<PAGE> 1
Miller Anderson & Sherrerd, LLP
[MSDW LOGO]
2000 Annual Report
Advisory Portfolios
[MAS LOGO]
<PAGE> 2
We are pleased to present the Annual Report for the Advisory Foreign Fixed
Income, Advisory Foreign Fixed Income II and Advisory Mortgage Portfolios of MAS
Funds as of September 30, 2000.
TABLE OF CONTENTS
<TABLE>
<S> <C>
MAS Overview and Statement of Net Assets
Advisory Foreign Fixed Income
Portfolio............................. 1
Advisory Foreign Fixed Income II
Portfolio............................. 3
Advisory Mortgage Portfolio.............. 5
Statement of Operations..................... 16
Statement of Changes in Net Assets.......... 17
Financial Highlights........................ 18
Notes to Financial Statements............... 21
Independent Auditors' Report................ 27
</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
--------------------------------------------------------------------------------
ADVISORY FOREIGN FIXED INCOME PORTFOLIO
Morgan Stanley Dean Witter Investment Management uses the Advisory Foreign Fixed
Income Portfolio as a vehicle for opportunistic foreign bond investments in the
portfolios of its private advisory clients. By using the Portfolio instead of
holding foreign fixed-income securities directly, these clients may be able to
benefit from some or all of the following: (1) better diversification through
ownership of a smaller share of a larger number of holdings; (2) potentially
enhanced performance resulting from the ability to manage the foreign position
on a broader scale; (3) simplification of accounting as clients need only
account for mutual fund shares as opposed to individual securities, some of
which are subject to withholding taxes, fees, or other special treatment; and
(4) economies of scale in custodial fees associated with holding foreign
securities.
All securities in the Portfolio have a credit quality rating of B or better, and
derivatives may be used to represent country investments or otherwise pursue
portfolio strategy. The Portfolio is actively managed by Miller Anderson &
Sherrerd's (MAS) global fixed-income team, which makes strategic decisions about
non-U.S. bond exposures for client portfolios.
The Portfolio seeks to buy those foreign securities that will outperform U.S.
securities with the same duration. Interest-rate risk is not explicitly managed
in the Portfolio. Overall interest-rate risk is instead managed at the level of
the client's entire portfolio, of which the Advisory Foreign Fixed Income
Portfolio is only a part. If long-maturity foreign securities are more
attractive than long-maturity U.S. securities, the Portfolio will tend to have a
long maturity. Conversely, the Portfolio will tend to have a short maturity if
the best foreign values, relative to U.S. alternatives, are concentrated in the
front end of the yield curve.
Investments in the Portfolio reflect careful comparisons of relative interest
rates, credit quality, yield curve slopes, and currency values. Historically, it
has been attractive to invest in those countries that offer higher real interest
rates than those available in other countries. In selecting investments,
however, MAS separates the currency decision from the country decision and the
Portfolio will hedge exposures to those foreign currencies that are judged to be
overvalued and likely to depreciate.
During the past fiscal year, the Portfolio was invested in short-duration
continental European government bonds hedged back to U.S. dollars. These
securities had a similar return to comparable-duration U.S. government bonds.
The Advisory Foreign Fixed Income Portfolio is managed as a component of a
diversified portfolio and investment results from the Portfolio should not be
analyzed on a stand-alone basis. Results are presented in this report to comply
with Securities and Exchange Commission requirements for shareholder reporting.
The Portfolio is only available to private advisory clients of Morgan Stanley
Dean Witter Investment Management.
[GRAPH]
AVERAGE ANNUAL TOTAL RETURNS ENDED 9/30/00*
<TABLE>
<CAPTION>
MAS ADVISORY SALOMON BROAD
FOREIGN INVESTMENT
FIXED INCOME GRADE INDEX
---------------------------------------------------------------
<S> <C> <C>
One Year 5.86% 6.91%
Five Years 9.78% 6.47%
Since Inception 10.20% 7.79%
</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. Foreign investments are subject to certain risks such as
currency fluctuations, economic instability, and political developments.
Total returns for the Portfolio reflect expenses waived and/or reimbursed by the
Adviser for certain periods. Without such waivers and/or reimbursements, total
returns would have been lower.
* The Advisory Foreign Fixed Income Portfolio commenced operations on 10/7/94.
Total returns are compared to the Salomon Broad Investment Grade Index, an
unmanaged market index. Effective September 21, 2000, the credit quality
limitation was changed to allow the Portfolio to invest in fixed income
securities of government and corporate issuers primarily in countries other
than the U.S., including both investment grade securities and high yield
securities rated B or higher at the time of purchase.
--------------------------------------------------------------------------------
1
<PAGE> 4
STATEMENT OF NET ASSETS
--------------------------------------------------------------------------------
ADVISORY FOREIGN FIXED
INCOME PORTFOLIO
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (50.4%)
<TABLE>
<CAPTION>
-----------------------------------------------------------
!!RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 2000 & POOR'S) (000) (000)!
-----------------------------------------------------------
<S> <C> <C> <C>
DANISH KRONE (3.4%)
Kingdom of Denmark
6.00%, 11/15/02 Agy DKK 2,595 $ 309
===========================================================
EURO (47.0%)
Deutsche Pfandbriefe &
Hypothekenbank AG
5.63%, 2/7/03 Agy EUR 441 392
Government of France
O.A.T.
8.50%, 4/25/03 Agy 1,646 1,568
Netherlands Government
6.50%, 4/15/03 Agy 394 358
Spanish Government
5.25%, 1/31/03 Agy 298 263
Treuhandanstalt
7.38%, 12/2/02 Agy 1,811 1,672
===========================================================
GROUP TOTAL 4,253
===========================================================
TOTAL FIXED INCOME SECURITIES (Cost $5,754) 4,562
===========================================================
CASH EQUIVALENTS (42.9%)
===========================================================
DISCOUNT NOTES (41.9%)
Federal Home Loan Mortgage
Corporation
6.41%, 10/31/00 $ 1,000 995
6.42%, 10/31/00 1,500 1,499
Federal National Mortgage
Association
6.44%, 10/12/00 1,300 1,298
===========================================================
GROUP TOTAL 3,792
===========================================================
REPURCHASE AGREEMENT (1.0%)
Chase Securities, Inc. 6.40%, dated
9/29/00, due 10/2/00, to be
repurchased at $86, collateralized
by various U.S. Government
Obligations, due 11/2/00-3/29/01,
valued at $87 86 86
===========================================================
TOTAL CASH EQUIVALENTS (Cost $3,878) 3,878
===========================================================
TOTAL INVESTMENTS (93.3%) (Cost $9,632) 8,440
===========================================================
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)!
