International Corp. 179,900 6,465
- -----------------------------------------------------
GROUP TOTAL 74,772
- -----------------------------------------------------
INSURANCE (2.1%)
Allmerica Financial Corp. 40,400 1,924
Ambac Financial Group, Inc. 65,100 3,084
Aon Corp. 120,300 3,556
HSB Group, Inc. 54,100 1,904
ReliaStar Financial Corp. 130,000 4,322
Travelers Property Casualty
Corp., Class A 52,600 1,552
- -----------------------------------------------------
GROUP TOTAL 16,342
- -----------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (0.2%)
Crescent Real Estate Equities
Co. 87,200 1,570
- -----------------------------------------------------
RETAIL (6.5%)
* Ames Department Stores, Inc. 77,200 2,461
* Ann Taylor Stores, Inc. 92,000 3,760
* barnesandnoble.com, Inc. 86,300 1,667
* Barnes & Noble, Inc. 29,100 757
* Best Buy Co., Inc. 33,400 2,073
* BJ's Wholesale Club, Inc. 149,600 4,422
* Brinker International, Inc. 121,900 3,306
Dollar General Corp. 111,125 3,431
Family Dollar Stores, Inc. 111,600 2,358
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
16
<PAGE> 19
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)!
- -----------------------------------------------------
<S> <C> <C>
* Jones Apparel Group, Inc. 59,900 $ 1,722
* Kroger Co. 217,000 4,788
* ShopKo Stores, Inc. 77,600 2,250
* Sunglass Hut International,
Inc. 1,291,900 13,646
TJX Cos., Inc. 174,100 4,886
- -----------------------------------------------------
GROUP TOTAL 51,527
- -----------------------------------------------------
TECHNOLOGY (17.0%)
* ADC Telecommunications, Inc. 64,800 2,718
* Altera Corp. 330,000 14,314
* Analog Devices, Inc. 90,400 4,633
* Atmel Corp. 222,000 7,506
* Burr-Brown Corp. 48,200 1,904
* Complete Business Solutions,
Inc. 251,500 3,442
* Creo Products, Inc. 127,600 3,134
ECI Telecom Ltd. 250,200 6,177
* Electroglas, Inc. 88,300 2,064
* Electronics for Imaging, Inc. 52,200 2,683
First Data Corp. 96,400 4,230
* Flextronics International Ltd. 14,500 844
Galileo International, Inc. 213,600 8,597
* GoTo.com, Inc. 17,300 902
* Informix Corp. 184,700 1,466
* LTX Corp. 523,600 7,167
* National Semiconductor Corp. 244,100 7,445
* Network Associates, Inc. 416,600 7,967
* NetZero, Inc. 162,000 4,212
* NOVA Corp. 21,000 525
* Pinnacle Systems, Inc. 295,300 12,513
* PRI Automation, Inc. 82,300 2,973
* PSINet, Inc. 152,900 5,500
* Quantum Corp.-DLT & Storage
Systems 279,100 3,925
* Rational Software Corp. 225,400 6,600
* Saville Systems Ireland plc
ADR 170,300 2,501
* Sterling Software, Inc. 121,900 2,438
* SunGard Data Systems, Inc. 202,600 5,331
- -----------------------------------------------------
GROUP TOTAL 133,711
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)!
- -----------------------------------------------------
<S> <C> <C>
UTILITIES (7.7%)
Allegheny Energy, Inc. 87,700 $ 2,790
Black Hills Corp. 45,450 1,060
CMS Energy Corp. 32,600 1,106
Columbia Energy Group 98,700 5,466
Florida Progress Corp. 71,600 3,311
Illinova Corp. 69,900 1,962
IPALCO Enterprises, Inc. 66,800 1,298
* McLeodUSA, Inc., Class A 201,200 8,564
* MidAmerican Energy Holdings
Co. 168,300 4,965
New Century Energies, Inc. 76,800 2,568
PECO Energy Co. 69,000 2,588
Pinnacle West Capital Corp. 60,300 2,193
Potomac Electric Power Co. 217,600 5,535
PP&L Resources, Inc. 113,400 3,069
Public Service Enterprise Group,
Inc. 79,000 3,051
Texas Utilities Co. 128,100 4,780
* Western Wireless Corp., Class
A 103,300 4,632
* WinStar Communications, Inc. 31,800 1,242
- -----------------------------------------------------
GROUP TOTAL 60,180
- -----------------------------------------------------
TOTAL COMMON STOCKS (Cost $712,292) 695,361
- -----------------------------------------------------
CASH EQUIVALENT (10.0%)
- -----------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
---------
<S> <C> <C>
REPURCHASE AGREEMENT (10.0%)
Chase Securities, Inc., 5.20%,
dated 9/30/99, due 10/1/99, to
be repurchased at $78,650,
collateralized by various U.S.
Government Obligations, due
10/1/99-8/15/01, valued at
$78,726 (Cost $78,639) $78,639 78,639
- -----------------------------------------------------
TOTAL INVESTMENTS 98.4% (Cost $790,931) 774,000
- -----------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
17
<PAGE> 20
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
MID CAP VALUE
PORTFOLIO
<TABLE>
<CAPTION>
VALUE
(CONT'D) (000)!
- -----------------------------------------------------
<S> <C> <C>
OTHER ASSETS AND LIABILITIES (1.6%)
Cash $ 975
Dividends Receivable 297
Interest Receivable 11
Receivable for Investments Sold 18,123
Receivable for Fund Shares Sold 13,269
Other Assets 16
Payable for Investments Purchased (17,480)
Payable for Fund Shares Redeemed (716)
Payable for Investment Advisory Fees (1,497)
Payable for Administrative Fees (51)
Payable for Shareholder Servicing
Fees-Investment Class (3)
Payable for Distribution Fees-Adviser Class (8)
Payable for Trustees' Deferred Compensation
Plan-Note F (16)
Other Liabilities (72)
--------
12,848
- -----------------------------------------------------
NET ASSETS (100%) $786,848
- -----------------------------------------------------
INSTITUTIONAL CLASS
- -----------------------------------------------------
NET ASSETS
Applicable to 32,959,634 outstanding shares
of beneficial interest (unlimited
authorization, no par value) $721,015
- -----------------------------------------------------
NET ASSET VALUE PER SHARE $ 21.88
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)!
- -----------------------------------------------------
<S> <C> <C>
INVESTMENT CLASS
- -----------------------------------------------------
NET ASSETS
Applicable to 1,155,935 outstanding shares
of beneficial interest (unlimited
authorization, no par value) $ 25,197
- -----------------------------------------------------
NET ASSET VALUE PER SHARE $ 21.80
- -----------------------------------------------------
ADVISER CLASS
- -----------------------------------------------------
NET ASSETS
Applicable to 1,858,576 outstanding shares
of beneficial interest (unlimited
authorization, no par value) $ 40,636
- -----------------------------------------------------
NET ASSET VALUE PER SHARE $ 21.86
- -----------------------------------------------------
NET ASSETS CONSIST OF:
Paid in Capital $700,069
Undistributed Net Investment Income (Loss) 3,056
Undistributed Realized Net Gain (Loss) 100,654
Unrealized Appreciation (Depreciation) on
Investment Securities (16,931)
- -----------------------------------------------------
NET ASSETS $786,848
- -----------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
! See Note A1 to Financial Statements.
* Non-income producing security
ADR American Depositary Receipt
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
18
<PAGE> 21
PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO
The Fixed Income Portfolio is the core offering of the MAS Funds fixed-income
portfolios. Securities in this Portfolio include U.S. government bonds,
corporate bonds, mortgages, non-dollar bonds, and other fixed-income securities.
The Portfolio is actively managed by Miller Anderson & Sherrerd's fixed-income
team, which makes strategic decisions about portfolio structure and composition.
MAS has three major objectives for fixed-income investing. The first is to
provide investors with a positive real return--a total return including income
and capital gains that is greater than the rate of inflation. The second is to
help diversify equity-oriented strategies in other areas of clients' investment
programs. The third is to provide a hedge against a prolonged, severe economic
contraction. In order to provide this hedge, the Portfolio maintains high
average credit quality and includes a significant portion of noncallable and
longer-maturity securities. This positions the Portfolio to perform well when
other market sectors experience poor returns.
There are five key decisions that the fixed-income team makes in building the
Portfolio. The first decision relates to the amount of interest-rate risk in the
Portfolio. Bond values generally increase when interest rates fall and decrease
when interest rates rise. Consequently, there are times when it is better to
bear more interest-rate risk than others. MAS bases the interest-rate risk
decision on the level of real interest rates and the steepness of the yield
curve, tempered by a strategic view about economic growth and the prospects for
inflation. When real rates are high and longer-maturity bonds have significantly
higher yields than short-term bonds, historically MAS has found it to be an
attractive time to have an above-benchmark level of interest-rate sensitivity.
The second decision involves determining which maturities offer the best value
relative to their risk. Third, the team considers which fixed-income markets
around the world offer the best value, on an opportunistic basis; relative real
interest rates, the steepness of U.S. and foreign yield curves, and judgments
about currency values drive this decision. The fourth decision relates to how
much credit risk the Portfolio should bear. MAS's research shows that a
diversified approach toward owning corporate bonds enhances overall portfolio
returns. The Portfolio includes a limited number of opportunistically-selected
bonds that are rated below investment grade.
Finally, MAS actively manages the amount of prepayment risk, or call risk,
within the Portfolio. Most mortgages and some corporate bonds contain an option
to prepay the principal amount prior to maturity. As a result, these bonds have
higher yields, and MAS's fixed-income team calculates whether this additional
yield is sufficient to compensate for the embedded option risk.
The Portfolio's long-term record reflects successful judgments about these key
decisions. Despite a difficult market environment during the past fiscal year,
the Portfolio outperformed its benchmark by 60 basis points. Yields on U.S.
Treasuries increased during this period due to improving global economic
conditions and renewed inflation fears. While high levels of real interest rates
justified the Portfolio's above-benchmark interest-rate risk strategy during the
1999 calendar year, this decision had an unfavorable effect on relative
performance due to the aforementioned rise in interest rates. Higher rates also
had an adverse impact on other fixed-income sectors, yet most corporate and
mortgage-backed securities outperformed Treasuries during the period. The
decision to overweight these non-Treasury sectors, especially yankee issues, and
an opportunistic allocation to below investment-grade securities, had a very
favorable impact on the Portfolio's relative returns. A modest yield-curve
strategy, designed to benefit from a narrowing of the yield spread between
short- and long-maturities, had a favorable effect on returns, and was
eventually removed. A position in inflation-indexed Treasuries (TIPS) also had a
favorable impact on relative performance, as these securities outperformed
nominal Treasuries. The allocation to non-dollar bonds was zero for the entire
fiscal year, as it remained difficult to identify superior opportunities among
high-quality non-dollar securities.
19
<PAGE> 22
PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
[MAS Funds Fixed Income Performance Graph]
<TABLE>
<CAPTION>
MAS FUNDS FIXED INCOME SALOMON BROAD
---------------------- -------------
<S> <C> <C>
89 1000.00 1000.00
1032.00 1037.00
1011.00 1029.00
1053.00 1066.00
90 1038.00 1076.00
1106.00 1131.00
1149.00 1161.00
1169.00 1182.00
91 1257.00 1249.00
1343.00 1312.00
1315.00 1297.00
1380.00 1349.00
92 1437.00 1407.00
1457.00 1411.00
1525.00 1470.00
1581.00 1511.00
93 1642.00 1551.00
1660.00 1551.00
1608.00 1508.00
1565.00 1493.00
94 1570.00 1501.00
1568.00 1507.00
1645.00 1583.00
1738.00 1680.00
95 1792.00 1712.00
1867.00 1786.00
1862.00 1755.00
1885.00 1764.00
96 1929.00 1797.00
2004.00 1851.00
2002.00 1841.00
2082.00 1908.00
97 2150.00 1971.00
2197.00 2029.00
2234.00 2062.00
2271.00 2110.00
98 2320.00 2197.00
2348.00 2206.00
2355.00 2196.00
2317.00 2176.00
99 2328.00 2191.00
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS ENDED 9/30/99*
<TABLE>
<CAPTION>
MAS FIXED INCOME
------------------------------------------------ SALOMON
INSTITUTIONAL - INVESTMENT = ADVISER + BROAD INDEX
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One Year 0.33% 0.24% 0.07% (0.27)%
Five Years 8.20% 8.11% 8.04% 7.86%
Ten Years 8.82% 8.77% 8.73% 8.16%
</TABLE>
Total returns are net of all fees. Total returns represent past
performance and are not indicative of future results.
The investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth
either more or less than their original cost.
- Represents an investment in the Institutional Class.
= Represents an investment in the Investment Class which commenced
operations 10/15/96. Total returns for periods beginning prior to
this date are based on the performance of the Institutional Class and
do not include the 0.15% Shareholder Servicing Fee applicable to the
Investment Class.
+ Represents an investment in the Adviser Class which commenced
operations 11/7/96. Total returns for periods beginning prior to this
date are based on the performance of the Institutional Class and do
not include the 0.25% 12b-1 Fee applicable to the Adviser Class.
Total returns for the Investment and Adviser Classes of the Portfolio
reflect expenses reimbursed by the Adviser for certain periods. Without
such reimbursements, total returns would have been lower.
* Total returns are compared to the Salomon Broad Investment Grade
Index, an unmanaged market index.
20
<PAGE> 23
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
FIXED INCOME
PORTFOLIO
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (130.5%)
<TABLE>
<CAPTION>
- --------------------------------------------------------
!!RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 1999 & POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
AGENCY FIXED RATE MORTGAGES (68.4%)
Federal Home Loan
Mortgage Corporation,
Conventional Pools:
9.50%,
10/1/16-10/1/17 Agy $ 1,299 $ 1,391
10.00%,
2/1/10-3/1/21 Agy 18,068 19,521
10.50%,
8/1/19-4/1/26 Agy 3,200 3,510
11.00%,
5/1/11-9/1/20 Agy 3,136 3,499
11.25%,
10/1/11-12/1/15 Agy 1,155 1,288
11.50%,
1/1/11-12/1/15 Agy 138 155
11.75%, 4/1/19 Agy 56 63
12.00%,
10/1/09-2/1/15 Agy 241 270
12.50%, 8/1/13 Agy 18 20
13.00%, 6/1/19 Agy 31 35
14.00%, 8/1/14 Agy 10 11
14.75%, 3/1/10 Agy 19 21
Gold Pools:
9.00%, 7/1/17 Agy 6,652 7,056
9.50%,
1/1/21-12/1/22 Agy 7,538 8,102
10.00%,
6/1/17-10/1/20 Agy 2,618 2,844
October TBA
6.00%, 10/1/29 Agy 738,025 688,821
Federal National
Mortgage Association,
Conventional Pools:
6.00%, 4/1/29 Agy 340,278 317,792
9.00%,
12/1/08-1/1/22 Agy 19,282 20,397
9.50%,
11/1/13-12/1/26 Agy 15,097 16,211
10.00%,
10/1/07-1/1/27 Agy 11,039 11,970
10.50%,
6/1/10-7/1/25 Agy 6,807 7,472
10.75%, 2/1/11 Agy 36 40
11.00%,
1/1/16-11/1/20 Agy 2,670 2,984
11.50%,
7/15/12-2/1/20 Agy 3,151 3,557
12.00%,
8/1/13-4/1/15 Agy 91 104
12.50%, 5/1/12 Agy 653 747
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- --------------------------------------------------------
- --------------------------------------------------------
<S> <C> <C> <C>
October TBA
6.00%, 10/1/29 Agy $808,975 $ 754,409
November TBA
6.00%, 11/1/29 Agy 207,375 193,193
6.50%, 11/1/29 Agy 130,000 124,509
Government National
Mortgage Association:
Adjustable Rate Mortgages:
6.125%,
10/20/27-12/20/27 Tsy 60,802 61,105
6.375%,
2/20/25-6/20/25 Tsy 60,549 61,031
6.50%, 1/20/28 Tsy 6,924 6,959
6.625%,
7/20/27-9/20/27 Tsy 22,090 22,281
6.875%,
1/20/25-6/20/25 Tsy 26,804 27,023
7.00%,
2/20/25-11/20/25 Tsy 13,529 13,650
7.125%, 7/20/25 Tsy 10,554 10,654
Various Pools:
9.00%,
12/15/21-11/15/24 Tsy 26,496 28,072
9.50%,
12/15/17-9/15/22 Tsy 18,097 19,456
10.00%,
11/15/09-10/15/28 Tsy 144,186 156,709
10.50%,
8/15/10-5/15/26 Tsy 12,788 14,071
11.00%,
12/15/09-4/15/28 Tsy 32,075 35,909
11.50%,
4/15/13-9/20/19 Tsy 779 869
12.00%,
4/15/12-11/15/19 Tsy 14,449 16,483
October TBA
7.00%, 10/15/29 Tsy 435,250 427,154
- --------------------------------------------------------
GROUP TOTAL 3,091,418
- --------------------------------------------------------
ASSET BACKED CORPORATES (21.4%)
Advanta Mortgage Loan Trust,
Series:
97-3 A2
6.61%, 4/25/12 AAA 1,225 1,221
97-4 A2
6.53%, 9/25/12 AAA 6,546 6,523
(+) Aegis Auto
Receivables Trust,
Series 95-1 A
8.60%, 3/20/02 N/R 26 26
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
21
<PAGE> 24
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
FIXED INCOME
PORTFOLIO
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
Arcadia Automobile
Receivables Trust,
Series:
97-C A4
6.375%, 1/15/03 AAA $ 15,510 $ 15,501
97-D A3
6.20%, 5/15/03 AAA 9,331 9,317
98-A A3
5.90%, 11/15/02 AAA 15,070 15,027
Banc One Home Equity
Trust,
Series 99-1 A1
6.06%, 1/25/12 AAA 16,995 16,865
BankBoston Home
Equity Loan Trust,
Series 98-2 A1
6.28%, 11/25/10 AAA 12,643 12,593
BMW Vehicle Owner
Trust, Series 99-A
A2
6.16%, 12/25/01 AAA 22,850 22,840
Centex Home Equity,
Series 99-2 A1
5.91%, 4/25/19 AAA 32,316 32,049
Chevy Chase Auto
Receivables Trust,
Series 97-4 A
6.25%, 6/15/04 AAA 2,817 2,814
CIT RV Trust, Series
99-A A1
5.33%, 12/15/05 AAA 30,241 30,099
## Citibank Credit
Card Master Trust
I,
Series 98-7 A
5.279%, 5/15/02 AAA 35,805 35,782
COMED Transitional
Funding Trust,
Series 98-1 A1
5.38%, 3/25/02 AAA 13,031 12,993
(+)++ Commercial Financial
Services, Inc.,
Series 97-5 A1
7.72%, 6/15/05 N/R 8,100 2,025
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
Contimortgage Home
Equity Loan Trust,
Series 99-1 A1
6.01%, 12/25/13 AAA $ 19,944 $ 19,784
Daimler Benz Auto
Grantor Trust,
Series 97-A A
6.05%, 3/31/05 AAA 4,659 4,652
Daimler Benz Vehicle Trust,
Series 98-A A2
5.23%, 12/20/01 AAA 21,000 20,935
Delta Funding Home
Equity Loan Trust,
Series 98-4 A1F
6.16%, 2/15/16 AAA 10,203 10,166
EQCC Home Equity
Loan Trust,
Series:
98-2 A1F
6.235%, 4/15/08 AAA 8,914 8,890
99-2 A1F
6.05%, 1/25/10 AAA 21,577 21,445
99-3 A1F
6.548%, 4/25/10 AAA 37,765 37,648
Federal Home Loan Mortgage Corp.