-----------------------------------------------------------
-----------------------------------------------------------
<S> <C> <C> <C>
OTHER ASSETS AND LIABILITIES (6.7%)
Cash $ 1
Foreign Currency (Cost $1) 1
Foreign Currency Held as Collateral on Futures
Contracts (Cost $68) 68
Interest Receivable 201
Receivable from Investment Adviser 19
Receivable for Variation Margin on Futures
Contracts 25
Unrealized Gain on Forward Foreign Currency
Contracts 326
Other Assets 19
Payable for Administrative Fees (1)
Payable for Trustees' Deferred Compensation
Plan-Note F (18)
Other Liabilities (29)
-------
612
===========================================================
NET ASSETS (100%) $ 9,052
===========================================================
INSTITUTIONAL CLASS
===========================================================
NET ASSETS
Applicable to 2,443,137 outstanding shares of
beneficial interest (unlimited authorization,
no par value) $ 9,052
===========================================================
NET ASSET VALUE PER SHARE $ 3.71
===========================================================
NET ASSETS CONSIST OF:
Paid in Capital $ 8,905
Undistributed Net Investment Income (Loss) 997
Unrealized Appreciation (Depreciation) on:
Investment Securities (1,192)
Foreign Currency Transactions 317
Futures 25
===========================================================
NET ASSETS $ 9,052
===========================================================
</TABLE>
<TABLE>
<S> <C>
! See Note A1 to Financial Statements.
!! Ratings are unaudited.
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
2
<PAGE> 5
PORTFOLIO OVERVIEW
--------------------------------------------------------------------------------
ADVISORY FOREIGN FIXED INCOME II PORTFOLIO
Morgan Stanley Dean Witter Investment Management uses the Advisory Foreign Fixed
Income II Portfolio as a vehicle for opportunistic foreign bond investments in
the portfolios of its private advisory clients. By using the Portfolio instead
of holding foreign fixed-income securities directly, these clients may be able
to benefit from some or all of the following: (1) better diversification through
ownership of a smaller share of a larger number of holdings; (2) potentially
enhanced performance resulting from the ability to manage the foreign position
on a broader scale; (3) simplification of accounting as clients need only
account for mutual fund shares as opposed to individual securities, some of
which are subject to withholding taxes, fees, or other special treatment; and
(4) economies of scale in custodial fees associated with holding foreign
securities.
All securities in the Portfolio have a credit quality rating of BBB or better,
and derivatives may be used to represent country investments or otherwise pursue
portfolio strategy. The Portfolio is actively managed by Miller Anderson &
Sherrerd's (MAS) global fixed-income team, which makes strategic decisions about
non-U.S. bond exposures for client portfolios.
The Portfolio seeks to buy those foreign securities that will outperform U.S.
securities with the same duration. Interest-rate risk is not explicitly managed
in the Portfolio. Overall interest-rate risk is instead managed at the level of
the client's entire portfolio, of which the Advisory Foreign Fixed Income
Portfolio is only a part. If long-maturity foreign securities are more
attractive than long-maturity U.S. securities, the Portfolio will tend to have a
long maturity. Conversely, the Portfolio will tend to have a short maturity if
the best foreign values, relative to U.S. alternatives, are concentrated in the
front end of the yield curve.
Investments in the Portfolio reflect careful comparisons of relative interest
rates, credit quality, yield curve slopes, and currency values. Historically, it
has been attractive to invest in those countries that offer higher real interest
rates than those available in other countries. In selecting investments,
however, MAS separates the currency decision from the country decision and the
Portfolio will hedge exposures to those foreign currencies that are judged to be
overvalued and likely to depreciate.
Since its inception on 6/20/2000, the Portfolio has been invested in
short-duration continental European government bonds hedged back to U.S.
dollars. These securities had a similar return to comparable-duration U.S.
government bonds.
The Advisory Foreign Fixed Income II Portfolio is managed as a component of a
diversified portfolio and investment results from the Portfolio should not be
analyzed on a stand-alone basis. Results are presented in this report to comply
with Securities and Exchange Commission requirements for shareholder reporting.
The Portfolio is only available to private advisory clients of Morgan Stanley
Dean Witter Investment Management.
[GRAPH]
AGGREGATE TOTAL RETURNS ENDED 9/30/00*
<TABLE>
<CAPTION>
MAS ADVISORY SALOMON BROAD
FOREIGN FIXED INVESTMENT
INCOME II GRADE INDEX
----------------------------------------------------------------
<S> <C> <C>
Since Inception 1.80% 3.34%
</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. Foreign investments are subject to certain risks such as
currency fluctuations, economic instability, and political developments.
Total returns for the Portfolio reflect expenses waived and/or reimbursed by the
Adviser for certain periods. Without such waivers and/or reimbursements, total
returns would have been lower.
* The Advisory Foreign Fixed Income II Portfolio commenced operations on
6/20/00. Total returns are compared to the Salomon Broad Investment Grade
Index, an unmanaged market index and are not annualized.
--------------------------------------------------------------------------------
3
<PAGE> 6
STATEMENT OF NET ASSETS
--------------------------------------------------------------------------------
ADVISORY FOREIGN FIXED
INCOME II PORTFOLIO
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (39.6%)
<TABLE>
<CAPTION>
-----------------------------------------------------------
!!RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 2000 & POOR'S) (000) (000)!
-----------------------------------------------------------
<S> <C> <C> <C>
DANISH KRONE (2.7%)
Kingdom of Denmark
6.00%, 11/15/02 Agy DKK 405 $ 48
===========================================================
EURO (36.9%)
Deutsche Pfandbriefe &
Hypothekenbank AG
5.63%, 2/7/03 Agy EUR 70 62
Government of France O.A.T.
8.50%, 4/25/03 Agy 260 247
Netherlands Government
6.50%, 4/15/03 Agy 60 55
Spanish Government
5.25%, 1/31/03 Agy 45 40
Treuhandanstalt
7.38%, 12/2/02 Agy 285 263
===========================================================
GROUP TOTAL 667
===========================================================
TOTAL FIXED INCOME SECURITIES (Cost $776) 715
===========================================================
CASH EQUIVALENTS (55.6%)
===========================================================
DISCOUNT NOTES (51.6%)
Federal Home Loan Bank
6.44%, 10/20/00 $ 300 299
Federal Home Loan Mortgage Corporation
6.43%, 11/2/00 335 333
Federal National Mortgage Association
6.44%, 10/26/00 300 299
-----------------------------------------------------------
GROUP TOTAL 931
-----------------------------------------------------------
REPURCHASE AGREEMENT (4.0%)
Chase Securities, Inc. 6.40%, dated
9/29/00, due 10/2/00, to be
repurchased at $73, collateralized
by various U.S. Government
Obligations, due 11/2/00-3/29/01,
valued at $74 73 73
===========================================================
TOTAL CASH EQUIVALENTS (Cost $1,004) 1,004
===========================================================
TOTAL INVESTMENTS (95.2%) (Cost $1,780) 1,719
===========================================================
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)!
-----------------------------------------------------------
-----------------------------------------------------------
<S> <C> <C> <C>
OTHER ASSETS AND LIABILITIES (4.8%)
Cash $ 1
Foreign Currency Held as Collateral on Futures
Contracts (Cost $8) 8
Interest Receivable 32
Receivable from Investment Adviser 12
Receivable for Variation Margin on Futures
Contracts 4
Unrealized Gain on Forward Foreign Currency
Contracts 43
Other Liabilities (13)
-------
87
===========================================================
NET ASSETS (100%) $ 1,806
===========================================================
INSTITUTIONAL CLASS
===========================================================
NET ASSETS
Applicable to 177,375 outstanding shares of
beneficial interest (unlimited authorization,
no par value) $ 1,806
===========================================================
NET ASSET VALUE PER SHARE $ 10.18
===========================================================
NET ASSETS CONSIST OF:
Paid in Capital $ 1,776
Undistributed Net Investment Income (Loss) 46
Unrealized Appreciation (Depreciation) on:
Investment Securities (61)
Foreign Currency Transactions 41
Futures 4
===========================================================
NET ASSETS $ 1,806
===========================================================
</TABLE>
<TABLE>
<S> <C>
! See Note A1 to Financial Statements.