Pass Through Notes, Series
T-15 A1
5.83%, 12/25/13 Agy 15,492 15,407
(+) First Mortgage
Acceptance Corp.
Loan Receivables
Trust,
Series 96-B A1
7.629%, 11/1/18 A 8,023 7,221
First Security Auto
Grantor Trust,
Series 97-B A
6.10%, 4/15/03 AAA 8,320 8,311
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
22
<PAGE> 25
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
First Security Auto
Owner Trust,
Series:
98-1 A2
5.182%, 6/15/01 AAA $ 10,714 $ 10,699
99-2 A2
5.492%, 5/15/02 AAA 14,735 14,679
## First USA Credit
Card Master Trust,
Series 97-10 A
5.471%, 9/17/03 AAA 25,270 25,254
Ford Credit Auto
Owner Trust,
Series:
97-B A3
6.05%, 4/15/01 AAA 11,117 11,117
98-A A3
5.65%, 10/15/01 AAA 26,253 26,193
99-C A3
5.77%, 11/15/01 AAA 46,300 46,127
99-D A3
6.20%, 4/15/02 AAA 48,000 47,987
(+)++ Global Rated
Eligible Asset
Trust, Series 98-A
A1
7.45%, 3/15/06 N/R 7,241 1,810
Green Tree Financial Corp.,
Series 99-4 A2
5.97%, 5/1/31 AAA 22,240 22,187
Green Tree Home
Equity Loan Trust,
Series:
99-A A1
5.59%, 2/15/13 AAA 18,800 18,745
99-C A1
5.99%, 7/15/30 AAA 36,807 36,731
+ Green Tree Home
Improvement Loan
Trust,
Series 98-E HEA2
5.83%, 2/15/12 Aaa 14,213 14,183
Green Tree Lease Finance,
Series 97-1 A3
6.17%, 9/20/05 AAA 905 904
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
Greenpoint
Manufactured
Housing,
Series 99-1 A1
5.78%, 12/15/09 AAA $ 20,062 $ 19,844
Honda Auto Lease Trust, Series
99-A A2
5.875%, 10/15/01 AAA 28,075 28,026
Honda Auto Receivables
Grantor Trust,
Series:
97-A A
5.85%, 2/15/03 AAA 16,727 16,677
97-B A
5.95%, 5/15/03 AAA 6,829 6,809
IMC Home Equity
Loan Trust,
Series:
98-1 A2
6.31%, 12/20/12 AAA 17,212 17,153
98-3 A2
6.27%, 11/20/13 AAA 2,173 2,173
## IndyMac Home
Equity Loan, Series
98-A AF1
5.47%, 9/25/20 AAA 12,180 12,167
(+) Long Beach
Acceptance Auto
Grantor Trust,
Series 97-2 A
6.69%, 9/25/04 AAA 5,118 5,101
MMCA Automobile Trust, Series
97-1 A3
6.06%, 5/15/01 AAA 270 270
(+) National Car
Rental Financing
Ltd.,
Series 96-1 A4
7.35%, 10/20/03 N/R 12,275 12,262
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
23
<PAGE> 26
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
FIXED INCOME
PORTFOLIO
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
Nissan Auto Receivables Grantor
Trust,
Series 97-A A
6.15%, 2/15/03 AAA $ 8,681 $ 8,675
Nissan Auto Receivables Owner
Trust,
Series 99-A A2
6.12%, 9/15/03 AAA 35,000 34,914
Oakwood Mortgage
Investors Inc.,
Series:
97-A A2
6.40%, 5/15/27 AAA 415 414
+ 99-B A1
5.023%, 5/15/09 Aaa 35,685 35,645
Premier Auto Trust,
Series 99-3 A2
5.82%, 2/8/02 AAA 3,450 3,440
Provident Bank Home
Equity Loan Trust,
Series 98-4 A1
6.28%, 11/25/13 AAA 13,732 13,677
(+) Rental Car Finance Corp.,
Series 97-1 A2
6.45%, 8/25/05 AA 21,260 20,830
Salomon Brothers
Mortgage Securities
VII,
Series 98-NC7 A1
6.063%, 1/25/29 AAA 12,200 12,138
(+) Team Fleet Financing Corp.,
Series:
96-1 A
6.65%, 12/15/02 A- 6,500 6,456
97-1 A
7.35%, 5/15/03 A- 5,775 5,817
WFS Financial Owner Trust,
Series:
97-C A3
6.10%, 3/20/02 AAA 6,771 6,767
98-C A2
5.524%, 8/20/01 AAA 24,743 24,697
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
World Omni Automobile
Lease
Securitization
Corp., Series 97-B
A2
6.08%, 11/25/03 AAA $ 25,805 $ 25,798
- --------------------------------------------------------
GROUP TOTAL 966,500
- --------------------------------------------------------
ASSET BACKED MORTGAGES (0.1%)
Cityscape Home Equity Loan
Trust,
Series:
96-3 A IO
1.00%, 10/25/26 N/R 82,024 1,600
(+) 96-3 A YMA
10/25/26 N/R 82,024 84
Contimortgage Home
Equity Loan Trust,
Series:
96-4 A11 I IO
1.10%, 1/15/28 AAA 53,603 1,120
(+) 96-4 A11 I YMA
1/15/28 AAA 53,603 69
96-4 A12 I IO
1.05%, 1/15/28 AAA 11,123 247
(+) 96-4 A12 I YMA
1/15/28 AAA 11,123 12
97-1 A10 I IO
1.10%, 3/15/28 AAA 66,900 1,432
97-1 A10 I YMA
3/15/28 N/R 66,900 84
- --------------------------------------------------------
GROUP TOTAL 4,648
- --------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
24
<PAGE> 27
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS-AGENCY COLLATERAL
SERIES (2.7%)
Federal Home Loan
Mortgage Corporation,
Series:
1398-I Inv Fl
11.564%, 10/15/07 Agy $ 2,451 $ 2,694
1415-S Inv Fl IO
20.063%, 11/15/07 Agy 1,630 563
1476-S Inv Fl IO
REMIC PAC
4.746%, 2/15/08 Agy 17,605 1,616
1485-S Inv Fl IO
REMIC
4.163%, 3/15/08 Agy 14,645 980
1600-SA Inv Fl IO
REMIC
2.563%, 10/15/08 Agy 32,817 1,378
1950 Inv FI IO
2.563%, 10/15/22 Agy 4,806 261
E2 F
5.988%, 2/15/24 Agy 51 51
Federal National Mortgage
Association,
Series:
90-118 S Inv Fl
REMIC
30.36%, 9/25/20 Agy 631 935
92-186 S Inv Fl IO
3.75%, 10/25/07 Agy 29,638 2,075
96-14 PC PO
12/25/23 Agy 852 582
96-68 SC Inv Fl IO
REMIC
2.694%, 1/25/24 Agy 11,400 967
97-30 SI Inv Fl IO
2.594%, 7/25/22 Agy 3,664 201
97-57 PV IO
8.00%, 9/18/27 Agy 22,729 8,078
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
## 97-70 FA REMIC,
(PAC) 11
5.856%, 7/18/20 Agy $ 6,004 $ 6,012
## 98-22 FA REMIC
5.781%, 4/18/22 Agy 19,081 19,007
99-42 SA Inv Fl IO
2.818%, 10/25/28 Agy 197,183 9,997
186 IO
8.00%, 8/1/27 Agy 31,183 8,541
191 IO
8.00%, 1/1/28 Agy 20,589 5,841
270 2 IO
8.50%, 9/1/23 Agy 45,507 12,223
274 2 IO
8.50%, 10/1/25 Agy 5,646 1,512
275 2 IO
8.00%, 11/1/26 Agy 18,943 5,106
281 2 IO
9.00%, 11/1/26 Agy 8,161 2,048
291 2 IO
8.00%, 11/1/27 Agy 39,535 11,008
296 2 IO
8.00%, 4/1/24 Agy 38,666 10,397
G92-53 S Inv Fl IO
REMIC
34.594%, 9/25/22 Agy 1,127 812
G99-34 SC Inv Fl IO
REMIC
3.22%, 9/16/19 Agy 77,348 4,857
First Boston Mortgage
Securities Corp.,
Series 87-B2 IO
8.985%, 4/25/17 AAA 31 7
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
25
<PAGE> 28
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
FIXED INCOME
PORTFOLIO
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
Government National Mortgage
Association,
Series:
96-12 S Inv Fl IO
REMIC
3.063%, 6/16/26 Tsy $ 969 $ 59
96-13 S Inv Fl IO
REMIC
3.713%, 7/16/11 Tsy 445 31
96-17 S Inv Fl IO
REMIC
3.113%, 8/16/26 Tsy 1,541 97
99-32 Inv Fl IO
REMIC
2.75%, 7/16/27 Tsy 90,500 4,498
+ Kidder Peabody Mortgage Assets
Trust, Series 87 B IO CMO
9.50%, 4/22/18 Aaa 43 279
- --------------------------------------------------------
GROUP TOTAL 122,713
- --------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-
NON-AGENCY COLLATERAL SERIES (0.4%)
American Housing
Trust, Series V 1G
9.125%, 4/25/21 AAA 3,648 3,812
+ Citicorp Mortgage
Securities, Inc.,
Series 90-7 A7
9.50%, 6/25/05 Baa3 38 38
sec.## Kidder Peabody
Funding Corp.,
Series 92-4 B2
8.285%, 5/28/22
(acquired 8/5/92-
3/17/99, cost
$3,566) N/R 3,568 3,373
## Morserv, Inc.
Series 96-2 1A1
6.189%, 11/25/26 AAA 10,722 10,695
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
Rural Housing Trust,
Series 87-1 B1
REMIC
3.33%, 10/1/28 A- $ 464 $ 460
- --------------------------------------------------------
GROUP TOTAL 18,378
- --------------------------------------------------------
COMMERCIAL MORTGAGES (1.8%)
Asset Securitization Corp.,
Series:
96-MD6 A1B
6.88%, 11/13/26 AAA 125 124
96-MD6 A1C
7.04%, 11/13/26 AAA 8,005 7,869
+## 97-D5 PS1 IO
1.59%, 2/14/41 Aaa 91,562 8,198
(+) Beverly Finance
Corp., Series 94-1
8.36%, 7/15/04 AA- 125 129
(+) Carousel Center
Finance, Inc.,
Series:
1 A1
6.828%, 11/15/07 AA 6,090 6,026
1 C
7.527%, 10/15/07 BBB+ 4,227 4,209
(+) Creekwood Capital
Corp.,
Series 95-1A
8.47%, 3/16/15 AA 5,196 5,461
(+) Crystal Run
Property, Inc.,
Series A
7.393%, 8/15/11 AA 12,305 12,314
(+) DLJ Mortgage Acceptance
Corp.,
Series 97-CF1 S IO
1.097%, 3/15/17 AAA 72,108 3,184
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
26
<PAGE> 29
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
+## GMAC Commercial Mortgage
Securities, Inc.,
Series:
96-C1 X2 IO
1.85%, 3/15/21 Aaa $ 31,426 $ 2,071
97-C2 X IO
1.202%, 4/15/27 Aaa 153,344 9,415
+## GS Mortgage Securities Corp.
II, Series 97-GL X2 IO
0.93%, 7/13/30 Aaa 36,089 1,458
Nomura Asset
Securities Corp.,
Series:
94-MD1 A1B
7.526%, 3/15/18 N/R 186 185
## 94-MD1 A2
7.862%, 3/15/18 N/R 65 66
94-MD1 A3
8.026%, 3/15/18 N/R 4,239 4,338
(+) Park Avenue Finance Corp.,
Series 97-C1 A1
7.58%, 5/12/07 N/R 11,005 11,030
(+) Prime Property Fund,
Series 1 A
6.633%, 7/23/03 AA 4,661 4,585
## Structured Asset
Securities Corp.,
Series:
96-CFL X1 IO
1.573%, 2/25/28 N/R 35,323 1,827
96-CFL X1A IO
1.096%, 2/25/28 N/R 28,060 289
96-CFL X2 IO
1.159%, 2/25/28 N/R 11,513 241
- --------------------------------------------------------
GROUP TOTAL 83,019
- --------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
ENERGY (0.2%)
(+) Excel Paralubes
Funding
7.43%, 11/1/15 A- $ 6,870 $ 6,444
(d)Mobile Energy
Services
8.665%, 1/1/17 D 8,204 2,174
- --------------------------------------------------------
GROUP TOTAL 8,618
- --------------------------------------------------------
FINANCE (8.5%)
(+) Anthem Insurance Cos., Inc.,
Series A
9.00%, 4/1/27 BBB+ 10,520 10,138
Associates Corp. of
North America
6.95%, 11/1/18 AA- 3,300 3,111
BankAmerica Capital Corp.
5.875%, 2/15/09 A+ 4,990 4,560
(+) BankAmerica
Institutional,
Series A
8.07%, 12/31/26 A- 18,105 17,522
(+) BT Institutional
Capital Trust,
Series A
8.09%, 12/1/26 A 15,685 14,909
Chase Manhattan Corp.
6.00%, 2/15/09 A 9,230 8,507
EOP Operating LP
6.763%, 6/15/07 BBB 4,015 3,759
6.80%, 1/15/09 BBB 4,390 4,068
7.25%, 6/15/28 BBB 2,385 2,073
7.50%, 4/19/29 BBB 8,890 7,959
Equitable Companies, Inc.
6.50%, 4/1/08 A 10,680 10,159
(+) Equitable Life
Assurance Society
of the U.S.,
Series 1A
6.95%, 12/1/05 A 17,222 16,883
(+) Farmers Exchange Capital
7.05%, 7/15/28 A+ 11,325 9,870
(+) Farmers Insurance
Exchange
8.625%, 5/1/24 A+ 15,855 16,441
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
27
<PAGE> 30
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
FIXED INCOME
PORTFOLIO
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
(+) First Chicago NBD Corp.,
Series A
7.95%, 12/1/26 A- $ 10,740 $ 10,224
First Union
Institutional
Capital I
8.04%, 12/1/26 BBB+ 18,345 17,602
First Union National Bank
6.50%, 12/1/28 A 1,880 1,591
(+) Florida Property
& Casualty
7.375%, 7/1/03 A- 8,205 8,207
(+) Florida Windstorm
6.70%, 8/25/04 A- 4,435 4,334
Golden State Holdings
Escrow Corp.
7.125%, 8/1/05 BB+ 17,095 15,881
HMH Properties,
Series A
7.875%, 8/1/05 BB 16,665 15,332
Household Finance Corp.
5.875%, 2/1/09 A 15,990 14,436
Lehman Brothers
Holdings
8.50%, 8/1/15 A 5,585 5,746
(+) Metropolitan Life
Insurance Co.
7.45%, 11/1/23 A+ 14,235 13,023
7.80%, 11/1/25 A+ 6,845 6,754
Nationsbank Corp.
6.80%, 3/15/28 A 6,270 5,622
(+) Nationwide Mutual
Life Insurance Co.
7.50%, 2/15/24 A+ 19,125 17,404
(+) New England
Mutual,
Series DTC
7.875%, 2/15/24 A+ 1,000 995
(+) New York Life Insurance Co.
7.50%, 12/15/23 AA- 6,105 5,615
PNC Funding Corp.
6.125%, 2/15/09 BBB+ 6,240 5,716
(+) PNC Institutional Capital,
Series A
7.95%, 12/15/26 BBB+ 16,940 16,005
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
(+) Prime Property
Funding II
6.80%, 8/15/02 A $ 11,420 $ 11,239
7.00%, 8/15/04 A 8,240 7,999
(+) Prudential Insurance Co.
8.30%, 7/1/25 A 18,575 19,447
Washington Mutual
Capital I
8.375%, 6/1/27 BBB- 7,150 7,002
Washington Mutual,
Inc.
Series A
8.206%, 2/1/27 BBB- 9,475 9,111
(+) World Financial
Properties,
Series:
96 WFP-B
6.91%, 9/1/13 AA- 10,251 9,879
96 WFP-D
6.95%, 9/1/13 AA- 25,245 24,235
- --------------------------------------------------------
GROUP TOTAL 383,358
- --------------------------------------------------------
INDUSTRIALS (10.6%)
Albertson's, Inc.
7.45%, 8/1/29 A 19,020 18,882
Allied Waste
Industries, Inc.
7.40%, 9/15/35 A- 16,235 11,937
American Standard
Cos.
7.375%, 4/15/05 BB- 4,480 4,242
Columbia/HCA
Healthcare Corp.
7.19%, 11/15/15 BB+ 9,615 7,752
7.58%, 9/15/25 BB+ 10,125 8,085
7.69%, 6/15/25 BB+ 2,235 1,835
8.70%, 2/10/10 BB+ 1,355 1,294
9.00%, 12/15/14 BB+ 6,215 5,976
Comcast Cable
Communications
6.20%, 11/15/08 BBB 14,570 13,379
Conoco, Inc.
6.95%, 4/15/29 A- 21,765 20,228
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
28
<PAGE> 31
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
Continental Airlines,
Series 97-1 A
7.461%, 4/1/15 AA+ $ 4,430 $ 4,361
Cox Communications, Inc.
6.80%, 8/1/28 BBB+ 3,745 3,271
CSC Holdings, Inc.
7.25%, 7/15/08 BB+ 1,215 1,165
7.875%, 12/15/07 BB+ 17,305 17,276
Delphi Automotive
Systems
7.125%, 5/1/29 BBB 20,640 18,667
DR Structured Finance,
Series:
93-K1 A1
6.66%, 8/15/10 BB+ 9,113 8,326
93-K1 A2
7.43%, 8/15/18 BB+ 480 423
94-K1 A1
7.60%, 8/15/07 BB+ 5,600 5,437
94-K2 A2
9.35%, 8/15/19 BB+ 3,790 3,781
Enron Corp.
6.95%, 7/15/28 BBB+ 13,725 12,110
Federated Department
Stores, Inc.
6.90%, 4/1/29 BBB+ 18,570 16,516
(+) Florida Windstorm
7.125%, 2/25/19 AAA 18,345 17,254
Ford Motor Co.
6.625%, 10/1/28 A 20,060 17,867
Fred Meyer, Inc.
7.375%, 3/1/05 BBB- 12,275 12,271
7.45%, 3/1/08 BBB- 3,795 3,764
Host Marriott LP
8.375%, 2/15/06 BB 700 658
International Game
Technology
8.375%, 5/15/09 BB+ 11,170 10,691
Kmart Funding Corp.,
Series F
8.80%, 7/1/10 BB+ 7,540 7,615
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
Lenfest Communications, Inc.
7.625%, 2/15/08 BB+ $ 13,120 $ 13,074
8.375%, 11/1/05 BB+ 14,810 15,373
Lowe's Companies,
Inc.
6.50%, 3/15/29 A 23,215 20,130
(+) Monsanto Co.
6.60%, 12/1/28 A 22,710 19,842
News America Holdings
7.75%, 2/1/24 BBB- 3,296 3,117
8.875%, 4/26/23 BBB- 830 882
News America, Inc.
7.28%, 6/30/28 BBB- 18,925 16,877
(+) Oxymar
7.50%, 2/15/16 BBB- 5,965 4,512
# Rhone-Poulenc Rorer, Inc.,
Series 92-A 3
8.62%, 1/5/21 BBB- 8,140 8,103
(+) Rohm & Haas Co.
7.85%, 7/15/29 A- 11,680 11,895
Saks, Inc.
7.375%, 2/15/19 BB+ 11,180 9,508
Scotia Pacific Co.
LLC
7.71%, 7/20/28 BBB 27,115 18,980
Sun Microsystems,
Inc.
7.65%, 8/15/09 BBB+ 8,670 8,807
Tenet Healthcare
Corp.
7.625%, 6/1/08 BB+ 13,560 12,391
Tennessee Gas
Pipeline
7.00%, 10/15/28 BBB+ 11,785 10,559
Time Warner Cos.,
Inc.
6.625%, 5/15/29 BBB 14,655 12,841
6.95%, 1/15/28 BBB 875 801
7.57%, 2/1/24 BBB 12,680 12,498
Union Pacific Corp.
6.625%, 2/1/29 BBB- 2,495 2,141
Series E
6.79%, 11/9/07 BBB- 5,200 5,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
29
<PAGE> 32
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
FIXED INCOME
PORTFOLIO
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
USA Waste Services
7.00%, 7/15/28 BBB $ 15,685 $ 12,316
(+) Waste Management, Inc.
7.375%, 5/15/29 BBB 6,545 5,381
- --------------------------------------------------------
GROUP TOTAL 480,091
- --------------------------------------------------------
NON-AGENCY FIXED RATE MORTGAGES (0.1%)
Bank of America,
Series A
8.375%, 5/1/07 AAA 1 1
sec. Household Bank,
Series 85-1 CMO
7.94%, 5/1/02
(acquired 6/22/94,
cost $123) N/R 130 130
sec.## Magnolia
Federal Bank,
Series 84-2
9.12%, 10/1/07
(acquired 5/1/87,
cost $150) N/R 153 156
## Resolution Trust
Corp., Series 92-5C
CMO
8.60%, 1/25/26 AA 2,154 2,140
Ryland Acceptance
Corp. IV,
Series 79-A
6.65%, 7/1/11 AA 3,180 3,121
- --------------------------------------------------------
GROUP TOTAL 5,548
- --------------------------------------------------------
TELEPHONES (2.5%)
** AT&T Corp.
6.50%, 3/15/29 AA- 24,145 21,396
Comcast Cable
Communications
8.375%, 5/1/07 BBB 4,275 4,498
GTE Corp.
6.94%, 4/15/28 A 13,460 12,592
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
Intermedia
Communications
Inc.,
Series B
8.50%, 1/15/08 B $ 2,625 $ 2,277
8.60%, 6/1/08 B 16,360 14,192
8.875%, 11/1/07 B 2,355 2,087
MCI WorldCom, Inc.
6.95%, 8/15/28 A- 29,645 27,727
# Nextel Communications, Inc.
0.00%, 9/15/07 B- 15,975 11,781
Qwest Communications
International, Inc.,
7.50%, 11/1/08 BB+ 130 129
Series B
# 0.00%, 2/1/08 BB+ 23,440 17,639
- --------------------------------------------------------
GROUP TOTAL 114,318
- --------------------------------------------------------
TRANSPORTATION (1.1%)
Continental Airlines,
Series:
98-1 A
6.648%, 9/15/17 AA+ 17,210 16,056
99-1 A
6.545%, 8/2/20 AA+ 4,590 4,226
(+) Jet Equipment
Trust,
Series:
94-A A11
10.00%, 6/15/12 A 560 636
95-5A C
10.69%, 11/1/13 BBB- 8,650 9,948
Union Pacific Corp.
6.625%, 2/1/08 BBB- 11,920 11,323
7.125%, 2/1/28 BBB- 6,955 6,369
- --------------------------------------------------------
GROUP TOTAL 48,558
- --------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
30
<PAGE> 33
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY SECURITIES (4.8%)
U.S. Treasury Notes
3.375%, 1/15/07
(Inflation
Indexed) Tsy $ 85,490 $ 81,616
3.625%, 7/15/02
(Inflation
Indexed) Tsy 12,109 12,018
** 3.625%, 1/15/08
(Inflation
Indexed) Tsy 31,647 30,609
4.50%, 1/31/01 Tsy 80,870 79,771
6.25%, 1/31/02 Tsy 11,820 11,960
- --------------------------------------------------------
GROUP TOTAL 215,974
- --------------------------------------------------------
UTILITIES (1.5%)
CMS Energy Corp.
7.50%, 1/15/09 BB 15,410 14,218
CMS Panhandle
Holdings Co.
7.00%, 7/15/29 BBB- 2,305 2,051
(+) Edison Mission
Energy Funding
Corp.,
Series B
7.33%, 9/15/08 BBB 10,155 9,883
El Paso Energy
6.75%, 5/15/09 BBB 7,230 6,848
Enron Corp
6.95%, 7/15/28 BBB+ 6,140 5,417
Florida Power & Light Co.
7.625%, 9/15/06 A+ 17,310 17,593
(+) Southern Energy,
Inc.
7.90%, 7/15/09 BBB 10,785 10,407
- --------------------------------------------------------
GROUP TOTAL 66,417
- --------------------------------------------------------
YANKEE (6.4%)
Ahold Finance USA, Inc.
6.875%, 5/1/29 A 16,265 14,673
(+) AST Research,
Inc.
7.45%, 10/1/02 BB- 17,145 16,482
(+) Bayer Hypo-
Vereinsbank
8.741%, 6/30/31 A 11,300 11,203
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
Empresa Nacional
Electricidad
7.325%, 2/1/37 A- $ 6,015 $ 5,447
7.75%, 7/15/08 A- 16,420 15,443
Glencore Nickel Property Ltd.
9.00%, 12/1/14 BB+ 13,705 11,683
Grupo Minero Mexicano
S.A. de CV,
Series A
8.25%, 4/1/08 BB 14,560 12,294
(+) Hutchison Whampoa Financial,
Series B
7.45%, 8/1/17 A 21,305 18,362
(+) Hyundai
Semiconductor
America
8.25%, 5/15/04 B 2,755 2,305
8.625%, 5/15/07 B 10,707 8,339
(+) Israel Electric Corp., Ltd.
7.75%, 12/15/27 A- 16,010 14,086
(+) Multicanal S.A.
10.50%, 2/1/07 BB- 245 200
10.50%, 4/15/18 BB+ 9,145 7,058
13.125%, 4/15/09 BB+ 3,970 3,735
National Power Corp.
8.40%, 12/15/16 BB+ 5,260 4,240
(+) Oil Purchase Co.
7.10%, 4/30/02 BBB 13,598 12,754
(+) Oil Purchase Co.
II
10.73%, 1/31/04 BBB 2,535 2,460
(+) Orange plc
8.75%, 6/1/06 BB- 14,130 14,233
(+) Paiton Energy
Funding
9.34%, 2/15/14 CCC 11,075 1,883
(+) Petrozuata Finance, Inc.
8.22%, 4/1/17 BB+ 23,215 16,522
Province of Quebec
7.50%, 9/15/29 A+ 16,600 16,698
(+) Ras Laffan
Liquefied Natural
Gas Co.
8.294%, 3/15/14 BBB+ 31,220 28,568
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
31
<PAGE> 34
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
FIXED INCOME
PORTFOLIO
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
Republic of Argentina
11.75%, 4/7/09 BB $ 14,335 $ 13,876
Republic of Colombia
8.70%, 2/15/16 BBB- 18,355 13,517
United Mexican States Par Bond,
Series A
6.25%, 12/31/19 BB 28,515 21,030
Series B
6.25%, 12/31/19 BB 795 586
- --------------------------------------------------------
GROUP TOTAL 287,677
- --------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost
$6,054,789) 5,897,235
- --------------------------------------------------------
PREFERRED STOCK (1.2%)
- --------------------------------------------------------
<CAPTION>
SHARES
--------
MORTGAGE-OTHER (1.2%)
(+)+ Home Ownership
Funding Corp.
13.331% (Cost
$52,531) Aaa 63,325 52,324
- --------------------------------------------------------
RIGHTS (0.0%)
- --------------------------------------------------------
MISC-INDUSTRIALS (0.0%)
*@ United Mexican States
Recovery Rights,
expiring 6/30/03
(Cost $0) N/R 10,975,000 --
- --------------------------------------------------------
STRUCTURED INVESTMENT (0.0%)-SEE NOTE A6
- --------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
--------
<S> <C> <C> <C>
Morgan Guaranty Trust Company,
11/20/05; monthly payments equal
to 1% per annum of the
outstanding notional balance,
indexed to GNMA ARM pools
(Cost $5,305) N/R $ 80,539 1,454
- --------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)!
- --------------------------------------------------------
<S> <C> <C> <C>
CASH EQUIVALENTS (15.5%)
- --------------------------------------------------------
DISCOUNT NOTES (9.5%)
Federal Home Loan Bank
5.15%, 10/20/99 $ 77,000 $ 76,791
5.18%, 10/22/99 23,000 22,930
5.19%, 10/8/99 50,000 49,913
5.19%, 10/13/99 20,000 19,980
5.24%, 11/5/99 19,000 18,903
Federal Home Loan Mortgage
Corporation
5.17%, 10/7/99 40,000 39,966
5.24%, 11/4/99 50,000 49,752
Federal National Mortgage
Association
5.19%, 10/19/99 51,000 50,868
5.19%, 10/25/99 50,000 49,827
5.24%, 11/03/99 50,000 49,760
- --------------------------------------------------------
GROUP TOTAL 428,690
- --------------------------------------------------------
REPURCHASE AGREEMENT (6.0%)
Chase Securities, Inc. 5.20%,
dated 9/30/99, due 10/1/99, to
be repurchased at $273,300,
collateralized by various U.S.
Government Obligations, due
10/1/99-8/15/01, valued at
$273,563 273,261 273,261
- --------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $701,951) 701,951
- --------------------------------------------------------
TOTAL INVESTMENTS (147.2%) (Cost
$6,814,576) 6,652,964
- --------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
32
<PAGE> 35
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
(000)!
- --------------------------------------------------------
<S> <C> <C> <C>
OTHER ASSETS AND LIABILITIES (-47.2%)
Cash $ 1,227
Dividends Receivable 2,110
Interest Receivable 44,506
Receivable for Investments Sold 7,158
Receivable for Forward Commitments 676,015
Receivable for Fund Shares Sold 2,296
Investments Held as Collateral for Loaned
Securities 74,206
Other Assets 199
Payable for Investments Purchased (2,263)
Payable for Forward Commitments (2,843,829)
Payable for Fund Shares Redeemed (4,993)
Payable for Investment Advisory Fees (4,318)
Payable for Administrative Fees (299)
Payable for Shareholder Servicing
Fees-Investment Class (5)
Payable for Distribution Fees-Adviser Class (29)
Payable for Trustees' Deferred Compensation
Plan-Note F (199)
Payable for Daily Variation on Futures
Contracts (298)
Unrealized Loss on Swap Agreements (9,434)
Collateral on Securities Loaned, at Value (74,206)
Other Liabilities (995)
-----------
(2,133,151)
- --------------------------------------------------------
NET ASSETS (100%) $ 4,519,813
- --------------------------------------------------------
INSTITUTIONAL CLASS
- --------------------------------------------------------
NET ASSETS
Applicable to 385,361,129 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $ 4,338,939
- --------------------------------------------------------
NET ASSET VALUE PER SHARE $ 11.26
- --------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)!
- --------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT CLASS
- --------------------------------------------------------
NET ASSETS
Applicable to 3,475,714 outstanding shares
of beneficial interest (unlimited
authorization, no par value) $ 39,165
- --------------------------------------------------------
NET ASSET VALUE PER SHARE $ 11.27
- --------------------------------------------------------
ADVISER CLASS
- --------------------------------------------------------
NET ASSETS
Applicable to 12,585,297 outstanding shares
of beneficial interest (unlimited
authorization, no par value) $ 141,709
- --------------------------------------------------------
NET ASSET VALUE PER SHARE $ 11.26
- --------------------------------------------------------
NET ASSETS CONSIST OF:
Paid in Capital $ 4,732,600
Undistributed Net Investment Income (Loss) 82,491
Undistributed Realized Net Gain (Loss) (118,367)
Unrealized Appreciation (Depreciation) on:
Investment Securities (161,612)
Futures and Swaps (15,299)
- --------------------------------------------------------
NET ASSETS $ 4,519,813
- --------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
33
<PAGE> 36
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
FIXED INCOME
PORTFOLIO
<TABLE>
<CAPTION>
(CONT'D)
- ----------------------------------------------------------
<S> <C>
sec. Restricted Security-Total market value of
restricted securities owned at September 30,
1999 was $3,659,000 or 0.1% of net assets.
! See Note A1 to Financial Statements.
!! Ratings are unaudited.
* Non-income producing security
(+) 144A security. Certain conditions for public
sale may exist.
** A portion of these securities was pledged to
cover margin requirements for futures
contracts.
+ Moody's Investors Service, Inc. rating. Security
is not rated by Standard & Poor's Corporation.
++ Security is fair valued by the Adviser.
(d) Security is in default.
# Step Bond-Coupon rate increases in increments to
maturity. Rate disclosed is as of September 30,
1999. Maturity date disclosed is the ultimate
maturity.
## Variable or floating rate security-rate
disclosed is as of September 30, 1999.
@ Value is less than $500.
CMO Collateralized Mortgage Obligation
Inv Fl Inverse Floating Rate-Interest rate fluctuates
with an inverse relationship to an associated
interest rate. Indicated rate is the effective
rate at September 30, 1999.
IO Interest Only
N/R Not rated by Moody's Investors Service, Inc. or
Standard & Poor's Corporation.
PAC Planned Amortization Class
PO Principal Only
REMIC Real Estate Mortgage Investment Conduit
TBA Security is subject to delayed delivery. See
Note A7 to Financial Statements.
YMA Yield Maintenance Agreement
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
34
<PAGE> 37
PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
The High Yield Portfolio focuses on investments in below-investment grade
corporate bonds. The Portfolio is actively managed by Miller Anderson &
Sherrerd's high-yield fixed-income team, which is responsible for portfolio
construction and risk control. The high-yield team utilizes a disciplined, total
return-oriented investment process to actively manage diversified high-yield
portfolios. To identify the most efficient portfolio, the team engages in
fundamental analysis and valuation of high-yield securities. Individual
securities are compared on the basis of their option- and credit-risk-adjusted
expected returns. Several high-yield investment beliefs guide the process. MAS
believes that the keys to successful high-yield management are: superior,
forward-looking credit analysis; a consistent, disciplined investment process; a
value focus; and careful control of overall portfolio risk. The team manages
overall interest-rate risk and economic sensitivity, as well as the integration
of investment themes drawn from the firm's financial-market research.
MAS believes that investments in high-yield securities can improve the
diversification of a balanced portfolio and raise return for a given level of
volatility. MAS's extensive research shows that investors have been rewarded
over time for holding lower-rated securities. High-yield securities also offer
investment opportunities overlooked in the traditional stock/bond mix. MAS's
goal is to achieve superior total returns with a greater degree of consistency
than the broad market averages and other investment managers.