!! Ratings are unaudited.
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
4
<PAGE> 7
PORTFOLIO OVERVIEW
--------------------------------------------------------------------------------
ADVISORY MORTGAGE PORTFOLIO
Morgan Stanley Dean Witter Investment Management uses the Advisory Mortgage
Portfolio as a vehicle for mortgage investing in the portfolios of its private
advisory clients. By using the Portfolio instead of holding mortgages directly,
these clients may be able to benefit from some or all of the following: (1)
better diversification through ownership of a smaller share of a larger number
of holdings; (2) potentially enhanced performance resulting from the ability to
manage the mortgage position on a broader scale; (3) simplification of
accounting as clients need only account for mutual fund shares as opposed to
individual mortgage securities, some of which have unusual payment
characteristics; and (4) economies of scale in custodial fees associated with
the frequent paydowns of mortgage securities.
The Portfolio invests in a full range of mortgage securities, collateralized
mortgage obligations (CMOs), asset-backed securities, U.S. Government and other
fixed-income securities. Derivatives may be used to pursue portfolio strategy.
The Portfolio is actively managed by Miller Anderson & Sherrerd's (MAS)
fixed-income team, which makes strategic decisions about its structure and
composition. The team seeks to achieve above-market returns by purchasing
attractively-priced securities and by carefully managing the amount of
prepayment risk, or call risk, within the Portfolio. Most mortgages contain an
option to prepay the principal amount prior to maturity. These securities have
higher yields as a result, and MAS calculates whether the additional yield is
sufficient to compensate for the prepayment risk. The sensitivity of the
Portfolio to mortgage prepayments is increased when yields, adjusted for
probable prepayments, are attractive.
At the beginning of fiscal 2000, the Portfolio's prepayment sensitivity was
approximately equal to that of its benchmark, the Lehman Mortgage Index. As
spreads on fixed-rate current-coupon mortgages tightened towards the end of the
first fiscal quarter, the Portfolio's position in these securities was
decreased. However, in the second fiscal quarter, all non-Treasury securities'
spreads widened significantly, as a renewed appetite for liquidity moved
investors away from mortgages and corporate bonds. Concurrently, interest rates
were at levels that did not precipitate increased prepayment risk. Therefore,
the Portfolio responded by re-establishing a position in fixed-rate
current-coupon mortgages to capture the wide spreads and low prepayment risk
available in the market. Since that time, spreads slowly decreased, causing the
Portfolio to incrementally lower its exposure to spreads. At fiscal year-end,
the Portfolio had a sensitivity to prepayment risk approximately equal to that
of its benchmark.
The Advisory Mortgage Portfolio is managed as a component of a diversified
portfolio and investment results from the Portfolio should not be analyzed on a
stand-alone basis. Results are presented in this report to comply with the
Securities and Exchange Commission requirements for shareholder reporting.
The Portfolio is only available to private advisory clients of Morgan Stanley
Dean Witter Investment Management.
[GRAPH]
AVERAGE ANNUAL TOTAL RETURNS ENDED 9/30/00*
<TABLE>
<CAPTION>
MAS ADVISORY LEHMAN MORTGAGE
MORTGAGE INDEX
--------------------------------------------------------------
<S> <C> <C>
One Year 6.76% 7.42%
Five Years 6.80% 6.80%
Since Inception 7.35% 7.41%
</TABLE>
Total returns are net of all fees. Total returns represent past performance and
are not indicative of future results.
The investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth either more or less than
their original cost.
Total returns for the Portfolio reflect expenses waived and/or reimbursed by the
Adviser for certain periods. Without such waivers and/or reimbursements, total
returns would have been lower.
* The Advisory Mortgage Portfolio commenced operations on 4/12/95. Total returns
are compared to the Lehman Mortgage Index, an unmanaged market index.
--------------------------------------------------------------------------------
5
<PAGE> 8
STATEMENT OF NET ASSETS
--------------------------------------------------------------------------------
ADVISORY MORTGAGE
PORTFOLIO
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (128.5%)
<TABLE>
<CAPTION>
------------------------------------------------------------
!!RATINGS FACE
(STANDARD AMOUNT VALUE
SEPTEMBER 30, 2000 & POOR'S) (000) (000)!
------------------------------------------------------------
<S> <C> <C> <C>
AGENCY FIXED RATE MORTGAGES (99.3%)
Federal Home Loan
Mortgage Corporation,
Conventional Pools:
6.75%, 12/1/05 Agy $ 38 $ 37
8.00%, 3/1/07-9/1/08 Agy 538 547
8.25%,
10/1/06-7/1/08 Agy 606 617
8.75%, 4/1/08 Agy 103 107
9.00%,
10/1/16-4/1/21 Agy 6,288 6,573
9.50%,
11/1/16-12/1/22 Agy 23,117 24,485
10.00%,
1/1/09-4/1/25 Agy 23,693 25,391
10.25%,
1/1/09-9/1/16 Agy 95 101
10.50%,
7/1/09-3/1/27 Agy 11,936 12,948
11.00%,
2/1/11-9/1/20 Agy 7,961 8,717
11.25%,
6/1/10-12/1/15 Agy 42 45
11.50%,
1/1/07-6/1/20 Agy 3,686 4,111
11.75%,
3/1/11-4/1/15 Agy 336 373
12.00%,
10/1/09-7/1/20 Agy 6,510 7,213
12.50%,
10/1/09-7/1/19 Agy 451 502
13.00%,
9/1/10-11/1/13 Agy 33 37
13.50%,
12/1/09-2/1/10 Agy 51 57
Gold Pools:
6.00%, 3/1/30 Agy 135,299 126,480
10.00%,
9/1/17-2/1/18 Agy 5,082 5,434
10.50%,