During the Portfolio's past fiscal year, its total return was 8.81% vs. 3.52%
for the benchmark. This return is meaningful considering the interest rate
environment over the past twelve months. The rates of ten-year treasury bonds
rose nearly 150 basis points over the past year, while shorter rates rose almost
50 basis points.
Performance exceeded the benchmark primarily because of an overweight position
in the telecommunications sector and exposure to emerging market securities,
both of which were strong performers during the past fiscal year. The emerging
market sector rebounded following the Russian crisis last year. The Portfolio
also benefited from merger and investment activity in the telecommunications and
cable sectors; this activity was very favorable for the Portfolio's credit
quality. In addition, the Portfolio did a much better job of avoiding problem
credits than the market averages. Negative contributors to relative performance
included an underweighting in the commodity and cyclical sectors, which
performed well, along with an overweight position in health care, which
underperformed.
At fiscal year-end, the Portfolio continued to find value in the
telecommunications and emerging markets sectors. In telecommunications, one of
the Portfolio's largest holdings was Nextel Communications. Nextel's bonds
performed extremely well due to very strong operating results, an equity
investment by Microsoft, and takeover speculation. Other telecommunications
holdings during the year included Qwest, Rhythms Net, Level 3, Dolphin Telecom,
and Global Crossing. All of these companies either entered into a strategic
partnership or raised additional equity capital, which contributed to bond
performance. In emerging markets, holdings were concentrated in Latin America,
with exposure mainly to corporate issues in Mexico, Argentina, and Colombia.
The Portfolio added to positions in some larger, higher-quality bonds, including
Columbia/HCA and Tenet Healthcare in the health care sector, and Kmart in the
retail sector. These sectors underperformed during fiscal 1999, and MAS believed
that these names had very good value. At fiscal year-end, the Portfolio
maintained an average credit quality of BB, which was higher than that of the
benchmark.
The past fiscal year was a mixed period for the high-yield market, as
performance was strong throughout the first half, but receded during the last
few months. The U.S. government bond market had a very difficult year due to
high domestic growth and a tightening of interest rates by the Federal Reserve.
Technical factors also contributed to the recent negative performance in the
high-yield market. There was a high level of new issues in the market, net cash
flows into mutual funds turned negative, and dealers were under pressure to keep
inventories low. MAS believes that these factors created a good buying
opportunity for the Portfolio.
35
<PAGE> 38
PORTFOLIO OVERVIEW
- --------------------------------------------------------------------------------
[High Yield Performance Graph]
<TABLE>
<CAPTION>
MAS FUNDS HIGH YIELD SALOMON HIGH YEILD
-------------------- ------------------
<S> <C> <C>
89 1000.00 1000.00
934.00 983.00
906.00 953.00
960.00 991.00
90 837.00 919.00
832.00 914.00
1039.00 1074.00
1101.00 1146.00
91 1145.00 1214.00
1200.00 1279.00
1278.00 1374.00
1329.00 1428.00
92 1402.00 1487.00
1422.00 1507.00
1547.00 1598.00
1630.00 1668.00
93 1684.00 1707.00
1771.00 1769.00
1728.00 1732.00
1703.00 1724.00
94 1744.00 1747.00
1646.00 1747.00
1717.00 1850.00
1899.00 1964.00
95 1981.00 2023.00
2040.00 2091.00
2105.00 2125.00
2141.00 2152.00
96 2255.00 2240.00
2352.00 2327.00
2385.00 2360.00
2550.00 2466.00
97 2704.00 2573.00
2728.00 2635.00
2854.00 2742.00
2854.00 2770.00
98 2672.00 2637.00
2814.00 2730.00
2910.00 2771.00
2925.00 2778.00
99 2907.00 2730.00
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS ENDED 9/30/99*
<TABLE>
<CAPTION>
MAS HIGH YIELD
------------------------------------------------ SALOMON HIGH
INSTITUTIONAL - INVESTMENT = ADVISER + YIELD INDEX
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One Year 8.81% 8.67% 8.44% 3.52%
Five Years 10.76% 10.64% 10.62% 9.34%
Ten Years 11.26% 11.20% 11.19% 10.56%
</TABLE>
Total returns are net of all fees. Total returns represent past
performance and are not indicative of future results. High-yield
fixed-income securities, otherwise known as "junk bonds," represent a
much greater risk of default and tend to be more volatile than
higher-rated bonds.
The investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth
either more or less than their original cost.
- Represents an investment in the Institutional Class.
= Represents an investment in the Investment Class which commenced
operations 5/21/96. Total returns for periods beginning prior to this
date are based on the performance of the Institutional Class and do
not include the 0.15% Shareholder Servicing Fee applicable to the
Investment Class.
+ Represents an investment in the Adviser Class which commenced
operations 1/31/97. Total returns for periods beginning prior to this
date are based on the performance of the Institutional Class and do
not include the 0.25% 12b-1 Fee applicable to the Adviser Class.
Total returns for the Portfolio reflect expenses waived and/or
reimbursed by the Adviser for certain periods. Without such waivers
and/or reimbursements, total returns would have been lower.
* Total returns are compared to the Salomon High Yield Index, an
unmanaged market index.
As of 9/30/99, the Portfolio's holdings in Nextel Communications,
Qwest, Rhythms Net, Level 3, Dolphin Telecom, Global Crossing,
Columbia/HCA, Tenet Healthcare, and Kmart were 2.4%, 0.0%, 0.5%, 0.0%,
0.7%, 0.9%, 3.8%, 2.1%, and 0.8%, respectively.
36
<PAGE> 39
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
HIGH YIELD
PORTFOLIO
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (90.5%)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
!!RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 1999 & POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
ASSET BACKED CORPORATES (0.6%)
(+)++ Commercial Financial
Services, Inc.,
Series 97-5 A1
7.72%, 6/15/05 N/R $ 4,693 $ 1,173
(+)+ Long Beach Acceptance Auto
Grantor Trust,
Series 97-1 B
14.22%, 10/26/03 Ba3 1,711 1,699
(+) OHA Auto Grantor Trust,
Series 97-A
11.00%, 9/15/03 BB 3,094 2,965
- ---------------------------------------------------------
GROUP TOTAL 5,837
- ---------------------------------------------------------
CABLE (6.1%)
Adelphia Communications Corp.
7.75%, 1/15/09 B+ 4,850 4,371
Series B
8.375%, 2/1/08 B+ 10,925 10,215
9.875%, 3/1/07 B+ 1,500 1,530
CSC Holdings, Inc.
7.25%, 7/15/08 BB+ 1,200 1,151
9.875%, 5/15/06 BB- 5,270 5,500
Lenfest Communications, Inc.
7.625%, 2/15/08 BB+ 570 568
# NTL, Inc.
0.00%, 4/1/08 B- GBP 10,150 10,942
Rogers Cablesystems Ltd., Series
B
10.125%, 9/1/12 BB+ $ 2,750 2,970
(+)# Telewest plc
0.00%, 4/15/09 B+ GBP 10,760 10,537
(+) United Pan-Europe
Communications N.V.
10.875%, 8/1/09 B- $ 10,100 10,201
- ---------------------------------------------------------
GROUP TOTAL 57,985
- ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- ---------------------------------------------------------
- ---------------------------------------------------------
<S> <C> <C> <C>
CHEMICALS (2.8%)
(+) Huntsman ICI
10.125%, 7/1/09 B+ $ 5,650 $ 5,509
10.125%, 7/1/09 B+ EUR 4,850 5,057
ISP Holdings, Inc.,
Series B
9.00%, 10/15/03 BB- $ 8,000 7,820
Lyondell Chemical Co.
9.625%, 5/1/07 BB 8,850 8,817
- ---------------------------------------------------------
GROUP TOTAL 27,203
- ---------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-NON-AGENCY
COLLATERAL SERIES (0.0%)
+ Citicorp Mortgage
Securities, Inc.,
Series 90-8 A7
9.50%, 6/25/05 B3 514 247
- ---------------------------------------------------------
COMMERCIAL MORTGAGES (0.5%)
(+)+## DLJ Mortgage Acceptance
Corp. Series 97-CF2 S IO
0.353%, 10/15/17 Aaa 101,822 2,074
(+) Federal Mortgage Acceptance
Corp.,
Loan Receivables Trust,
Series 96-B C A1 IO
7.929%, 11/1/18 N/R 3,937 1,378
+## GMAC Commercial Mortgage
Securities, Inc.,
Series 96-C1 X2 IO
1.85%, 3/15/21 Aaa 13,571 894
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
37
<PAGE> 40
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
HIGH YIELD
PORTFOLIO
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
## Structured Asset Securities
Corp.,
Series:
96-CFL X1 IO
1.573%, 2/25/28 N/R $ 11,696 $ 605
96-CFL X1A IO
1.096%, 2/25/28 N/R 9,346 97
96-CFL X2 IO
1.159%, 2/25/28 N/R 3,838 80
- ---------------------------------------------------------
GROUP TOTAL 5,128
- ---------------------------------------------------------
COMMUNICATIONS (21.3%)
American Cellular Corp.
10.50%, 5/15/08 CCC+ 7,530 7,756
AMSC Acquisition Co., Inc.,
Series B
12.25%, 4/1/08 N/R 7,200 5,112
Centennial Cellular Operating
Co.
10.75%, 12/15/08 CCC+ 8,050 8,402
+ Dial Call
Communications, Inc.
10.25%, 12/15/05 B2 4,785 4,821
Dobson Communications Corp.
11.75%, 4/15/07 N/R 5,900 6,224
# Dolphin
Telecommunications
0.00%, 6/1/08 CCC+ EUR 8,750 3,934
(+) 0.00%, 5/15/09 CCC+ $ 7,980 3,192
Esprit Telecom Group plc
11.00%, 6/15/08 B- DEM 2,953 3,220
11.50%, 12/15/07 B- 1,892 2,104
Global Crossing
Holdings Ltd.
9.625%, 5/15/08 B- $ 8,050 8,271
(+) Globalstar
LP/Capital
11.375%, 2/15/04 B 7,625 4,956
Hermes Europe Railtel
10.375%, 1/15/09 B 2,200 2,145
11.50%, 8/15/07 B 5,470 5,525
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
# Hyperion Telecommunications,
Inc.
0.00%, 4/15/03 B $ 8,445 $ 7,094
# Intermedia Communications,
Inc.
Series B
0.00%, 7/15/07 B 18,650 12,402
Series B
8.60%, 6/1/08 B 3,200 2,776
(+)(d) Iridium Capital Corp.,
Series A
13.00%, 7/15/05 D 10,475 1,100
IXC Communications, Inc.
9.00%, 4/15/08 CCC+ 3,625 3,580
Metromedia Fiber
Network, Inc.
10.00%, 11/15/08 B 5,720 5,548
Nextel Communications, Inc.
# 0.00%, 9/15/07 B- 14,800 10,915
# 0.00%, 2/15/08 B- 11,055 7,683
** 9.75%, 8/15/04 B- 4,200 4,237
NEXTLINK
Communications
# 0.00%, 4/15/08 B- 8,090 4,859
10.75%, 11/15/08 B 4,065 4,090
(+) OnePoint Communications
Corp.
14.50%, 6/1/08 N/R 4,100 2,624
Primus
Telecommunications
Group, Inc.
11.25%, 1/5/09 B- 4,800 4,560
Series B
9.875%, 5/15/08 B- 6,120 5,355
(+) PSINet, Inc.
11.00%, 8/1/09 B- 6,675 6,575
Series B
10.00%, 2/15/05 B- 4,465 4,286
# RCN Corp.
0.00%, 10/15/07 B- 14,900 9,685
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
38
<PAGE> 41
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
# Rhythms
NetConnections, Inc.,
Series B
0.00%, 5/15/08 CCC+ $ 9,950 $ 4,950
RSL Communications plc
# 0.00%, 3/1/08 B- 7,790 4,382
# 0.00%, 3/15/08 B- EUR 9,689 5,929
9.125%, 3/1/08 B- $ 7,000 5,985
12.00%, 11/1/08 B- 3,000 2,970
12.25%, 11/15/06 B- 300 300
(+) Tele1 Europe B.V.
13.00%, 5/15/09 N/R EUR 6,460 6,737
+# Viatel, Inc.
0.00%, 4/15/08 B- $ 9,200 5,244
# Wam!Net, Inc.,
Series B
0.00%, 3/1/05 CCC+ 8,000 4,770
- ---------------------------------------------------------
GROUP TOTAL 204,298
- ---------------------------------------------------------
ENERGY (2.0%)
# Husky Oil Ltd.
8.90%, 8/15/28 BB+ 4,500 4,309
Snyder Oil Corp.
8.75%, 6/15/07 B+ 9,275 9,171
Vintage Petroleum, Inc.
8.625%, 2/1/09 B+ 1,700 1,636
9.75%, 6/30/09 B+ 3,480 3,558
- ---------------------------------------------------------
GROUP TOTAL 18,674
- ---------------------------------------------------------
FOOD & BEVERAGE (1.0%)
Smithfield Foods, Inc.
7.625%, 2/15/08 BB+ 10,500 9,450
- ---------------------------------------------------------
GAMING (6.5%)
Harrahs Operating Co., Inc.
7.875%, 12/15/05 BB+ 15,300 14,650
Horseshoe Gaming Holdings
8.625%, 5/15/09 B+ 1,350 1,286
8.652%, 5/15/09 B+ 9,100 8,668
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
International Game Technology
8.375%, 5/15/09 BB+ $ 10,345 $ 9,901
Park Place Entertainment Corp.
7.875%, 12/15/05 BB+ 11,975 11,301
Station Casinos, Inc.
8.875%, 12/1/08 B+ 7,535 7,309
9.75%, 4/15/07 B+ 7,195 7,303
10.125%, 3/15/06 B+ 1,575 1,618
- ---------------------------------------------------------
GROUP TOTAL 62,036
- ---------------------------------------------------------
GENERAL INDUSTRIAL (4.3%)
Applied Power, Inc.
8.75%, 4/1/09 B+ 4,350 4,067
Axia, Inc.
10.75%, 7/15/08 B- 4,350 4,024
Hayes Lemmerz International,
Inc.
8.25%, 12/15/08 B 11,705 10,300
Norcal Waste Systems, Inc.
13.50%, 11/15/05 BB- 6,450 6,902
Sequa Corp.
9.00%, 8/1/09 BB 5,025 4,937
Waste Management, Inc.
(+) 6.875%,
5/15/09 BBB 3,050 2,668
7.00%, 10/15/06 BBB 1,915 1,730
7.125%, 10/1/07 BBB 2,800 2,530
7.125%, 12/15/17 BBB 1,750 1,442
7.65%, 3/15/11 BBB 2,360 2,154
- ---------------------------------------------------------
GROUP TOTAL 40,754
- ---------------------------------------------------------
HEALTH CARE (6.9%)
Columbia/HCA Healthcare Corp.
6.91%, 6/15/05 BB+ 18,400 16,574
7.00%, 7/1/07 BB+ 3,700 3,259
7.15%, 3/30/04 BB+ 5,400 5,013
7.25%, 5/20/08 BB+ 2,630 2,331
7.58%, 9/15/25 BB+ 750 599
7.69%, 6/15/25 BB+ 10,800 8,868
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
39
<PAGE> 42
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
HIGH YIELD
PORTFOLIO
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
Fresenius Medical
Capital Trust II
7.875%, 2/1/08 B+ $ 7,615 $ 7,006
(+) Sirona Dental Systems
9.125%, 7/15/08 B EUR 3,878 3,054
Tenet Healthcare Corp.
8.125%, 12/1/08 BB- $ 14,075 12,879
8.625%, 1/15/07 BB- 7,300 6,953
- ---------------------------------------------------------
GROUP TOTAL 66,536
- ---------------------------------------------------------
HOTELS, LODGING & RESTAURANTS (2.8%)
Hilton Hotels Corp.
7.95%, 4/15/07 BBB 9,655 9,220
HMH Properties,
Series A
7.875%, 8/1/05 BB 11,450 10,534
Host Marriott Travel
Plaza
9.50%, 5/15/05 BB- 6,385 6,640
- ---------------------------------------------------------
GROUP TOTAL 26,394
- ---------------------------------------------------------
MEDIA & ENTERTAINMENT (4.1%)
Chancellor Media Corp.
9.00%, 10/1/08 B 7,495 7,607
Series B
8.125%, 12/15/07 B 12,000 11,580
Echostar DBS Corp.
9.375%, 2/1/09 B 10,400 10,231
Outdoor Systems, Inc.
8.875%, 6/15/07 B 9,095 9,345
- ---------------------------------------------------------
GROUP TOTAL 38,763
- ---------------------------------------------------------
METALS (3.9%)
(+) EES Coke Battery Co., Inc.
9.382%, 4/15/07 B+ 2,500 2,416
Glencore Nickel
Property Ltd.
9.00%, 12/1/14 BB+ 4,165 3,551
Impress Metal Packaging Holdings
9.875%, 5/29/07 B EUR 5,647 $ 6,370
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
Murrin Murrin
Holdings Ltd.
9.375%, 8/31/07 BB- $ 10,925 9,668
National Steel Corp.,
Series D
9.875%, 3/1/09 B+ 11,225 11,113
(+) Republic
Technologies
International LLC
13.75%, 7/15/09 B 4,750 4,512
- ---------------------------------------------------------
GROUP TOTAL 37,630
- ---------------------------------------------------------
PACKAGING (2.6%)
Norampac, Inc.
9.50%, 2/1/08 BB 8,300 8,425
Pacifica Papers, Inc.
10.00%, 3/15/09 B+ 8,790 8,889
SD Warren Co.
12.00%, 12/15/04 B+ 4,365 4,603
Tembec Industries, Inc.