5/1/16-3/1/27 Agy 1,080 1,170
October TBA:
6.00%, 10/1/29 Agy 607,350 567,648
6.50%, 10/1/30 Agy 318,000 305,394
7.50%, 10/1/30 Agy 389,800 389,332
8.00%, 10/1/30 Agy 233,300 236,604
8.50%, 10/1/30 Agy 282,000 289,166
Federal National
Mortgage Association,
Conventional Pools:
7.00%, 3/1/11 Agy 2,032 2,024
7.50%, 6/1/24-8/1/24 Agy 1,573 1,578
8.00%,
10/1/07-12/1/16 Agy 77 79
8.50%, 4/1/09 Agy 352 362
9.00%,
6/1/18-12/1/21 Agy 14,531 15,216
9.50%, 7/1/16-5/1/28 Agy 30,031 31,839
10.00%,
3/1/06-4/1/27 Agy 56,753 60,972
10.50%,
9/1/05-2/1/28 Agy 16,041 17,483
10.75%,
11/1/07-6/1/13 Agy 80 88
11.00%,
5/1/11-11/1/20 Agy 4,652 5,140
11.25%,
1/1/11-1/1/16 Agy 229 253
11.50%,
2/1/11-9/1/25 Agy 2,804 3,138
12.00%,
9/1/10-5/1/20 Agy 4,133 4,664
12.50%,
9/1/09-9/1/15 Agy 3,016 3,449
12.75%, 7/1/14 Agy 6 7
14.00%, 9/1/11 Agy 31 35
14.50%, 1/1/13 Agy 37 42
October TBA
6.00%, 10/1/29 Agy 1,140,100 1,064,796
6.50%, 10/1/29 Agy 338,000 324,338
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
------------------------------------------------------------
<S> <C> <C> <C>
7.00%, 10/1/30 Agy $ 59,300 $ 58,071
7.50%, 10/1/30 Agy 331,650 330,837
8.00%, 10/1/30 Agy 72,900 73,834
8.50%, 10/1/30 Agy 274,125 280,476
Government National Mortgage
Association:
Adjustable Rate Mortgages:
6.00%,
7/20/27-9/20/27 Tsy 57,219 57,585
6.125%, 12/20/25 Tsy 9,027 9,071
6.375%,
2/20/25-3/20/25 Tsy 5,721 5,760
6.50%,
10/20/27-1/20/28 Tsy 126,735 127,268
6.875%,
1/20/25-6/20/26 Tsy 86,424 86,906
7.00%,
2/20/25-11/20/25 Tsy 150,987 151,880
7.125%, 7/20/25 Tsy 11,274 11,369
7.375%,
6/20/25-6/20/26 Tsy 15,973 16,065
7.50%, 1/20/25 Tsy 14,763 14,863
10.50%,
8/20/16-12/20/16 Tsy 106 113
11.00%, 11/20/19 Tsy 92 100
11.50%, 10/20/15 Tsy 35 38
Various Pools:
6.00%, 2/20/27 Tsy 7,440 7,471
6.50%, 2/20/28 Tsy 558 560
6.625%, 9/20/27 Tsy 16,418 16,534
6.875%, 4/20/25 Tsy 864 869
7.00%,
9/15/23-3/15/30 Tsy 315,090 310,050
7.50%, 6/15/29 Tsy 307 302
8.50%,
7/15/08-3/15/20 Tsy 16,317 16,916
9.00%,
10/15/17-11/15/24 Tsy 90,539 95,323
9.50%,
7/15/09-9/15/28 Tsy 191,425 203,831
10.00%,
10/15/09-10/15/28 Tsy 263,604 283,855
10.50%,
3/15/01-4/15/25 Tsy 53,571 58,506
11.00%,
12/15/09-1/15/29 Tsy 70,546 78,052
11.50%,
12/15/09-11/15/19 Tsy 3,531 3,935
12.00%,
11/15/12-5/15/16 Tsy 6,649 7,530
12.50%,
5/15/10-7/15/15 Tsy 396 453
13.00%,
1/15/11-11/15/13 Tsy 218 249
13.50%,
5/15/10-9/15/14 Tsy 138 158
October TBA
7.00%, 10/15/29 Tsy 1,130,750 1,113,427
============================================================
GROUP TOTAL 6,970,849
============================================================
ASSET BACKED CORPORATES (20.1%)
Advanta Mortgage Loan
Trust,
Series 99-3 A1
6.81%, 5/25/14 AAA 22,549 22,415
AFG Receivables Trust,
Series 97-A A
6.35%, 10/15/02 AAA 43 43
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
6
<PAGE> 9
STATEMENT OF NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
------------------------------------------------------------
<S> <C> <C> <C>
Arcadia Automobile
Receivables Trust,
Series:
97-C A4
6.375%, 1/15/03 AAA $ 26,160 $ 26,103
97-D A3
6.20%, 5/15/03 AAA 28,047 27,959
98-A A3
5.90%, 11/15/02 AAA 7,054 7,039
Banc One Home Equity
Trust,
Series 99-1 A1
6.06%, 1/25/12 AAA 239 237
BankBoston Home Equity
Loan Trust,
Series 98-2 A1
6.28%, 11/25/10 AAA 1,036 1,029
Block Mortgage Finance Co.,
Series 99-1 A1
5.94%, 9/15/13 AAA 297 294
BMW Vehicle Owner Trust,
Series 99-A A2
6.16%, 12/25/01 AAA 30,536 30,476
Boston Edison Co.,
Series 99-1 A1
5.99%, 3/15/03 AAA 19,628 19,545
Capital Auto
Receivables Asset
Trust,
Series 99-1 A2
5.58%, 6/15/02 AAA 1,803 1,794
Case Equipment Loan Trust,
Series 98-B
5.81%, 5/15/03 AAA 296 296
Caterpillar Financial
Asset Trust,
Series 99-A A2
5.90%, 3/25/02 AAA 17,388 17,364
Centex Home Equity,
Series:
99-1 A1
6.07%, 3/25/18 AAA 130 129
99-2 A1
5.91%, 4/25/19 AAA 566 561
Chevy Chase Auto
Receivables Trust,
Series 97-4 A
6.25%, 6/15/04 AAA 6,077 6,052
CIT RV Trust,
Series 99-A A1
5.33%, 12/15/05 AAA 543 541
Conseco Finance,
Series 99-H AF1
6.45%, 11/15/29 AAA 50,356 50,174
Contimortgage Home Equity
Loan Trust,
Series 99-A A1
6.01%, 12/25/13 AAA 678 673
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
------------------------------------------------------------
<S> <C> <C> <C>
CPS Auto Grantor Trust,
Series:
96-3 A
6.30%, 8/15/02 AAA $ 403 $ 402
97-2 A
6.65%, 10/15/02 AAA 2,011 2,008
Daimler Benz Auto
Grantor Trust,
Series 97-A A
6.05%, 3/31/05 AAA 4,904 4,885
Daimler Benz Vehicle Trust,
Series 98-A A3
5.16%, 12/20/07 AAA 12,499 12,413
Delta Funding Home
Equity Loan Trust,
Series:
98-4 A1F
6.16%, 2/15/16 AAA 6,311 6,284
99-1 A1F
5.81%, 11/15/15 AAA 14,932 14,852
EQCC Home Equity Loan
Trust,
Series:
99-1 A1F
5.77%, 5/20/10 AAA 26,019 25,787
99-2 A1F
6.05%, 1/25/10 AAA 26,721 26,486
99-3 A1F
6.55%, 4/25/10 AAA 76,238 75,668
First Merchants Auto
Receivables Corp.,
Series:
96-C A2
6.15%, 7/15/01 AAA 175 174
(+) 97-2 A1
6.85%, 11/15/02 AAA 394 393
First Security Auto
Grantor Trust,
Series:
97-B A
6.10%, 4/15/03 AAA 10,152 10,109
98-A A
5.97%, 4/15/04 AAA 13,029 12,945
First Security Auto
Owner Trust,
Series 00-2 A2
6.80%, 8/15/03 AAA 39,500 39,609
## First USA Credit
Card Master Trust,
Series 97-10 A
6.71%, 9/17/03 AAA 74,825 74,838
Ford Credit Auto Owner
Trust,
Series:
98-B A3
5.85%, 10/15/01 AAA 5,086 5,078
99-B A3
5.47%, 9/15/01 AAA 22,159 22,122
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
7
<PAGE> 10
STATEMENT OF NET ASSETS
--------------------------------------------------------------------------------
ADVISORY MORTGAGE
PORTFOLIO
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)!