8.625%, 6/30/09 BB+ 3,330 3,263
- ---------------------------------------------------------
GROUP TOTAL 25,180
- ---------------------------------------------------------
REAL ESTATE/BUILDING (2.8%)
American Standard
7.125%, 6/1/06 BB- EUR 8,185 8,416
D. R. Horton, Inc.
8.00%, 2/1/09 BB $ 10,140 9,024
Nortek, Inc.,
Series B
8.875%, 8/1/08 B+ 10,315 9,748
- ---------------------------------------------------------
GROUP TOTAL 27,188
- ---------------------------------------------------------
RETAIL (7.2%)
(+) CA FM Lease Trust
8.50%, 7/15/17 BBB- 7,848 7,338
CEX Holdings, Inc.
9.625%, 6/1/08 B 6,300 6,670
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
40
<PAGE> 43
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
DR Structured Finance,
Series:
93-K1 A1
6.66%, 8/15/10 BB+ $ 3,232 $ 2,952
93-K1 A2
7.43%, 8/15/18 BB+ 2,565 2,260
94-K1 A1
7.60%, 8/15/07 BB+ 3,359 3,261
94-K1 A2
8.375%, 8/15/15 BB+ 3,625 3,461
94-K2 A2
9.35%, 8/15/19 BB+ 4,910 4,898
HMV Media Group plc
Class B
10.875%, 5/15/08 B GBP 5,700 9,428
Kmart Funding Corp.,
Series F
8.80%, 7/1/10 BB+ $ 7,240 7,312
Musicland Group, Inc.
9.00%, 6/15/03 B- 4,520 4,384
Series B
9.875%, 3/15/08 B- 10,205 9,287
(+) Stater Bros. Holdings, Inc.
10.75%, 8/15/06 B+ 7,410 7,558
- ---------------------------------------------------------
GROUP TOTAL 68,809
- ---------------------------------------------------------
SOVEREIGN & EMERGING MARKETS (11.4%)
Asia Pulp & Paper Co., Ltd.,
Series A
12.00%, 2/15/04 CCC+ 3,305 1,752
(+) AST Research,
Inc.
7.45%, 10/1/02 BB- 7,285 7,003
(+) Bayan Telecommunications
Holdings Corp.
13.50%, 7/15/06 B- 11,200 10,584
(+) Cablevision S.A.
13.75%, 5/1/09 BB 4,200 3,948
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
(+)# Compania
Energetica
9.125%, 6/26/07 N/R $ 3,600 $ 3,123
# CTI Holdings S.A.
0.00%, 4/15/08 B 10,405 5,151
(+) Hyundai
Semiconductor
America
8.625%, 5/15/07 B 5,650 4,401
Indah Kiat Finance Mauritius
10.00%, 7/1/07 B+ 9,850 5,368
Multicanal S.A.
10.50%, 2/1/07 BB- 5,940 4,845
(+) 13.125%,
4/15/09 BB+ 1,655 1,557
(+) Netia Holdings
13.50%, 6/15/09 B EUR 7,500 7,961
(+)++(d) NSM Steel,
Inc.
12.25%, 2/1/08 D $ 5,105 5
# Occidente y Caribe
Cellular
0.00%, 3/15/04 B 10,980 5,984
Phillipine Long Distance
Telephone Co.,
Series E
7.85%, 3/6/07 BB+ 4,000 3,410
Pindo Deli Financial Mauritius
10.75%, 10/1/07 CCC+ 12,855 7,006
# PTC International
Finance B.V.
0.00%, 7/1/07 B+ 8,703 6,092
Republic of Colombia
9.75%, 4/23/09 BBB- 5,000 4,311
Satelites Mexicanos S.A.
10.125%, 11/1/04 B- 6,615 5,160
(+) Total Access Communication
PCL (Convertible)
2.00%, 5/31/06 BBB- 2,140 2,065
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
41
<PAGE> 44
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
HIGH YIELD
PORTFOLIO
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
TV Azteca S.A.,
Series B
10.50%, 2/15/07 B+ $ 16,000 $ 12,320
United Mexican States Par Bond,
Series A
6.25%, 12/31/19 BB 9,710 7,161
- ---------------------------------------------------------
GROUP TOTAL 109,207
- ---------------------------------------------------------
TECHNOLOGY (0.1%)
Entex Information
Services, Inc.
12.50%, 8/1/06 B- 1,490 924
- ---------------------------------------------------------
TRANSPORTATION (1.3%)
ALPS,
Series 96-1 DX
12.75%, 6/15/06 BB- 5,653 5,653
(+) Jet Equipment
Trust,
Series:
94-C1
11.79%, 6/15/13 BBB- 3,450 4,161
95-D
11.44%, 11/1/14 BBB- 2,350 2,803
- ---------------------------------------------------------
GROUP TOTAL 12,617
- ---------------------------------------------------------
UTILITIES (2.3%)
AES Corp.
8.50%, 11/1/07 B+ 9,115 8,317
CMS Energy Corp.
7.50%, 1/15/09 BB 10,345 9,545
(+) Ras Laffan
Liquefied Natural Gas
Co.
8.294%, 3/15/14 BBB+ 5,000 4,575
- ---------------------------------------------------------
GROUP TOTAL 22,437
- ---------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost $936,894) 867,297
- ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS
(STANDARD VALUE
& POOR'S) SHARES (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
CONVERTIBLE PREFERRED STOCK (0.1%)
- ---------------------------------------------------------
MEDIA & ENTERTAINMENT (0.1%)
*(+) Paxson Communications
Corp. PIK, 9.75%
(Cost $1,130) N/R 12,506 $ 1,376
- ---------------------------------------------------------
PREFERRED STOCKS (2.3%)
- ---------------------------------------------------------
COMMUNICATIONS (1.7%)
* Concentric Network
Corp., PIK, Series B
13.50% N/R 54,634 5,026
* Dobson
Communications
Corp.
13.00%, 5/1/09 N/R 47,500 4,584
* IXC Communications, Inc.,
Series B PIK
7.25% CCC+ 5,923 6,337
- ---------------------------------------------------------
GROUP TOTAL 15,947
- ---------------------------------------------------------
MEDIA & ENTERTAINMENT (0.6%)
Paxson Communications Corp.,
13.25% CCC+ 53,403 5,768
- ---------------------------------------------------------
TOTAL PREFERRED STOCKS (Cost $19,385) 21,715
- ---------------------------------------------------------
WARRANTS (0.2%)
- ---------------------------------------------------------
COMMUNICATIONS (0.1%)
*(+) American Mobile
Satellite Corp.,
expiring 4/1/08 N/R 62,850 220
*(+) Globalstar
Telecommunications
Ltd., expiring
2/15/04 N/R 3,235 299
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
42
<PAGE> 45
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
!!RATINGS
(STANDARD VALUE
& POOR'S) SHARES (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
*(+) Iridium World
Communications
Ltd., expiring
7/15/05 N/R 1,920 $ 2
*(+) OnePoint
Communications
Corp. expiring
6/1/08 N/R 41,000 4
*(+) Tele1 Europe
B.V. expiring
1/1/01 N/R 64,600 481
*(+)@ Wam!Net, Inc.,
expiring 3/1/05 N/R 18,975 --
- ---------------------------------------------------------
GROUP TOTAL 1,006
- ---------------------------------------------------------
MEDIA & ENTERTAINMENT (0.0%)
*(+) Paxson
Communications
Corp.,
expiring 6/30/03 N/R 3,616 1
- ---------------------------------------------------------
SOVEREIGN & EMERGING MARKETS (0.1%)
*(+) NSM Steel, Inc.,
expiring 2/1/08 N/R 3,231,937 3
* Occidente y Caribe
Cellular, expiring
3/15/04 N/R 43,920 659
- ---------------------------------------------------------
GROUP TOTAL 662
- ---------------------------------------------------------
TOTAL WARRANTS (Cost $445) 1,669
- ---------------------------------------------------------
CASH EQUIVALENT (7.0%)
- ---------------------------------------------------------
REPURCHASE AGREEMENT (7.0%)
Chase Securities, Inc. 5.20%,
dated 9/30/99, due 10/1/99, to
be repurchased at $66,788,
collateralized by various U.S.
Government Obligations, due
10/1/99-8/15/01, valued at
$66,852 (Cost $66,778) $66,778 66,778
- ---------------------------------------------------------
TOTAL INVESTMENTS (100.1%) (Cost $1,024,632) 958,835
- ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)!
- ---------------------------------------------------------
- ---------------------------------------------------------
<S> <C> <C> <C>
OTHER ASSETS AND LIABILITIES (-0.1%)
Foreign Currency Held as Collateral on
Futures Contracts (Cost $1,162) $ 1,162
Interest Receivable 20,294
Receivable for Fund Shares Sold 425
Receivable for Variation Margin on Futures
Contracts 664
Other Assets 34
Payable to Custodian (386)
Payable for Investments Purchased (20,677)
Payable for Fund Shares Redeemed (140)
Payable for Investment Advisory Fees (912)
Payable for Administrative Fees (62)
Payable for Shareholder Servicing Fees-
Investment Class (1)
Payable for Distribution Fees-Advisor Class (3)
Payable for Trustees' Deferred Compensation
Plan-Note F (34)
Unrealized Loss on Forward Foreign Currency
Contracts (881)
Other Liabilities (94)
----------
(611)
- ---------------------------------------------------------
NET ASSETS (100%) $ 958,224
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
43
<PAGE> 46
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
HIGH YIELD
PORTFOLIO
<TABLE>
<CAPTION>
VALUE
(CONT'D) (000)!
- ---------------------------------------------------------
<S> <C> <C> <C>
- ---------------------------------------------------------
INSTITUTIONAL CLASS
- ---------------------------------------------------------
NET ASSETS
Applicable to 106,896,559 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $ 937,482
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 8.77
- ---------------------------------------------------------
INVESTMENT CLASS
- ---------------------------------------------------------
NET ASSETS
Applicable to 802,219 outstanding shares of
beneficial interest (unlimited
authorization, no par value) $ 7,041
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 8.78
- ---------------------------------------------------------
ADVISER CLASS
- ---------------------------------------------------------
NET ASSETS
Applicable to 1,564,450 outstanding shares of
beneficial interest (unlimited
authorization, no par value) $ 13,701
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 8.76
- ---------------------------------------------------------
NET ASSETS CONSIST OF:
Paid in Capital $1,008,565
Undistributed Net Investment Income (Loss) 29,048
Undistributed Realized Net Gain (Loss) (13,993)
Unrealized Appreciation (Depreciation) on:
Investment Securities (65,797)
Foreign Currency Transactions (485)
Futures 886
- ---------------------------------------------------------
NET ASSETS $ 958,224
- ---------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
- -------------------------------------------------------
! See Note A1 to Financial Statements.
!! Ratings are unaudited.
* Non-income producing security
(+) 144A security. Certain conditions for public sale
may exist.
++ A portion of these securities was pledged to cover
margin requirements for futures contracts.
+ Moody's Investors Service, Inc. rating. Security
is not rated by Standard & Poor's Corporation.
** Security is fair valued by the Adviser.
(d) Security is in default.
# Step Bond-Coupon rate increases in increments to
maturity. Rate disclosed is as of September 30,
1999. Maturity date disclosed is the ultimate
maturity.
## Variable or floating rate security-rate disclosed
is as of September 30, 1999.
@ Value is less than $500.
DEM German Mark
EUR Euro
GBP British Pound
IO Interest Only
N/R Not rated by Moody's Investors Service, Inc. or
Standard & Poor's Corporation.
PIK Payment-In-Kind Security
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
44
<PAGE> 47
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MID CAP MID CAP
VALUE GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------
Year Ended September 30, 1999
(In Thousands)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 39,429 $ 1,555 $ 6,018
Interest 1,923 2,512 2,795
- --------------------------------------------------------------------------------------------------------------------
Total Income 41,352 4,067 8,813
- --------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Services--Note B 10,356 3,801 4,636
Administrative Fee--Note C 1,655 608 494
Custodian Fee--Note E 577 105 68
Audit Fee 33 16 15
Legal Fee 38 13 11
Filing & Registration Fees 68 102 54
Shareholder Servicing Fee--Investment Class shares--Note
D 25 -- 37
Distribution Fees--Adviser Class shares--Note D 774 399 53
Other Expenses 338 71 88
- --------------------------------------------------------------------------------------------------------------------
Total Expenses 13,864 5,115 5,456
- --------------------------------------------------------------------------------------------------------------------
Expense Offset--Note K (213) (105) (68)
- --------------------------------------------------------------------------------------------------------------------
Net Expenses 13,651 5,010 5,388
- --------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 27,701 (943) 3,425
- --------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities 163,611 237,742 109,808
Futures (40,686) -- --
- --------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) 122,925 237,742 109,808
- --------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities 137,756 102,485 15,607
Futures (3,618) -- --
- --------------------------------------------------------------------------------------------------------------------
Unrealized Appreciation (Depreciation) 134,138 102,485 15,607
- --------------------------------------------------------------------------------------------------------------------
Net Gain (Loss) 257,063 340,227 125,415
- --------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 284,764 $ 339,284 $ 128,840
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
45
<PAGE> 48
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIXED HIGH
INCOME YIELD
PORTFOLIO PORTFOLIO
--------------------------------
Year Ended September 30, 1999
(In Thousands)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 5,109 $ 154
Interest 332,206 92,103
- -----------------------------------------------------------------------------------------------------
Total Income 337,315 92,257
- -----------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Services--Note B 17,842 3,425
Administrative Fee--Note C 3,805 731
Custodian Fee--Note E 361 83
Audit Fee 43 21
Legal Fee 99 34
Filing & Registration Fees 49 66
Shareholder Servicing Fee--Investment Class shares--Note
D 58 13
Distribution Fees--Adviser Class shares--Note D 341 35
Other Expenses 454 104
- -----------------------------------------------------------------------------------------------------
Total Expenses 23,052 4,512
- -----------------------------------------------------------------------------------------------------
Expense Offset--Note K (361) (83)
- -----------------------------------------------------------------------------------------------------
Net Expenses 22,691 4,429
- -----------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 314,624 87,828
- -----------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities (117,912) (14,390)
Foreign Currency Transactions 715 2,787
Futures (5,937) 2,628
- -----------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) (123,134) (8,975)
- -----------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities (160,836) (9,992)
Foreign Currency Transactions (715) 891
Futures and Swaps (14,628) 2,458
- -----------------------------------------------------------------------------------------------------
Unrealized Appreciation (Depreciation) (176,179) (6,643)
- -----------------------------------------------------------------------------------------------------
Net Gain (Loss) (299,313) (15,618)
- -----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 15,311 $ 72,210
- -----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
46
<PAGE> 49
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MID CAP MID CAP
VALUE GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
--------------------- -------------------- ------------------
(In Thousands) 1998 1999 1998 1999 1998 1999
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ 63,524 $ 27,701 $ (674) $ (943) $ 1,401 $ 3,425
Realized Net Gain (Loss) 453,240 122,925 102,056 237,742 27,317 109,808
Change in Unrealized Appreciation
(Depreciation) (1,045,358) 134,138 (104,691) 102,485 (79,622) 15,607
- ---------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net
Assets Resulting from
Operations (528,594) 284,764 (3,309) 339,284 (50,904) 128,840
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:--Note A10
INSTITUTIONAL CLASS:
Net Investment Income (62,553) (30,731) -- (2) (439) (1,451)
Realized Net Gain (306,482) (346,188) (66,908) (77,567) (24,048) (31,726)
INVESTMENT CLASS:
Net Investment Income (484) (270) -- -- (13) (32)
Realized Net Gain (2,354) (3,540) -- -- (915) (1,377)
ADVISER CLASS +:
Net Investment Income (5,679) (4,810) -- -- -- (8)
Realized Net Gain (27,923) (52,186) (316) (14,328) -- (355)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (405,475) (437,725) (67,224) (91,897) (25,415) (34,949)
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
INSTITUTIONAL CLASS:
Issued 752,802 348,999 273,476 565,037 307,936 370,988
Issued due to
Reorganization--Note M -- -- -- -- 43,226 --
In Lieu of Cash Distributions 313,748 327,810 64,517 71,047 23,811 31,687
Redeemed (1,493,928) (1,761,799) (291,506) (486,282) (102,105) (188,868)
INVESTMENT CLASS:
Issued 12,467 6,883 -- -- 24,500 6,915
In Lieu of Cash Distributions 1,920 2,822 -- -- 918 1,251
Redeemed (11,550) (23,620) -- -- (5,250) (6,141)
ADVISER CLASS +:
Issued 292,374 78,928 73,812 181,375 269 40,211
Issued due to
Reorganization--Note M -- -- -- -- 7,086 --
In Lieu of Cash Distributions 29,311 51,418 310 14,192 -- 363
Redeemed (98,912) (173,003) (17,226) (24,798) (1,235) (7,784)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions (201,768) (1,141,562) 103,383 320,571 299,156 248,622
- ---------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (1,135,837) (1,294,523) 32,850 567,958 222,837 342,513