------------------------------------------------------------
<S> <C> <C> <C>
99-C A3
5.77%, 11/15/01 AAA $ 68,021 $ 67,867
99-C A4
6.08%, 9/16/02 AAA 51,275 51,021
99-D A3
6.20%, 4/15/02 AAA 82,842 82,658
00-E A3
6.74%, 12/15/02 AAA 70,000 70,005
+ GE Capital Mortgage
Services, Inc.,
Series 99-HE3 A1
6.87%, 9/25/08 Aaa 33,268 33,090
Green Tree Financial Corp.,
Series:
+ 98-1 A2
5.85%, 4/1/11 Aaa 2,237 2,235
99-1 A1
5.60%, 3/1/30 AAA 2,675 2,658
99-1 A2
5.43%, 3/1/30 AAA 632 630
99-3 A2
5.51%, 2/1/31 AAA 181 180
99-5 A1
6.27%, 4/1/31 AAA 19,178 19,097
Green Tree Home Equity
Loan Trust,
Series:
98-A A2
6.04%, 6/15/29 AAA 94 94
99-A A1
5.59%, 2/15/13 AAA 7,178 7,171
99-C A1
5.99%, 7/15/30 AAA 27,195 27,137
99-D A1
6.29%, 10/15/13 AAA 8,185 8,166
99-E A1
6.32%, 8/15/30 AAA 26,778 26,722
+ Green Tree Home Improvement
Loan Trust,
Series 98-E HIA1
5.907%, 8/15/07 Aaa 123 123
Green Tree Lease
Finance,
Series 97-1 A3
6.17%, 9/20/05 AAA 107 106
Greenpoint Manufactured
Housing,
Series:
99-1 A1
5.78%, 12/15/09 AAA 32,124 31,812
99-3 I A1
5.013%, 5/25/29 AAA 35,279 35,241
99-5 A1
6.75%, 4/25/01 AAA 11,711 11,647
Harley-Davidson Eaglemark
Motorcycle Trust,
Series:
98-3 A1
5.41%, 3/15/03 AAA 7,979 7,953
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
------------------------------------------------------------
<S> <C> <C> <C>
99-1 A1
5.25%, 7/15/03 AAA $ 656 $ 653
99-2 A1
5.84%, 10/15/03 AAA 86 85
99-3 A1
6.22%, 2/15/04 AAA 25,456 25,368
+ HFC Home Equity Loan,
Series 99-1 A1
6.83%, 12/20/16 Aaa 42,985 42,789
Honda Auto Lease Trust,
Series 99-A A2
5.875%, 10/15/01 AAA 11,405 11,400
Honda Auto Receivables
Grantor Trust,
Series 97-B A
5.95%, 5/15/03 AAA 8,712 8,671
IndyMac Home Equity
Loan,
Series 98-A AF1
5.724%, 9/25/20 AAA 7,659 7,654
(+) Long Beach Acceptance Auto
Grantor Trust,
Series:
97-2 A
6.69%, 9/25/04 AAA 4,263 4,228
98-1 A
6.19%, 1/25/05 AAA 4,927 4,872
MMCA Automobile Trust,
Series 99-2 A1
6.30%, 6/15/02 AAA 21,129 21,094
Navistar Financial
Corp. Owner Trust,
Series 99-A A2
5.55%, 2/15/02 AAA 16,967 16,931
(+) New Holland
Equipment Receivables
Trust,
Series 99-A A2
6.39%, 10/15/02 AAA 57,577 57,485
Nissan Auto Receivables
Owner Trust,
Series 99-A A2
6.12%, 9/15/03 AAA 61,297 61,178
+## Oakwood Mortgage
Investors, Inc.,
Series 99-B A1
6.739%, 5/15/09 Aaa 165 165
Onyx Acceptance Grantor
Trust,
Series:
97-2 A
6.35%, 10/15/03 AAA 99 99
97-3 A
6.35%, 1/15/04 AAA 77 76
98-B A1
5.60%, 3/15/03 AAA 45 45
Option One Mortgage
Loan Trust,
Series 99-2 A1
5.88%, 5/25/29 AAA 867 859
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
8
<PAGE> 11
STATEMENT OF NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(!!)RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)(!)
------------------------------------------------------------
<S> <C> <C> <C>
Premier Auto Trust,
Series:
99-1 A3
5.69%, 11/8/02 AAA $ 850 $ 844
99-2 A2
5.28%, 11/8/01 AAA 885 884
99-3 A2
5.82%, 2/8/02 AAA 20,523 20,481
## Residential Asset
Securities Corp.,
Series 99-KS2 AI1
6.72%, 4/25/14 AAA 1,680 1,680
Residential Funding
Mortgage Securities
I,
Series:
99-HI1 A2
6.05%, 9/25/08 AAA 13,006 12,911
99-HI4 A1
6.41%, 11/25/07 AAA 18,674 18,556
## Salomon Brothers
Mortgage Securities
VII,
Series 96-6E A1
7.025%, 3/30/25 AAA 3,379 3,369
Saxson Asset Securities Trust,
Series 99-2 AF1
4.993%, 3/25/14 AAA 14,693 14,690
(+) Textron Financial
Corp. Receivables
Trust,
Series 98-A A1
5.82%, 2/15/02 AAA 5,487 5,479
Toyota Auto Receivables
Owner Trust,
Series 99-A A2
5.80%, 12/17/01 AAA 2,423 2,419
## UCFC Home Equity
Loan Trust,
Series 98-C A1
6.739%, 12/15/12 AAA 1,830 1,830
Union Acceptance Corp.,
Series 96-B A
6.45%, 7/9/03 AAA 1,277 1,272
USAA Auto Loan Grantor
Trust,
Series 97-1 A
6.00%, 5/15/04 AAA 400 399
WFS Financial Owner
Trust,
Series 99-B A2
5.833%, 4/20/02 AAA 28,669 28,634
============================================================
GROUP TOTAL 1,409,490
============================================================
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
------------------------------------------------------------
<S> <C> <C> <C>
ASSET BACKED MORTGAGES (0.0%)
Cityscape Home Equity
Loan Trust,
Series:
96-3 A IO
1.00%, 10/25/26 N/R $ 9,684 $ 132
(+) 96-3 A YMA
10/25/26 N/R 9,684 14
Contimortgage Home
Equity Loan Trust,
Series:
96-3 A9 IO
1.30%, 9/15/27 AAA 59,964 862
(+) 96-3 A9 YMA
0.00%, 9/15/27 N/R 59,964 24
96-3 10 IO
0.90%, 9/15/27 AAA 12,721 119
(+) 96-3 10 YMA
9/15/27 AAA 12,721 14
96-4 A11 IO
1.10%, 1/15/28 AAA 5,906 81
(+) 96-4 A11 YMA
1/15/28 AAA 5,906 6
96-4 A12 IO
1.05%, 1/15/28 AAA 1,043 11
(+) 96-4 A12 YMA
1/15/28 AAA 1,043 1
97-1 A10 IO
1.10%, 3/15/28 AAA 7,216 110
97-1 A10 YMA
3/15/28 N/R 7,216 10
============================================================
GROUP TOTAL 1,384
============================================================
COLLATERALIZED MORTGAGE OBLIGATIONS- AGENCY COLLATERAL
SERIES (5.2%)
Collateralized Mortgage
Obligation Trust,
Series 86-13 Q Inv Fl
13.25%, 1/20/03 AAA 145 148
Federal Home Loan
Mortgage Corporation,
Series:
13-B IO REMIC
10.00%, 6/1/20 Agy 794 195
16-B IO REMIC
10.00%, 6/1/20 Agy 435 107
18-B IO REMIC
10.00%, 5/1/20 Agy 238 58
88-17 I PAC-1 (11)
9.90%, 10/15/19 Agy 2,811 2,975
88-22 C PAC (11)
9.50%, 4/15/20 Agy 1,227 1,289
88-23 F PAC-1 (11)
9.60%, 4/15/20 Agy 1,059 1,114
89-39 F PAC-2 (11)
10.00%, 5/15/20 Agy 1,570 1,670
89-47 F PAC-1 (12) REMIC
10.00%, 6/15/20 Agy 1,062 1,121
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
9
<PAGE> 12
STATEMENT OF NET ASSETS
--------------------------------------------------------------------------------
ADVISORY MORTGAGE
PORTFOLIO
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)!
------------------------------------------------------------
<S> <C> <C> <C>
89-110 F PAC
8.55%, 1/15/21 Agy $ 456 $ 466
90-164 B12 REMIC
9.50%, 7/15/21 Agy 3,000 3,109
1364-B Inv Fl IO REMIC
5.036%, 9/15/07 Agy 4,627 393
1364-E Inv Fl IO
6.662%, 9/15/07 Agy 5,558 763
1369-S Inv Fl IO REMIC
2.875%, 9/15/07 Agy 4,544 265
## 1377-F REMIC
7.125%, 9/15/07 Agy 3,956 3,980
1381-SB Inv Fl IO
8.408%, 10/15/07 Agy 2,144 398
1395-S Inv Fl IO
3.894%, 10/15/22 Agy 14,979 1,871
1415-S Inv Fl IO
14.125%, 11/15/07 Agy 137 40
1463-B Inv Fl IO
1.725%, 1/15/23 Agy 15,848 742
1476-S Inv Fl IO REMIC PAC
3.893%, 2/15/08 Agy 1,462 125
1485-S Inv Fl IO REMIC
2.975%, 3/15/08 Agy 1,496 86
## 1506-SD IO
1.875%, 5/15/08 Agy 517 16
## 1591-FG REMIC
7.188%, 10/15/23 Agy 249 248
1600-SA Inv Fl IO REMIC
1.375%, 10/15/08 Agy 11,199 373
1621-SD Inv Fl
6.094%, 11/15/23 Agy 3,505 2,864
1634-SC Inv Fl
6.20%, 12/15/23 Agy 4,000 3,159
## 1710-D IO
7.075%, 6/15/20 Agy 17,037 17,100
## 1809-SC IO
2.094%, 12/15/23 Agy 96,912 11,252
1887-SC Inv Fl IO
4.638%, 3/15/24 Agy 36,700 8,702
1911-C PO
11/15/23 Agy 7,247 4,898
1936-A IO PAC
1.00%, 2/15/27 Agy 79,253 2,631
## 1963-SA IO
1.50%, 6/17/27 Agy 18,690 721
## 2006-FA REMIC
7.025%, 10/15/23 Agy 1,866 1,870
2006-I IO
8.00%, 10/15/12 Agy 2,648 569
2182-AD Inv Fl IO
0.879%, 9/15/25 Agy 209,091 5,018
2186-SY Inv Fl IO
1.779%, 4/15/28 Agy 42,838 2,138
2193-B Inv Fl IO
1.779%, 12/15/27 Agy 162,962 6,844
E2 F
5.988%, 2/15/24 Agy 9,943 9,906
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
------------------------------------------------------------
<S> <C> <C> <C>
Federal National
Mortgage Association,
Series:
43-2 IO
9.50%, 9/1/18 Agy $ 16 $ 4
89-22 G PAC (11)
10.00%, 5/25/19 Agy 2,715 2,901
89-86 E PAC (11)
8.75%, 11/25/19 Agy 83 84
89-92 G PAC (11)
8.60%, 12/25/04 Agy 606 618
90-106 J PAC
8.50%, 9/25/20 Agy 632 655
90-118 S Inv Fl REMIC
22.444%, 9/25/20 Agy 186 266
## 92-43 FC REMIC
7.256%, 10/25/21 Agy 1,023 1,029
92-89 SQ Inv Fl IO
PAC (11) 2384.456%,
6/25/22 Agy 3 178
92-186 S Inv Fl IO
2.794%, 10/25/07 Agy 2,355 152
93-9 SB Inv Fl IO
5.848%, 1/25/23 Agy 6,177 1,545
## 94-73 F
7.156%, 12/25/20 Agy 388 389
## 94-97 FC REMIC
7.356%, 3/25/24 Agy 11,482 11,598
96-14 PC PO
12/25/23 Agy 4,710 3,041
96-68 SC Inv Fl IO REMIC
1.444%, 1/25/24 Agy 6,607 444
## 97-24 FG REMIC
7.175%, 9/18/22 Agy 141 142
97-30 SP Inv Fl REMIC
2490.686%, 4/25/22 Agy 12 822
97-42 SG Inv Fl IO
1.375%, 7/18/27 Agy 21,084 829
97-53 PI IO PAC
8.00%, 8/18/27 Agy 4,936 1,331
97-57 PJ IO
7.50%, 10/18/26 Agy 21,532 5,327
97-57 PV IO
8.00%, 9/18/27 Agy 56,700 18,773
97-59 JA IO
8.00%, 7/18/27 Agy 7,000 3,081
97-61 PK IO REMIC
8.00%, 8/18/27 Agy 15,000 5,820
## 97-70 FA REMIC PAC (11)
7.075%, 7/18/20 Agy 2,131 2,134
## 98-22 FA REMIC PAC (11)
7.023%, 4/18/28 Agy 52,781 52,720
98-22 SA Inv Fl IO
1.978%, 4/18/28 Agy 62,680 3,284
98-66 QH Inv Fl IO
3.261%, 5/25/26 Agy 29,610 714
98-66 QK Inv Fl IO
1.578%, 12/25/28 Agy 24,291 1,972
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
10
<PAGE> 13
STATEMENT OF NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
------------------------------------------------------------
<S> <C> <C> <C>
99-42 SA Inv Fl IO
1.578%, 10/25/28 Agy $ 172,731 $ 7,047
186 IO
8.00%, 8/1/27 Agy 24,086 6,804
191 IO
8.00%, 1/1/28 Agy 43,340 12,088
195 IO
7.50%, 4/1/28 Agy 24,218 6,928
207 2 IO
8.00%, 2/1/23 Agy 9,417 2,612
264 2 IO
8.00%, 7/1/24 Agy 36,663 10,157
267 2 IO
8.50%, 10/1/24 Agy 32,447 8,654
270 2 IO
8.50%, 9/1/23 Agy 28,738 7,791
274 2 IO
8.50%, 10/1/25 Agy 38,144 10,173
277 2 IO
7.50%, 4/1/27 Agy 20,692 5,852
281 2 IO
9.00%, 11/1/26 Agy 29,383 7,979
291 2 IO
8.00%, 11/1/27 Agy 23,970 6,625
296 2 IO
8.00%, 4/1/24 Agy 1,090 302
2163-SA Inv Fl IO
2.10%, 6/15/29 Agy 147,369 2,933
2171-B
6.28%, 6/25/09 Agy 190 181
G92-52 SQ Inv Fl IO REMIC
7290.969%, 9/25/22 Agy 17 2,464
G92-53 S Inv Fl IO REMIC
23.344%, 9/25/22 Agy 1,901 1,178
## G93-11 FA
7.056%, 12/25/08 Agy 7,502 7,528
Government National
Mortgage Association,
Series:
96-12 S Inv Fl IO REMIC
1.875%, 6/16/26 Tsy 18,021 899
96-13 S Inv Fl IO REMIC
2.525%, 7/16/11 Tsy 10,562 619
97-13 SB Inv Fl IO
1.375%, 9/16/27 Tsy 30,750 1,900
97-14 SB Inv Fl IO
1.375%, 9/16/27 Tsy 900 55
99-29 SD Inv Fl IO
1.378%, 3/16/26 Tsy 57,560 2,228
99-30 SA Inv Fl IO
1.978%, 8/16/29 Tsy 4,844 281
99-30 SA Inv Fl IO
2.80%, 4/16/29 Tsy 305,494 13,656
99-32 SB Inv Fl IO REMIC
1.378%, 7/16/27 Tsy 224,924 9,109
99-34 SB Inv Fl IO
1.378%, 7/16/27 Tsy 3,628 146
99-43 UN Inv Fl IO
1.378%, 11/16/29 Tsy 184,541 6,846
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
------------------------------------------------------------