NET ASSETS:
Beginning of Period 3,773,872 2,638,035 448,163 481,013 221,498 444,335
- ---------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $ 2,638,035 $ 1,343,512 $ 481,013 $ 1,048,971 $ 444,335 $ 786,848
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
47
<PAGE> 50
STATEMENT OF CHANGES IN NET ASSETS (CONT'D)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MID CAP MID CAP
VALUE GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
--------------------- ------------------- ------------------
(In Thousands) 1998 1999 1998 1999 1998 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income
(loss) included in end of period net
assets $ 13,250 $ 5,140 $ -- $ 2 $ 1,259 $ 3,056
- ---------------------------------------------------------------------------------------------------------------------------------
(1) Shares Issued and Redeemed
INSTITUTIONAL CLASS:
Shares Issued 40,398 22,907 12,802 24,011 14,975 17,268
Shares Issued due to
Reorganization--Note M -- -- -- -- 1,981 --
In Lieu of Cash Distributions 17,599 23,236 3,693 3,801 1,280 1,661
Shares Redeemed (80,941) (117,686) (13,871) (20,418) (5,123) (9,185)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in
Institutional Class Shares
Outstanding (22,944) (71,543) 2,624 7,394 13,113 9,744
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT CLASS:
Shares Issued 659 440 -- -- 1,195 324
In Lieu of Cash Distributions 107 200 -- -- 49 66
Shares Redeemed (613) (1,547) -- -- (256) (279)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in
Investment Class Shares
Outstanding 153 (907) -- -- 988 111
- ---------------------------------------------------------------------------------------------------------------------------------
ADVISER CLASS +:
Shares Issued 15,459 5,078 3,486 7,873 14 1,930
Shares Issued due to
Reorganization--Note M -- -- -- -- 325 --
In Lieu of Cash Distributions 1,645 3,645 18 763 -- 19
Shares Redeemed (5,498) (11,461) (806) (1,101) (68) (362)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in
Adviser Class Shares
Outstanding 11,606 (2,738) 2,698 7,535 271 1,587
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ The Mid Cap Value Portfolio began offering Adviser Class shares on July 17,
1998.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
48
<PAGE> 51
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIXED HIGH
INCOME YIELD
PORTFOLIO PORTFOLIO
--------------------------------------------------------
Year Ended Year Ended
September 30, September 30,
------------------------- --------------------
(In Thousands) 1998 1999 1998 1999
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ 269,463 $ 314,624 $ 55,020 $ 87,828
Realized Net Gain (Loss) 96,110 (123,134) 18,260 (8,975)
Change in Unrealized Appreciation (Depreciation) (53,419) (176,179) (86,841) (6,643)
- --------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from
Operations 312,154 15,311 (13,561) 72,210
- --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:--Note A10
INSTITUTIONAL CLASS:
Net Investment Income (236,264) (273,978) (48,720) (75,740)
Realized Net Gain (49,292) -- (14,043) (3,816)
In Excess of Realized Net Gain -- (112,821) -- (13,719)
INVESTMENT CLASS:
Net Investment Income (1,481) (2,372) (867) (674)
Realized Net Gain (297) -- (243) (37)
In Excess of Realized Net Gain -- (1,138) -- (131)
ADVISER CLASS:
Net Investment Income (5,636) (7,874) (744) (1,019)
Realized Net Gain (1,121) -- (180) (40)
In Excess of Realized Net Gain -- (3,280) -- (145)
- --------------------------------------------------------------------------------------------------------------------------
Total Distributions (294,091) (401,463) (64,797) (95,321)
- --------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
INSTITUTIONAL CLASS:
Issued 1,950,102 958,460 459,733 564,421
In Lieu of Cash Distributions 247,290 349,941 45,671 64,229
Redeemed (809,245) (1,222,480) (250,421) (371,320)
INVESTMENT CLASS:
Issued 50,811 24,497 9,943 5,963
In Lieu of Cash Distributions 1,337 2,637 756 799
Redeemed (13,110) (33,777) (9,038) (10,904)
ADVISER CLASS:
Issued 76,130 38,314 20,784 28,455
In Lieu of Cash Distributions 4,436 8,285 805 1,072
Redeemed (26,749) (25,174) (14,409) (25,988)
- --------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share
Transactions 1,481,002 100,703 263,824 256,727
- --------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 1,499,065 (285,449) 185,466 233,616
NET ASSETS:
Beginning of Period 3,306,197 4,805,262 539,142 724,608
- --------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $4,805,262 $ 4,519,813 $ 724,608 $ 958,224
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
49
<PAGE> 52
STATEMENT OF CHANGES IN NET ASSETS (CONT'D)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIXED HIGH
INCOME YIELD
PORTFOLIO PORTFOLIO
--------------------------------------------------------
<CAPTION>
Year Ended Year Ended
September 30, September 30,
------------------------- --------------------
(In Thousands) 1998 1999 1998 1999
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Undistributed net investment income (loss) included in end
of period net assets $ 70,218 $ 82,491 $ 16,074 $ 29,048
- --------------------------------------------------------------------------------------------------------------------------
(1) Shares Issued and Redeemed
INSTITUTIONAL CLASS:
Shares Issued 161,426 82,479 47,739 62,967
In Lieu of Cash Distributions 20,656 30,023 4,720 7,249
Shares Redeemed (66,995) (105,699) (25,893) (41,499)
- --------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Institutional Class Shares
Outstanding 115,087 6,803 26,566 28,717
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENT CLASS:
Shares Issued 4,202 2,128 1,014 671
In Lieu of Cash Distributions 112 225 78 90
Shares Redeemed (1,089) (2,881) (916) (1,210)
- --------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Investment Class Shares
Outstanding 3,225 (528) 176 (449)
- --------------------------------------------------------------------------------------------------------------------------
ADVISER CLASS:
Shares Issued 6,305 3,302 2,125 3,188
In Lieu of Cash Distributions 370 710 83 120
Shares Redeemed (2,211) (2,166) (1,496) (2,883)
- --------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Adviser Class Shares
Outstanding 4,464 1,846 712 425
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
50
<PAGE> 53
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
VALUE PORTFOLIO Institutional Class
-------------------------------------------------------------------------
Year Ended September 30,
------------------------------------------------------------------
1995 1996 1997++ 1998 1999++
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.63 $ 14.89 $ 15.61 $ 20.37 $ 15.16
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.31 0.30 0.34 0.34 0.21
Net Realized and Unrealized Gain (Loss) on
Investments 3.34 2.20 5.75 (3.38) 1.11
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 3.65 2.50 6.09 (3.04) 1.32
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.31) (0.32) (0.30) (0.36) (0.28)
Realized Net Gain (1.08) (1.46) (1.03) (1.81) (2.61)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.39) (1.78) (1.33) (2.17) (2.89)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.89 $ 15.61 $ 20.37 $ 15.16 $ 13.59
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 32.58% 18.41% 41.25% (16.41%) 8.30%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $1,271,586 $1,844,740 $3,542,772 $2,288,236 $1,079,356
Ratio of Expenses to Average Net Assets (1) 0.60% 0.61% 0.62% 0.60% 0.63%
Ratio of Net Investment Income to Average Net
Assets 2.43% 2.07% 1.93% 1.76% 1.38%
Portfolio Turnover Rate 56% 53% 46% 56% 53%
- ---------------------------------------------------------------------------------------------------------------------------------
(1) SUPPLEMENTAL INFORMATION ON THE RATIO OF
EXPENSES TO AVERAGE NET ASSETS:
Ratio Including Expense Offsets 0.60% 0.60% 0.61% 0.59% 0.62%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
++ Per share amounts for the year ended September 30, 1997 and September 30,
1999, are based on average shares outstanding.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
51
<PAGE> 54
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
VALUE PORTFOLIO Investment Class Adviser Class
--------------------------------------------------------------------------------
May 6, Year Ended July 17, Year Ended
1996** to September 30, 1996*** to September 30,
September ------------------------ September -------------------
30, 1997++ 1998 1999++ 30, 1997++ 1998
(CONTINUED) 1996 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.97 $ 15.60 $ 20.36 $ 15.15 $ 14.11 $ 15.61 $ 20.35
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.12 0.31 0.31 0.19 0.01 0.30 0.29
Net Realized and Unrealized Gain
(Loss) on Investments 0.59 5.75 (3.38) 1.12 1.49 5.74 (3.38)
- --------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.71 6.06 (3.07) 1.31 1.50 6.04 (3.09)
- --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.08) (0.27) (0.33) (0.27) -- (0.27) (0.32)
Realized Net Gain -- (1.03) (1.81) (2.61) -- (1.03) (1.81)
- --------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.08) (1.30) (2.14) (2.88) -- (1.30) (2.13)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 15.60 $ 20.36 $ 15.15 $ 13.58 $ 15.61 $ 20.35 $ 15.13
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 4.78% 41.01% (16.55%) 8.20% 10.63% 40.87% (16.66%)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(Thousands) $ 9,244 $29,847 $ 24,527 $ 9,673 $ 15,493 $201,253 $325,272
Ratio of Expenses to Average Net
Assets (2) 0.76%* 0.80% 0.75% 0.78% 0.86%* 0.90% 0.85%
Ratio of Net Investment Income
to Average Net Assets 2.05%* 1.75% 1.62% 1.25% 1.66%* 1.63% 1.52%
Portfolio Turnover Rate 53% 46% 56% 53% 53% 46% 56%
- --------------------------------------------------------------------------------------------------------------------------
(2) SUPPLEMENTAL INFORMATION ON THE
RATIO OF EXPENSES TO AVERAGE NET
ASSETS:
Reduction in Ratio due to
Expense Reimbursement/Waiver N/A 0.09% N/A N/A N/A N/A N/A
Ratio Including Expense Offsets 0.75%* 0.79% 0.74% 0.77% 0.85%* 0.89% 0.84%
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
VALUE PORTFOLIO
Adviser Class
----------------
Year Ended
September 30,
-------------
(CONTINUED) 1999++
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.13
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.17
Net Realized and Unrealized Gain
(Loss) on Investments 1.12
- --------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.29
- --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.24)
Realized Net Gain (2.61)
- --------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (2.85)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.57
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 8.10%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(Thousands) $254,483
Ratio of Expenses to Average Net
Assets (2) 0.88%
Ratio of Net Investment Income
to Average Net Assets 1.10%
Portfolio Turnover Rate 53%
- --------------------------------------------------------------------------------------------------------------------------
(2) SUPPLEMENTAL INFORMATION ON THE
RATIO OF EXPENSES TO AVERAGE NET
ASSETS:
Reduction in Ratio due to
Expense Reimbursement/Waiver N/A
Ratio Including Expense Offsets 0.87%
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* Annualized
** Initial offering of Investment Class shares
*** Initial offering of Adviser Class shares
- -----------------------------------------------------------------
++ Per share amounts for the year ended September 30, 1997 and
September 30, 1999, are based on average shares outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
52
<PAGE> 55
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Institutional Class
--------------------------------------------------------
MID CAP GROWTH PORTFOLIO Year Ended September 30,
--------------------------------------------------------
1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.29 $ 18.60 $ 20.53 $ 21.84 $ 18.62
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.03 0.01 (0.01) (0.03) (0.01)
Net Realized and Unrealized Gain (Loss) on Investments 4.21 4.70 4.75 0.24 10.65
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 4.24 4.71 4.74 0.21 10.64
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.03) (0.03) -- -- (0.00)++
Realized Net Gain (1.90) (2.75) (3.43) (3.43) (3.49)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.93) (2.78) (3.43) (3.43) (3.49)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 18.60 $ 20.53 $ 21.84 $ 18.62 $ 25.77
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 30.56% 28.81% 28.05% 2.00% 64.27%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $373,547 $403,281 $446,963 $429,955 $785,659
Ratio of Expenses to Average Net Assets (1) 0.61% 0.60% 0.63% 0.62% 0.62%
Ratio of Net Investment Income to Average Net Assets 0.21% 0.04% (0.07%) (0.13%) (0.07%)
Portfolio Turnover Rate 129% 141% 134% 172% 208%
- ------------------------------------------------------------------------------------------------------------------------------
(1) SUPPLEMENTAL INFORMATION ON THE RATIO OF EXPENSES TO
AVERAGE NET ASSETS:
Ratio Including Expense Offsets 0.60% 0.60% 0.61% 0.60% 0.60%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
++ Amount is less than $0.01 per share.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
53
<PAGE> 56
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
MID CAP GROWTH PORTFOLIO Adviser Class
----------------------------------------
January 31, Year Ended
1997** to September 30,
September 30, ----------------
(CONTINUED) 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.04 $ 21.81 $ 18.55
- ----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.02) (0.03) (0.05)
Net Realized and Unrealized Gain (Loss) on Investments 4.79 0.20 10.58
- ----------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 4.77 0.17 10.53
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Realized Net Gain -- (3.43) (3.49)
- ----------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS -- (3.43) (3.49)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 21.81 $ 18.55 $ 25.59
- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN 27.99% 1.79% 63.87%
- ----------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $ 1,200 $51,058 $263,312
Ratio of Expenses to Average Net Assets (2) 0.88%* 0.87% 0.88%
Ratio of Net Investment Income to Average Net Assets (0.41%)* (0.25%) (0.31%)
Portfolio Turnover Rate 134% 172% 208%
- ----------------------------------------------------------------------------------------------------------
(2) SUPPLEMENTAL INFORMATION ON THE RATIO OF EXPENSES TO
AVERAGE NET ASSETS:
Ratio Including Expense Offsets 0.86%* 0.84% 0.86%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* Annualized
** Initial offering of Adviser Class shares
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
54
<PAGE> 57
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Institutional Class
-------------------------------------------------------------------
December 30, Year Ended September 30,
1994** to --------------------------------------------------
September 30, 1996 1997++ 1998++ 1999++
MID CAP VALUE PORTFOLIO 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 13.45 $ 14.49 $ 21.80 $ 18.12
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.55L 0.11 0.05 0.08 0.12
Net Realized and Unrealized Gain (Loss) on
Investments 2.90 2.52 8.37 (1.53) 5.01
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 3.45 2.63 8.42 (1.45) 5.13
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income -- (0.55) (0.10) (0.04) (0.06)
Realized Net Gain -- (1.04) (1.01) (2.19) (1.31)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS -- (1.59) (1.11) (2.23) (1.37)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.45 $ 14.49 $ 21.80 $ 18.12 $ 21.88
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 34.50% 22.30% 61.40% (6.92%) 29.44%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $ 4,507 $50,449 $220,260 $420,555 $721,015
Ratio of Expenses to Average Net Assets (1) 0.93%* 0.88% 0.90% 0.90% 0.87%
Ratio of Net Investment Income to Average Net
Assets 10.13%*(L) 1.61% 0.28% 0.40% 0.57%
Portfolio Turnover Rate 639%(L) 377% 184% 213% 244%
- ---------------------------------------------------------------------------------------------------------------------------------
(1) SUPPLEMENTAL INFORMATION ON THE RATIO OF EXPENSES
TO AVERAGE NET ASSETS:
Reduction in Ratio due to Expense
Reimbursement/Waiver 2.13%* 0.18% 0.02% N/A N/A
Ratio Including Expense Offsets 0.88%* 0.88% 0.88% 0.88% 0.86%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* Annualized
** Commencement of Operations
(L) 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.