<S> <C> <C> <C>
99-43 UO Inv Fl IO
1.15%, 11/16/29 Tsy $ 184,541 $ 4,909
+ Kidder Peabody
Mortgage Assets
Trust,
Series 87 B IO CMO
9.50%, 4/22/18 Aaa 134 30
============================================================
GROUP TOTAL 367,051
============================================================
COLLATERALIZED MORTGAGE OBLIGATIONS- NON-AGENCY COLLATERAL
SERIES (0.9%)
American Housing Trust,
Series:
IV 2 C
9.553%, 9/25/20 A 1,724 1,760
V 1G
9.125%, 4/25/21 AAA 4,952 5,060
@ Chase Mortgage
Finance Corp.,
Series 93-1 B2
7.911%, 3/28/24
(acquired 4/28/95-
12/21/99, cost
$4,920) N/R 5,026 5,014
Countrywide Funding Corp.,
Series 95-4 M
7.50%, 9/25/25 AA 6,219 6,010
GE Capital Mortgage
Services, Inc.,
Series 94-14 A7
7.50%, 4/25/24 AAA 4,000 3,835
Mid-State Trust II,
Series 88-2 A4
9.625%, 4/1/03 AAA 29,700 30,185
Residential Funding
Mortgage Securities,
Inc. 93-S1 A
7.81%, 1/25/08 AAA 7,268 7,246
Sears Mortgage
Securities,
Series 89-A 1
9.00%, 9/25/19 N/R 37 37
============================================================
GROUP TOTAL 59,147
============================================================
COMMERCIAL MORTGAGES (2.9%)
American Southwest Financial
Securities Corp.,
Series:
93-2 A1
7.30%, 1/18/09 N/R 8,152 8,077
## 93-2 S1 IO
1.13%, 1/18/09 N/R 59,423 1,579
93-2 S2 IO
0.70%, 1/18/09 N/R 16,442 262
Asset Securitization
Corp.,
Series:
96-MD6 A1C
7.04%, 11/13/26 AAA 21,370 21,026
+## 97-D5 PS1 IO
1.614%, 2/14/41 Aaa 149,893 11,791
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
11
<PAGE> 14
STATEMENT OF NET ASSETS
--------------------------------------------------------------------------------
ADVISORY MORTGAGE
PORTFOLIO
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)!
------------------------------------------------------------
<S> <C> <C> <C>
(+) Beverly Finance
Corp.,
Series 94-1
8.36%, 7/15/04 AA- $ 11,840 $ 12,267
(+) Carousel Center
Finance, Inc.,
Series:
1 A1
6.828%, 11/15/07 AA 4,925 4,888
1 B
7.188%, 10/15/07 A 17,175 17,087
1 C
7.527%, 11/15/07 BBB+ 779 776
(+) Creekwood Capital
Corp.,
Series 95-1A
8.47%, 3/16/15 AA 6,498 6,867
(+) Crystal Run
Properties, Inc.,
Series A
7.393%, 8/15/11 AA 15,900 15,868
(+) CVM Finance Corp.
7.19%, 3/1/04 AA 23,076 23,217
(+) DLJ Mortgage
Acceptance Corp.,
Series 97-CF1 S IO
1.086%, 3/15/17 AAA 101,617 3,987
+## GMAC Commercial Mortgage
Securities, Inc.,
Series:
96-C1 X2 IO
2.027%, 3/15/21 Aaa 93,921 5,388
97-C2 X IO
1.264%, 4/15/27 Aaa 363,705 17,629
+## GS Mortgage
Securities Corp. II,
Series:
97-GL X1A IO
0.651%, 7/13/30 Aaa 27,496 5
97-GL X2 IO
1.066%, 7/13/30 Aaa 54,241 2,035
+ Midland Realty
Acceptance Corp.,
Series 96-C2 A1
7.02%, 1/25/29 Aaa 1,036 1,034
Nomura Asset Securities
Corp.,
Series:
94-MD1 A1B
7.526%, 3/15/18 N/R 1,277 1,273
## 94-MD1 A2
8.239%, 3/15/18 N/R 5,410 5,403
## 94-MD1 A3
8.026%, 3/15/18 N/R 5,265 5,293
(+) Park Avenue Finance Corp.,
Series 97-C1 A1
7.58%, 5/12/07 N/R 9,493 9,610
(+) Prime Property
Fund,
Series 1 A
6.633%, 7/23/03 AA 15,624 15,421
</TABLE>
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
------------------------------------------------------------
<S> <C> <C> <C>
(+) Stratford Finance
Corp.
6.776%, 2/1/04 AA $ 9,400 $ 9,292
## Structured Asset
Securities Corp.,
Series:
96-CFL X1 IO
1.463%, 2/25/28 N/R 47,060 2,620
96-CFL X1A IO
0.830%, 2/25/28 N/R 25,094 110
96-CFL X2 IO
0.337%, 2/25/28 N/R 11,247 183
============================================================
GROUP TOTAL 202,988
============================================================
NON-AGENCY FIXED RATE MORTGAGES (0.1%)
+ BA Mortgage Securities, Inc.,
Series 97-1 A2
7.121%, 7/25/26 Aaa 55 55
Bank of America,
Series A
8.375%, 5/1/07 AAA 364 364
California Federal
Savings & Loan,
Series 86-1A
8.80%, 1/1/14 AA 33 33
@ Coast Federal,
Series 84-3
7.941%, 3/1/06
(acquired 4/28/95,
cost $43) N/R 43 43
@ First Federal
Savings & Loan
Association,
Series 92-C
8.75%, 6/1/06
(acquired 4/28/95-
8/28/97, cost $56) AA 94 94
@## Fortune Mortgage
Corp. Participation
Certificate,
7.80%, 8/1/99
(acquired 7/30/96-
2/3/98, cost $26) N/R 26 26
Gemsco Mortgage Pass
Through Certificate,
Series 87-A
8.635%, 11/25/10 AA 391 391
@ Household Bank,
Series 85-1 CMO
7.94%, 5/1/02
(acquired 5/31/95,
cost $85) N/R 84 84
## Resolution Trust
Corp.,
Series 92-5 C CMO
8.613%, 1/25/26 AA 3,440 3,440
Ryland Acceptance Corp. IV,
Series 79-A
6.65%, 7/1/11 AA 3,988 3,962
Sears Mortgage
Securities,
Series 82-3
10.00%, 11/1/12 AA 143 143
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
12
<PAGE> 15
STATEMENT OF NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
!!RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)!