++ Per share amounts for the years ended September 30, 1997,
September 30, 1998, and September 30, 1999, are based on
average shares outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
55
<PAGE> 58
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
MID CAP VALUE PORTFOLIO Investment Class Adviser Class
---------------------------------------------- ------------------------------
May 10, Year Ended September 30, July 17,
1996** to ------------------------- 1998*** to Year Ended
September 30, 1997++ 1998++ 1999++ September 30, September 30,
(CONTINUED) 1996 1998++ 1999++
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 13.77 $ 14.48 $ 21.75 $ 18.05 $ 21.82 $ 18.12
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.04 0.01 0.05 0.09 0.01 0.07
Net Realized and Unrealized
Gain (Loss) on
Investments 0.67 8.36 (1.53) 5.00 (3.71) 5.01
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 0.71 8.37 (1.48) 5.09 (3.70) 5.08
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income -- (0.09) (0.03) (0.03) -- (0.03)
Realized Net Gain -- (1.01) (2.19) (1.31) -- (1.31)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS -- (1.10) (2.22) (1.34) -- (1.34)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.48 $ 21.75 $ 18.05 $ 21.80 $ 18.12 $ 21.86
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 5.16% 61.05% (7.08%) 29.30% (16.96%) 29.12%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(Thousands) $ 127 $ 1,238 $18,861 $25,197 $ 4,919 $ 40,636
Ratio of Expenses to
Average Net Assets (2) 1.03%* 1.09% 1.05% 1.02% 1.24%* 1.12%
Ratio of Net Investment
Income to Average Net
Assets 0.86%* 0.04% 0.25% 0.42% 0.25%* 0.33%
Portfolio Turnover Rate 377% 184% 213% 244% 213% 244%
- ---------------------------------------------------------------------------------------------------------------------------------
(2) SUPPLEMENTAL INFORMATION ON
THE RATIO OF EXPENSES TO
AVERAGE NET ASSETS:
Reduction in Ratio due to
Expense
Reimbursement/Waiver 0.14%* 4.60% N/A N/A N/A N/A
Ratio Including Expense
Offsets 1.03%* 1.07% 1.03% 1.01% 1.17%* 1.11%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* Annualized
** Initial offering of Investment Class shares
*** Initial offering of Adviser Class shares
- ------------------------------------------------------------------
++ Per share amounts for the years ended September 30, 1997,
September 30, 1998 and September 30, 1999 are based on
average shares outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
56
<PAGE> 59
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Institutional Class
----------------------------------------------------------------------
FIXED INCOME PORTFOLIO Year Ended September 30,
----------------------------------------------------------------------
1995 1996 1997++ 1998++ 1999++
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.93 $ 11.82 $ 11.83 $ 12.22 $ 12.22
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.80 0.78 0.80 0.78 0.77
Net Realized and Unrealized Gain (Loss) on
Investments 0.69 0.08 0.50 0.14 (0.72)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.49 0.86 1.30 0.92 0.05
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.60) (0.79) (0.78) (0.75) (0.71)
Realized Net Gain -- (0.06) (0.13) (0.17) --
In Excess of Realized Net Gain -- -- -- -- (0.30)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.60) (0.85) (0.91) (0.92) (1.01)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.82 $ 11.83 $ 12.22 $ 12.22 $ 11.26
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 14.19% 7.63% 11.47% 7.90% 0.33%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $1,487,409 $1,790,146 $3,219,987 $4,625,015 $4,338,939
Ratio of Expenses to Average Net Assets (1) 0.49% 0.48% 0.49% 0.48% 0.48%
Ratio of Net Investment Income to Average Net
Assets 7.28% 6.77% 6.73% 6.49% 6.62%
Portfolio Turnover Rate 140% 162% 179% 121% 103%
- ---------------------------------------------------------------------------------------------------------------------------------
(1) SUPPLEMENTAL INFORMATION ON THE RATIO OF EXPENSES
TO AVERAGE NET ASSETS:
Ratio Including Expense Offsets 0.48% 0.48% 0.48% 0.47% 0.47%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
++ Per share amounts for the years ended September 30, 1997,
September 30, 1998, and September 30, 1999, are based on
average shares outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
57
<PAGE> 60
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FIXED INCOME PORTFOLIO Investment Class Adviser Class
------------------------------- ------------------------------------
October 15, Year Ended November 7, Year Ended
1996** to September 30, 1996*** to September 30,
September -------------- September ----------------
30, 1998++ 1999++ 30, 1998++ 1999++
(CONTINUED) 1997++ 1997++
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.80 $ 12.22 $ 12.22 $ 12.04 $ 12.22 $ 12.23
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.75 0.76 0.76 0.70 0.75 0.74
Net Realized and Unrealized Gain (Loss) on
Investments 0.40 0.14 (0.72) 0.20 0.14 (0.72)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.15 0.90 0.04 0.90 0.89 0.02
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.60) (0.73) (0.69) (0.59) (0.71) (0.69)
Realized Net Gain (0.13) (0.17) -- (0.13) (0.17) --
In Excess of Realized Net Gain -- -- (0.30) -- -- (0.30)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.73) (0.90) (0.99) (0.72) (0.88) (0.99)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.22 $ 12.22 $ 11.27 $ 12.22 $ 12.23 $ 11.26
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 10.07% 7.72% 0.24% 7.79% 7.63% 0.07%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $ 9,527 $48,944 $39,165 $ 76,683 $131,303 $141,709
Ratio of Expenses to Average Net Assets (2) 0.66%* 0.63% 0.63% 0.77%* 0.73% 0.73%
Ratio of Net Investment Income to Average Net
Assets 6.57%* 6.31% 6.50% 6.50%* 6.22% 6.38%
Portfolio Turnover Rate 179% 121% 103% 179% 121% 103%
- ---------------------------------------------------------------------------------------------------------------------------------
(2) SUPPLEMENTAL INFORMATION ON THE RATIO OF
EXPENSES TO AVERAGE NET ASSETS:
Reduction in Ratio due to Expense
Reimbursement/Waiver 0.12%* N/A N/A 0.01%* N/A N/A
Ratio Including Expense Offsets 0.65%* 0.62% 0.62% 0.76%* 0.72% 0.72%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* Annualized
** Initial offering of Investment Class shares
*** Initial offering of Adviser Class shares
- -----------------------------------------------------------------
++ Per share amounts for the years ended September 30, 1997,
September 30, 1998 and September 30, 1999, are based on
average shares outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
58
<PAGE> 61
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period
HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
Institutional Class
--------------------------------------------------------
Year Ended September 30,
--------------------------------------------------------
1995 1996 1997++ 1998++ 1999++
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.97 $ 9.08 $ 9.32 $ 10.15 $ 8.99
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.90 0.88 0.86 0.85 0.86
Net Realized and Unrealized Gain (Loss) on
Investments 0.19 0.28 0.87 (0.93) (0.10)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.09 1.16 1.73 (0.08) 0.76
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.85) (0.92) (0.87) (0.82) (0.79)
Realized Net Gain (0.08) -- (0.03) (0.26) (0.04)
In Excess of Realized Net Gain (0.05) -- -- -- (0.15)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.98) (0.92) (0.90) (1.08) (0.98)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.08 $ 9.32 $ 10.15 $ 8.99 $ 8.77
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 13.58% 13.83% 19.90% (1.17%) 8.81%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $220,785 $289,810 $523,899 $703,110 $937,482
Ratio of Expenses to Average Net Assets (1) 0.50% 0.49% 0.51% 0.50% 0.49%
Ratio of Net Investment Income to Average Net Assets 10.68% 10.04% 9.05% 8.74% 9.61%
Portfolio Turnover Rate 96% 115% 96% 75% 45%
- ---------------------------------------------------------------------------------------------------------------------------------
(1) SUPPLEMENTAL INFORMATION ON THE RATIO OF EXPENSES TO
AVERAGE NET ASSETS:
Ratio Including Expense Offsets 0.49% 0.48% 0.50% 0.48% 0.48%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
++ Per share amounts for the years ended September 30, 1997, September 30, 1998,
and September 30, 1999, are based on average shares outstanding.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
59
<PAGE> 62
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
HIGH YIELD PORTFOLIO Investment Class Adviser Class
-------------------------------------------- -----------------------------------
May 21, Year Ended September 30, January 31, Year Ended
1996** to --------------------------- 1997*** to September 30,
September 30, 1997++ 1998++ 1999++ September 30, ----------------
(CONTINUED) 1996 1997++ 1998++ 1999++
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 9.06 $ 9.31 $ 10.16 $ 9.00 $ 9.39 $ 10.15 $ 8.99
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.31 0.84 0.83 0.85 0.56 0.83 0.84
Net Realized and Unrealized
Gain (Loss) on Investments 0.16 0.88 (0.93) (0.10) 0.59 (0.93) (0.11)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.47 1.72 (0.10) 0.75 1.15 (0.10) 0.73
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.22) (0.84) (0.80) (0.78) (0.39) (0.80) (0.77)
Realized Net Gain -- (0.03) (0.26) (0.04) -- (0.26) (0.04)
In Excess of Realized Net Gain -- -- -- (0.15) -- -- (0.15)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.22) (0.87) (1.06) (0.97) (0.39) (1.06) (0.96)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.31 $ 10.16 $ 9.00 $ 8.78 $ 10.15 $ 8.99 $ 8.76
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 5.34% 19.77% (1.37%) 8.67% 12.63% (1.37%) 8.44%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(Thousands) $ 5,139 $10,916 $11,262 $7,041 $ 4,327 $10,236 $13,701
Ratio of Expenses to Average
Net Assets (2) 0.62%* 0.70% 0.65% 0.64% 0.78%* 0.75% 0.74%
Ratio of Net Investment Income
to Average Net Assets 11.06%* 8.84% 8.58% 9.50% 8.68%* 8.55% 9.29%
Portfolio Turnover Rate 115% 96% 75% 45% 96% 75% 45%
- ---------------------------------------------------------------------------------------------------------------------------------
(2) SUPPLEMENTAL INFORMATION ON
THE RATIO OF EXPENSES TO
AVERAGE NET ASSETS:
Reduction in Ratio due to
Expense
Reimbursement/Waiver N/A 0.22% N/A N/A N/A N/A N/A
Ratio Including Expense
Offsets 0.61%* 0.69% 0.63% 0.63% 0.76%* 0.73% 0.73%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* Annualized
** Initial offering of Investment Class shares
*** Initial offering of Adviser Class shares
- -----------------------------------------------------------------
++ Per share amounts for the years ended September 30, 1997,
September 30, 1998 and September 30, 1999 are based on
average shares outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
60
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MAS Funds (the "Fund") is registered under the Investment Company Act of 1940
as an open-end investment company. At September 30, 1999, the Fund was
comprised of twenty-two active portfolios (each referred to as a "Portfolio").
The Funds offer up to three different classes of shares for certain
Portfolios -- Institutional Class shares, Investment Class shares and Adviser
Class shares.
Each class of shares has identical voting rights (except shareholders of a Class
have exclusive voting rights regarding any matter relating solely to that Class
of shares), dividend, liquidation and other rights, except each class bears
different distribution fees as described in Note D. The accompanying financial
statements and financial highlights are those of the Value Portfolio, Mid Cap
Growth Portfolio, Mid Cap Value Portfolio, Fixed Income Portfolio and High Yield
Portfolio only. The financial statements for the remaining Portfolios are
presented separately.
A. SIGNIFICANT ACCOUNTING POLICIES. The following significant accounting
policies are in conformity with generally accepted accounting principles for
investment companies. Such policies are consistently followed by the Fund in the
preparation of its financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Market values for equity securities listed on the New
York Stock Exchange ("NYSE") or other U.S. exchanges or NASDAQ are based
on the latest quoted sales prices as of the close of the NYSE (normally
4:00 p.m. Eastern Time) on the valuation date; securities not traded on
the valuation date are valued at the mean of the most recent quoted bid
and asked prices. Equity securities not listed are valued at the mean of
the most recent bid and asked prices. Securities listed on foreign
exchanges are valued at the latest quoted sales prices. Bonds, including
municipal bonds, and other fixed income securities are valued using
brokers' quotations or on the basis of prices, provided by a pricing
service, which are based primarily on institutional size trading in
similar groups of securities. Mortgage-backed securities issued by certain
government-related organizations are valued using brokers' quotations
which are based on a matrix system which considers such factors as other
security prices, yields and maturities. Short term securities are valued
using the amortized cost method of valuation, which in the opinion of the
Board of Trustees reflects fair value. Securities for which no quotations
are readily available (including restricted securities) are valued at
their fair value as determined in good faith using methods approved by the
Board of Trustees.
- --------------------------------------------------------------------------------
61
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. FEDERAL INCOME TAXES: It is each Portfolio's intention to continue to
qualify as a regulated investment company and distribute all of its
taxable and tax-exempt income. Accordingly, no provision for Federal
income taxes is required in the financial statements.
3. REPURCHASE AGREEMENTS: Securities pledged as collateral for repurchase
agreements are held by the Portfolios' custodian bank until maturity of
the repurchase agreements. Provisions of the agreements ensure that the
market value of the collateral is at least equal to the repurchase value
in the event of a default; however, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings.
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, the Portfolios may transfer their uninvested cash balances
into a joint trading account with other Portfolios of the Fund which
invests in one or more repurchase agreements. This joint repurchase
agreement is covered by the same collateral requirements as discussed
above.
4. FUTURES: Futures contracts (secured by cash and securities deposited with
brokers as "initial margin") are valued based upon their quoted daily
settlement prices; changes in initial settlement value (represented by
cash paid to or received from brokers as "variation margin") are accounted
for as unrealized appreciation (depreciation). When futures contracts are
closed, the difference between the opening value at the date of purchase
and the value at closing is recorded as realized gain or loss in the
Statement of Operations.
Futures contracts may be used by each Portfolio in order to hedge against
unfavorable changes in the value of securities or to attempt to realize
profits from the value of the underlying securities.
Futures contracts involve market risk in excess of the amounts recognized
in the Statement of Net Assets. Risks arise from the possible movements in
security values underlying these instruments. The change in value of
futures contracts primarily corresponds with the value of their underlying
instruments, which may not correlate with the change in value of the
hedged investments. In addition, there is the risk that a Portfolio may
not be able to enter into a closing transaction because of an illiquid
secondary market.
5. SWAP AGREEMENTS: Each Portfolio, except the Mid Cap Growth Portfolio, may
enter into swap agreements to exchange the return generated by one
instrument for the return generated by another instrument.
- --------------------------------------------------------------------------------
62
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following summarizes interest rate swaps entered into by the
Portfolios:
Interest Rate Swaps: Interest rate swaps involve the exchange of
commitments to pay and receive interest based on a notional principal
amount. Net periodic interest payments to be received or paid are accrued
daily and are recorded in the Statement of Operations as an adjustment to
interest income. Interest rate swaps are marked-to-market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized appreciation or depreciation in the Statement of Operations.
Realized gains or losses on maturity or termination of interest rate swaps
are presented in the Statement of Operations. Because there is no
organized market for these swap agreements, the value reported in the
Statement of Net Assets may differ from that which would be realized in
the event the Portfolio terminated its position in the agreement. Risks
may arise upon entering into these agreements from the potential inability
of the counterparties to meet the terms of the agreements and are
generally limited to the amount of net payments to be received, if any, at
the date of default.
6. STRUCTURED INVESTMENTS: Certain Portfolios may invest in structured
investments whose values are linked either directly or inversely to
changes in foreign currencies, interest rates, commodities, indices,
equity securities or other underlying instruments. A Portfolio uses these
securities to increase or decrease its exposure to different underlying
instruments and to gain exposure to markets that might be difficult to
invest in through conventional securities. Structured investments may be
more volatile than their underlying instruments, but any loss is limited
to the amount of the original investment.
7. DELAYED DELIVERY COMMITMENTS: Each Portfolio may purchase or sell
securities on a when-issued or forward commitment basis. Payment and
delivery may take place a month or more after the date of the transaction.
The price of the underlying securities and the date when the securities
will be delivered and paid for are fixed at the time the transaction is
negotiated. Collateral consisting of liquid securities or cash is
maintained in an amount at least equal to these commitments with the
custodian. Securities held in segregated accounts cannot be sold while
this strategy is outstanding, unless replaced with other assets. As a
result, there is a possibility that as asset segregation reaches certain
levels, a portfolio may lose some flexibility in managing its investments,
responding to shareholder redemption requests, or meeting other current
obligations.
- --------------------------------------------------------------------------------
63
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. PURCHASED OPTIONS: Certain Portfolios may purchase call and put options on
their portfolio securities. A call option, upon payment of a premium,
gives the purchaser of the option the right to buy, and the seller the
obligation to sell, the underlying instrument at the exercise price. The
purchase of a call option might be intended to protect the Portfolio
against an increase in the price of the underlying instrument that it
intends to purchase in the future by fixing the price at which it may
purchase the instrument. A put option gives the purchaser of the option,
upon payment of a premium, the right to sell, and the writer the
obligation to buy, the instrument at the exercise price. A Portfolio may
purchase a put option to protect its holdings in the underlying
instrument, or a similar instrument, against a substantial decline in the
market value of such instrument by giving the Portfolio the right to sell
the instrument at the option exercise price. Possible losses from
purchased options cannot exceed the total amount invested.
9. FOREIGN EXCHANGE AND FORWARD CURRENCY CONTRACTS: The books and records of
the Fund are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars at the bid prices of such currencies against
U.S. dollars quoted by a bank. Net realized gains (losses) on foreign
currency transactions represent net foreign exchange gains (losses) from
forward foreign currency contracts, disposition of foreign currencies,
currency gains or losses realized between the trade and settlement dates
on securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on a Portfolio's
books and the U.S. dollar equivalent of amounts actually received or paid.
A forward foreign currency contract is an agreement between two parties to
buy or sell currency at a set price on a future date. Each Portfolio
(except the Mid Cap Growth Portfolio) may enter into forward foreign
currency contracts to protect securities and related receivables and
payables against future changes in foreign exchange rates. Fluctuations in
the value of such contracts are recorded as unrealized appreciation or
depreciation; realized gains or losses, which are disclosed in the
Statement of Operations, include net gains or losses on contracts which
have been terminated by settlements. Risks may arise upon entering into
these contracts from the potential inability of counterparties to meet the
terms of their contracts and are generally limited to the amount of
unrealized gain on the contract, if any, at the date of default. Risks may
also arise from unanticipated movements in the value of the foreign
currency relative to the U.S. dollar.
- --------------------------------------------------------------------------------
64
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At September 30, 1999, the net assets of certain Portfolios were
substantially comprised of foreign-currency denominated securities and
foreign currency. The net assets of these Portfolios are presented at the
foreign exchange rates and market values at the close of the period. The
Portfolios do not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from the
fluctuations arising from changes in the market prices of the securities
held at period end. Similarly, the Portfolios do not isolate the effect of
changes in foreign exchange rates from the fluctuations arising from
changes in the market prices of securities sold during the period.
Accordingly, the components of realized and unrealized foreign currency
gains (losses) representing foreign exchange changes on investments is
included in the reported net realized and unrealized gains (losses) on
investment transactions and balances. Changes in currency exchange rates
will affect the value of and investment income from such securities and
currency.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of U.S.
dollar denominated transactions as a result of, among other factors, the
possibly lower levels of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
10. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income, if any, are declared and paid
quarterly except for the Mid Cap Growth and Mid Cap Value Portfolios,
which are declared and paid annually. Net realized capital gains are
distributed at least annually. The amount and character of income and
gains to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing book and tax
treatments in the timing of the recognition of gains or losses on
securities, forwards and futures, including Post October Losses and
permanent differences such as gain (loss) on in-kind redemptions (Note J),
foreign currency transactions and gains on certain equity securities
designated as issued by "passive foreign investment companies".
Permanent book and tax differences relating to shareholder distributions
may result in reclassifications to undistributed net investment income
(loss), undistributed realized net gain (loss) and paid in capital.
Permanent book-tax differences, if any, are not included in ending
undistributed net investment income (loss) for the purpose of calculating
net investment income (loss) per share in the Financial Highlights.
- --------------------------------------------------------------------------------
65
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and losses
on the sale of investment securities are those of specific securities
sold.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recognized on the accrual basis.
Discounts and premiums on securities purchased are amortized over their
respective lives. Most expenses of the Fund can be directly attributed to
a particular Portfolio. Expenses which cannot be directly attributed are
apportioned among the Portfolios on the basis of their relative net
assets. Income, expenses (other than class specific expenses) and realized
and unrealized gains or losses are allocated to each class of shares based
upon their relative net assets.
B. INVESTMENT ADVISORY FEE. Under the terms of an Investment Advisory
Agreement, each Portfolio pays Miller Anderson & Sherrerd, LLP ("MAS" or the
"Adviser"), wholly owned by indirect subsidiaries of Morgan Stanley Dean Witter
& Co., for investment advisory services performed at a fee calculated by
applying a quarterly rate based on an annual percentage rate to each
Portfolio's average daily net assets for the quarter. For the year ended
September 30, 1999 the investment advisory fees of each of the Portfolios were:
<TABLE>
<CAPTION>
Annual
Investment
Advisory
Portfolio Fee
--------- ----------
<S> <C>
Value 0.500%
Mid Cap Growth 0.500
Mid Cap Value 0.750
Fixed Income 0.375
High Yield 0.375
</TABLE>
C. ADMINISTRATION FEE. MAS serves as Administrator to the Fund pursuant to an
Administration Agreement. Under the agreement, MAS receives an annual fee,
accrued daily and payable monthly, of 0.08% of each Portfolio's average daily
net assets. Chase Global Funds Services Company ("CGFSC") serves as Transfer
Agent to the Fund and provides fund accounting and other services pursuant to a
sub-administration agreement with MAS and receives compensation from MAS for
these services.
D. DISTRIBUTOR. MAS Fund Distribution, Inc. ("MASDI" or the "Distributor"), a
wholly owned subsidiary of Miller Anderson & Sherrerd, LLP, is the distributor
for the Fund. MASDI is a limited-purpose broker/dealer whose only function is
to distribute open-end mutual fund shares. The Distributor provides all classes
of
- --------------------------------------------------------------------------------
66
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
shares in each Portfolio with distribution services, and receives fees in
connection with these services, pursuant to separate Distribution and
Shareholder Servicing Plans (the "Plans") in accordance with Rule 12b-1 under
the Investment Company Act of 1940.
Under the Plans, the Distributor is entitled to distribution fees and
shareholder servicing fees for Adviser Class and Investment Class shares,
respectively. The distribution fee is an asset-based fee to support
distribution efforts and/or servicing of accounts. The Adviser Class of shares
pays an annual distribution fee of 0.25% of average net assets of the class for
such services under the 12b-1 plan adopted by the Fund. The Investment Class of
shares pays an annual shareholder servicing fee of 0.15% of average net assets
of the class. The shareholder servicing fee is not a distribution fee and is
used to support the expenses associated with servicing and maintaining
accounts. Both fees are paid directly to MASDI. The distribution fee may be
retained by MASDI if an Adviser Class shareholder invests directly through
MASDI. Usually the fees are paid by MASDI to external organizations such as
401(k) alliance sponsors, discount brokers and bank trust departments who
distribute MAS Funds to the public.
E. CUSTODY. The Chase Manhattan Bank serves as custodian for the Fund in
accordance with a custodian agreement.
F. TRUSTEES' FEES. The Fund pays each Trustee, who is not also an officer or
affiliated person, an annual fee plus travel and other expenses incurred in
attending Board meetings. Trustees who are also officers or affiliated persons
receive no remuneration for their service as Trustees.
Each eligible Trustee of the Fund who is not an officer or affiliated person,
as defined under the Investment Company Act of 1940, as amended, participates
in the Trustees' Deferred Compensation Plan. Under the Trustees' Deferred
Compensation Plan, such Trustees must defer at least 25% of their fees and may
elect to defer payment of up to 100% of their total fees earned as a Trustee of
the Fund. These deferred amounts are invested in the Portfolios selected by the
Trustee. Total trustees fees incurred, for the year ended September 30, 1999 by
the Portfolios were $94,000.
Expenses for the year ended September 30, 1999, include legal fees paid to
Morgan, Lewis & Bockius LLP. A partner of that firm is an Assistant Secretary
of the Fund.
G. PORTFOLIO INVESTMENT ACTIVITY.
1. PURCHASES AND SALES OF SECURITIES: For the year ended September 30, 1999,
purchases
- --------------------------------------------------------------------------------
67
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
and sales of investment securities other than temporary cash investments
were:
<TABLE>
<CAPTION>
(000)
------------------------
Portfolio Purchases Sales
--------- ---------- ----------
<S> <C> <C>
Value $1,061,453 $2,475,728
Mid Cap Growth 1,707,408 1,497,357
Mid Cap Value 1,543,155 1,376,585
Fixed Income 6,825,613 6,381,231
High Yield 604,413 385,184
</TABLE>
2. FEDERAL INCOME TAX COST AND UNREALIZED APPRECIATION (DEPRECIATION): At
September 30, 1999, cost, unrealized appreciation, unrealized depreciation
and net unrealized appreciation (depreciation) of securities for Federal
income tax purposes were:
<TABLE>
<CAPTION>
(000)
----------------------------------------------------
Portfolio Cost Appreciation Depreciation Net
--------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
Value $1,464,661 $ 95,655 $(214,089) $(118,434)
Mid Cap Growth 998,740 174,116 (51,847) 122,269
Mid Cap Value 796,080 44,826 (66,906) (22,080)
Fixed Income 6,815,853 26,467 (189,356) (162,889)
High Yield 1,025,071 11,311 (77,547) (66,236)
</TABLE>
3. FORWARD FOREIGN CURRENCY CONTRACTS: Under the terms of the forward foreign
currency contracts open at September 30, 1999, each Portfolio is obligated
to deliver or receive currency in exchange for U.S. dollars as indicated in
the following table:
<TABLE>
<CAPTION>
(000)
---------------------------------------------------------------
Net
Currency In Unrealized
to Exchange Settlement Appreciation
Portfolio Deliver For Date Value (Depreciation)
--------- --------- --------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
HIGH YIELD
Purchases US$ 2,965 EUR 2,750 10/27/99 US$ 2,933 US$ (32)
3,515 EUR 3,265 10/27/99 3,482 (33)
-------
US$ (65)
-------
Sales EUR 9,950 US$10,532 10/26/99 US$10,610 US$ (78)
EUR27,685 29,680 10/27/99 29,523 157
EUR 3,960 4,190 10/27/99 4,223 (33)
EUR 6,350 6,811 10/29/99 6,773 38
EUR 1,160 1,257 11/10/99 1,239 18
EUR 9,150 9,689 11/19/99 9,776 (87)
GBP 1,100 1,779 11/10/99 1,810 (31)
GBP19,730 31,686 12/3/99 32,486 (800)
-------
US$(816)
-------
NET NET US$(881)
=======
</TABLE>
<TABLE>
<S> <C> <C>
EUR -- Euro
GBP -- British Pound
US$ -- U.S. Dollar
</TABLE>
- --------------------------------------------------------------------------------
68
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. FUTURES CONTRACTS: At September 30, 1999, the following Portfolios had
futures contracts open:
<TABLE>
<CAPTION>
Unrealized
Number Aggregate Appreciation
of Face Value Expiration (Depreciation)
Portfolio Contracts (000) Date (000)
--------- --------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Purchases:
FIXED INCOME
Municipal Bond Index
U.S. Treasury
2 yr. Note 521 US$108,124 Dec-99 $ 58
U.S. Treasury
Long Bond 2,317 US$263,993 Dec-99 (1,590)
Sales:
FIXED INCOME
90 Day Euro 43 US$ 10,099 Dec-99- (49)
Mar-01
U.S. Treasury
10 yr. Note 4,782 US$526,618 Dec-99 (4,284)
HIGH YIELD
U.K. Long Gilt 178 GBP 30,349 Dec-99 785
U.S. Treasury
Long Bond 170 US$ 19,369 Dec-99 101
</TABLE>
<TABLE>
<S> <C> <C>
GBP -- British Pound
US$ -- U.S. Dollar
</TABLE>
5. SWAP AGREEMENTS: At September 30, 1999, the following Portfolios had open
Interest Rate Swap Agreements:
<TABLE>
<CAPTION>
Unrealized
Notional Appreciation
Amount (Depreciation)
(000) Description (000)
- -------------------------------------------------------------------
<C> <S> <C>
FIXED INCOME
$51,000 Agreement with Bankers Trust Company $(2,593)
terminating August 25, 2008 to pay 3
month LIBOR quarterly and to receive
fixed rate at 6.04% semiannually.
$50,000 Agreement with Bankers Trust Company (2,334)
terminating August 27, 2008 to pay 3
month LIBOR quarterly and to receive
fixed rate at 6.10% semiannually.
$11,000 Agreement with Bankers Trust Company (570)
terminating August 28, 2008 to pay 3
month LIBOR monthly and to receive
fixed rate at 6.03% semiannually.
$19,000 Agreement with Bankers Trust Company (1,458)
terminating September 17, 2008 to pay 3
month LIBOR quarterly and to receive
fixed rate at 5.64% semiannually.
$31,000 Agreement with Bankers Trust Company (2,479)
terminating September 21, 2008 to pay 3
month LIBOR quarterly and to receive
fixed rate at 5.59% semiannually.
-------
$(9,434)
=======
LIBOR -- London Interbank Offer Rate
</TABLE>
H. CAPITAL LOSS CARRY FORWARD. At September 30, 1999, the following Portfolios
had available for Federal income tax purposes unused capital losses, all of
which will expire on the indicated dates:
<TABLE>
<CAPTION>
Expiration Date
September 30,
2007
Portfolio (000)
--------- ---------------
<S> <C>
Fixed Income $2,005
High Yield 908
</TABLE>
- --------------------------------------------------------------------------------
69
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
I. POST OCTOBER LOSSES. Under current tax law, certain capital and net foreign
exchange losses realized after October 31 may be deferred and treated as
occurring on the first day of the following fiscal year. For the fiscal year
ended September 30, 1999, the following Portfolios may elect to defer capital
losses occurring between November 1, 1998 and September 30, 1999 up to the
following amounts:
<TABLE>
<CAPTION>
Portfolio (000)
--------- --------
<S> <C>
Fixed Income $118,950
High Yield 12,272
</TABLE>
J. IN-KIND TRANSACTIONS. For the year ended September 30, 1999, the following
Portfolios realized gains (losses) from in-kind redemptions of approximately:
<TABLE>
<CAPTION>
Portfolio (000)
--------- --------
<S> <C>
Value $ 990
Mid Cap Growth 40,948
Fixed Income (143)
</TABLE>
K. SECURITIES LENDING. Certain Portfolios loan securities to certain brokers
and receive security lending fees. Security lending fees are included as
expense offsets in the Statement of Operations. Fees greater than custodian
expenses are included in interest income. During the year ended September 30,
1999, the following Portfolios had security lending fees totaling:
<TABLE>
<CAPTION>
Fees
Portfolio (000)
--------- -----
<S> <C>
Value $152
Mid Cap Growth 487
Fixed Income 386
</TABLE>
Portfolios that lend securities receive securities issued or guaranteed by the
U.S. Government or its agencies, cash or letters of credit as collateral in an
amount at least equal to 100% of the current market value of loaned securities.
The value of loaned securities and related collateral outstanding at September
30, 1999, were as follows:
<TABLE>
<CAPTION>
Value of
Loaned Value of
Securities Collateral
Portfolio (000) (000)
--------- ---------- ----------
<S> <C> <C>
Value $117,726 $120,570
Fixed Income 72,770 74,206
</TABLE>
The market value of the loaned securities is determined at the close of
business of the fund and any additional collateral is delivered to the fund on
the next business day.
Custodian fees appearing in the Statement of Operations have been adjusted to
include expense offsets for custodian balance credits and security lending fees
totaling $600,000 and $231,000 respectively, for the year ended September 30,
1999.
L. OTHER. At September 30, 1999, the High Yield Portfolio's net assets were
substantially comprised of high yield fixed income securities. The financial
condition of an issuer of these securities and general economic and industry
specific conditions may affect the issuer's ability to make payments of income
and principal on these securities.
- --------------------------------------------------------------------------------
70
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At September 30, 1999, the Fund had Portfolios with otherwise unaffiliated
record owners of 10% or greater. Investment activities of these shareholders
could have a material impact on these Portfolios. These Portfolios and the
aggregate percentage of such owners was as follows:
<TABLE>
<CAPTION>
Percentage
of Ownership
--------------------------------------
Institutional Investment Adviser
Portfolios Class Class Class
---------- ------------- ---------- -------
<S> <C> <C> <C>
Value 21.1% 57.8% 77.0%
Mid Cap Growth 35.4 -- 82.5
Mid Cap Value 24.7 42.2 86.6
Fixed Income -- 38.9 71.2
High Yield -- 86.8 79.6
</TABLE>
M. REORGANIZATION. On July 20, 1998, MAS Mid Cap Value Fund (the "Acquiring
Fund") acquired substantially all of the assets and liabilities of Morgan
Stanley Institutional Fund, Inc ("MSIF") Small Cap Value Equity Fund, (the
"Acquired Fund") in a tax-free reorganization in exchange for shares of the
Acquiring Fund, pursuant to a plan of reorganization approved by the Trustees'
and shareholders of the Acquired Fund.
- --------------------------------------------------------------------------------
71
<PAGE> 74
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
MAS Funds
In our opinion, the accompanying statements of net assets (excluding Standard
& Poor's ratings) and the related statements of operations and of changes in net
assets and the financial highlights present fairly, in all material respects,
the financial position of each of the five (5) Portfolios of the MAS Funds
listed in the accompanying table of contents (hereafter referred to as the
"Fund") at September 30, 1999, the results of each of their operations, the
changes in each of their net assets and their financial highlights for each of
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 19, 1999
- --------------------------------------------------------------------------------
72
<PAGE> 75
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION: (UNAUDITED)
Each Portfolio hereby designates the following amount as long-term capital gain
dividends for the purpose of the dividend paid deduction on its federal income
tax return.
<TABLE>
<CAPTION>
LONG-TERM
CAPITAL GAINS -- 20%
FUND (000)
- ---- --------------------
<S> <C>
Value $372,656
Mid Cap Growth 87,080
Mid Cap Value 14,842
Fixed Income 29,806
High Yield 9,414
</TABLE>
For the year ended September 30, 1999, the percentage of dividends that qualify
for the 70% dividend received deduction for corporate shareholders for each
Portfolio were.
<TABLE>
<CAPTION>
PORTFOLIO AMOUNT
- --------- ------
<S> <C>
Value 74.2%
Mid Cap Growth 5.1
Mid Cap Value 12.3
High Yield 0.8
</TABLE>
For the year ended September 30, 1999*, the percentage of income earned from
direct U.S. treasury obligations was as follows:
<TABLE>
<CAPTION>
FUND INCOME EARNED
- ---- -------------
<S> <C>
Fixed Income 18.7%
</TABLE>
- ---------------
* Amounts for the period ending December 31, 1999 will be provided with Form
1099-DIV to be mailed in January 2000.
- --------------------------------------------------------------------------------
73
<PAGE> 76
- --------------------------------------------------------------------------------
SHAREHOLDER MEETING: (UNAUDITED)
At a shareholder meeting held on September 16, 1999, the shareholders of the MAS
Funds' High Yield Portfolio approved an amendment to the investment advisory
agreement between the Fund and Miller Anderson & Sherrerd LLP that would
increase the investment advisory fee for the High Yield Portfolio to 0.450%. The
results of the voting were as follows:
<TABLE>
<CAPTION>
VOTED VOTED ABSTAIN
FOR AGAINST VOTES
---------- ---------- ---------
<S> <C> <C>
57,909,390 15,235,331 7,268,426
</TABLE>
- --------------------------------------------------------------------------------
74
<PAGE> 77
MAS FUNDS TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The following is a list of the Trustees and the principal executive officers of
the Fund as well as a brief statement of their present positions and principal
occupations:
THOMAS L. BENNETT, CFA*
Chairman of the Board of Trustees; Managing Director, Morgan Stanley Dean Witter
& Co.; Member of the Morgan Stanley Dean Witter Investment Management Executive
Committee; Portfolio Manager and Head of Fixed Income Investment Team, Miller
Anderson & Sherrerd, LLP; Trustee, Haverford School.
THOMAS P. GERRITY
Trustee; Professor of Management, Director of the Electronic Commerce Forum, and
formerly Dean, Wharton School of Business, University of Pennsylvania; Director,
Sunoco; Fannie Mae; Reliance Group Holdings; CVS Corporation; IKON Office
Solutions, Inc.; Knight-Ridder, Inc.; Firserv; Internet Capital Group; formerly
Director, Digital Equipment Corporation and Union Carbide Corporation.
JOSEPH P. HEALY
Trustee; Headmaster, Ethical Culture Fieldston School; Trustee, Springside
School; formerly Headmaster, Haverford School; Dean, Hobart College; Associate
Dean, William & Mary College.
LORRAINE TRUTEN, CFA
President, MAS Funds; Principal, Morgan Stanley Dean Witter & Co.; Head of
Mutual Fund Services, Miller Anderson & Sherrerd, LLP; President, MAS Fund
Distribution, Inc.
JAMES A. GALLO
Vice President and Treasurer, MAS Funds; Head of Fund Administration, Miller
Anderson & Sherrerd, LLP; Vice President, Morgan Stanley Dean Witter & Co.;
formerly Vice President and Director of Investment Accounting, PFPC, Inc.
JOSEPH J. KEARNS
Trustee; Investment Consultant; Director, Electro Rent Corporation; Trustee,
Southern California Edison Nuclear Decommissioning Trust; Director The Ford
Family Foundation; formerly, CFO of The J. Paul Getty Trust.
VINCENT R. MCLEAN
Trustee; Director, Legal and General America, Inc.; Director, Banner Life
Insurance Co.; Director, William Penn Life Insurance Company of New York;
formerly Executive Vice President, Chief Financial Officer, Director and Member
of the Executive Committee of Sperry Corporation (now part of Unisys
Corporation).
C. OSCAR MORONG, JR.
Trustee; Managing Director, Morong Capital Management; Director, CitiFunds,
CitiSelect Folios and related portfolios; formerly Senior Vice President and
Investment Manager for CREF, TIAA-CREF Investment Management, Inc.; Director,
The Indonesia Fund and the Landmark Funds; Director, Ministers and Missionaries
Benefit Board of American Baptist Churches.
RICHARD J. SHOCH
Secretary, MAS Funds; Fund Administration Manager, Miller Anderson & Sherrerd,
LLP; Vice President, Morgan Stanley Dean Witter & Co.; formerly Counsel, Vice
President and Assistant Secretary; SEI Corporation.
*Trustee Bennett is deemed to be an "interested person" of the Fund as that term
is defined in the Investment Company Act of 1940, as amended.
This report should be preceded or accompanied by a prospectus.
MAS Fund Distribution, Inc. serves as General Distribution Agent for MAS Funds.
Date of first use: November, 1999
- --------------------------------------------------------------------------------
<PAGE> 78
MAS LOGO
Morgan Stanley Dean Witter Investment Management
Miller Anderson & Sherrerd, LLP
One Tower Bridge
West Conshohocken, PA 19428-2899
Investment Adviser: (610) 940-5000 - MAS Funds: (800) 354-8185
Printed in U.S.A.
This Report has been prepared for
shareholders and may be distributed to
others only if preceded or accompanied by a
current prospectus.