------------------------------------------------------------
<S> <C> <C> <C>
@ Shearson American Express,
Series A CMO
9.625%, 12/1/12
(acquired 4/28/95-
6/29/98, cost $270) AA $ 262 $ 262
@ Virginia Beach
Federal Savings &
Loan Participation
Certificate
6.90%, 3/1/01
(acquired 3/27/97,
cost $28,668) N/R 94 94
============================================================
GROUP TOTAL 8,991
============================================================
TOTAL FIXED INCOME SECURITIES (Cost $9,027,568) 9,019,900
============================================================
PREFERRED STOCK (1.3%)
============================================================
SHARES
------
MORTGAGE-OTHER
(+)+ Home Ownership
Funding Corp.
13.331% (Cost
$90,899) Aaa 120,975 90,721
============================================================
STRUCTURED INVESTMENT (0.0%)-SEE NOTE A6
============================================================
FACE
AMOUNT
(000)
-------
Morgan Guaranty Trust
Co., 11/20/05;
monthly payments
equal to 1% per annum
of the outstanding
notional balance,
indexed to GNMA ARM
pools (Cost $8,637) N/R $ 121,873 1,944
============================================================
CASH EQUIVALENTS (40.9%)
============================================================
U.S. TREASURY SECURITIES (0.4%)
(!!) U.S. Treasury Bill
6.12%, 11/24/00 Tsy 20,000 19,819
6.14%, 12/14/00 Tsy 5,400 5,334
============================================================
GROUP TOTAL 25,153
============================================================
COMMERCIAL PAPER (36.9%)
Abbey National NA
6.51%, 1/16/01 33,000 32,361
6.60%, 12/22/00 7,000 6,895
ABN Amro North America Finance,
Inc.
6.45%, 12/15/00 50,000 49,328
AT&T Corp.
6.46%, 10/30/00 18,235 18,140
6.49%, 10/4/00 47,000 46,975
6.49%, 10/16/00 23,400 23,337
Banc One Corp.
6.47%, 11/7/00 20,400 20,264
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)!
------------------------------------------------------------
<S> <C> <C> <C>
6.47%, 12/6/00 $ 25,000 $ 24,703
Bank of America Corp.
6.55%, 10/10/00 72,400 72,282
Barclays U.S. Funding Corp.
6.41%, 10/3/00 50,000 49,982
6.49%, 10/12/00 29,700 29,641
BellSouth Telecommunications, Inc.
6.46%, 11/10/00 45,500 45,173
6.48%, 10/13/00 50,000 49,892
Canadian Imperial Holdings
6.45%, 12/14/00 30,000 29,602
6.49%, 10/23/00 48,500 48,308
Chase Manhattan Bank
6.47%, 10/16/00 46,000 45,876
CIT Group Holdings
6.50%, 10/3/00 50,000 49,982
Clorox Co.
6.48%, 10/18/00 24,687 24,611
DaimlerChrysler NA Holdings
6.50%, 10/6/00 44,700 44,660
6.50%, 10/16/00 50,000 49,865
6.50%, 10/25/00 50,000 49,783
E.I. Dupont De Nemours
6.47%, 10/13/00 20,000 19,957
Eastern Kodak
6.46%, 11/16/00 20,000 19,835
6.50%, 10/6/00 15,000 14,986
6.50%, 10/10/00 30,000 29,951
Emerson Electric Co.
6.46%, 10/13/00 38,700 38,617
Ford Motor Credit Corp.
6.49%, 10/12/00 47,000 46,907
6.50%, 10/6/00 50,000 49,955
Gannett Co., Inc.
6.50%, 11/13/00 40,062 39,751
General Electric Capital Corp.
6.49%, 10/10/00 47,000 46,924
General Motors Acceptance Corp.
6.49%, 10/6/00 50,000 49,955
H.J. Heinz Co.
6.46%, 11/2/00 50,000 49,713
6.47%, 10/30/00 20,000 19,896
6.48%, 10/13/00 45,200 45,102
Household Finance Co.
6.51%, 10/4/00 39,700 39,678
6.54%, 10/27/00 50,000 49,765
IBM Credit Corp.
6.51%, 10/16/00 50,000 49,864
International Lease Finance Corp.
6.47%, 11/8/00 50,000 49,659
6.47%, 1/29/01 50,000 48,922
Johnson & Johnson
6.45%, 10/17/00 29,500 29,415
Kellogg Co.
6.47%, 10/17/00 20,500 20,441
Lucent Technologies, Inc.
6.47%, 10/2/00 22,700 22,696
6.47%, 10/27/00 48,700 48,472
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
13
<PAGE> 16
STATEMENT OF NET ASSETS
--------------------------------------------------------------------------------
ADVISORY MORTGAGE
PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(CONT'D) (000) (000)!
------------------------------------------------------------
<S> <C> <C> <C>
Merck & Co., Inc.
6.47%, 10/20/00 $ 48,700 $ 48,534
6.47%, 10/25/00 38,500 38,334
Merrill Lynch & Co., Inc.
6.50%, 10/13/00 46,000 45,900
6.51%, 10/12/00 49,000 48,903
Motorola Credit Corp.
6.50%, 10/26/00 37,500 37,331
National Rural Utilities
Cooperative Finance Corp.
6.47%, 11/17/00 25,000 24,789
6.51%, 10/2/00 35,000 34,994
6.51%, 10/3/00 35,000 34,987
Pfizer, Inc.
6.47%, 10/20/00 50,000 49,829
Pitney Bowes Co.
6.46%, 10/6/00 41,600 41,563
Prudential Funding Corp.
6.47%, 11/6/00 30,000 29,806
6.50%, 10/12/00 30,000 29,940
SBC Communications
6.47%, 11/2/00 50,000 49,712
Societe Generale
6.46%, 12/13/00 40,000 39,476
6.53%, 10/17/00 40,000 39,884
SunTrust Banks, Inc.
6.47%, 11/22/00 30,000 29,720
6.48%, 10/20/00 58,720 58,519
Texaco, Inc.
6.48%, 11/3/00 49,000 48,709
Toyota Motor Credit Corp.
6.45%, 12/15/00 30,000 29,597
6.47%, 10/20/00 48,550 48,384
Wachovia Bank
6.50%, 10/12/00 42,400 42,316
6.53%, 11/28/00 25,000 24,737
Wal-Mart Stores, Inc.
6.48%, 10/11/00 27,975 27,925
6.48%, 10/17/00 22,000 21,937
6.48%, 11/21/00 25,000 24,771
============================================================
GROUP TOTAL 2,592,718
============================================================
REPURCHASE AGREEMENT (3.6%)
Chase Securities, Inc. 6.40%,
dated 9/29/00, due 10/2/00, to
be repurchased at $253,170,
collateralized by various U.S.
Government Obligations, due
11/2/00-3/29/01, valued at
$255,566 253,035 253,035
============================================================
TOTAL CASH EQUIVALENTS (Cost $2,870,906) 2,870,906
============================================================
TOTAL INVESTMENTS (170.7%) (Cost $11,998,010) 11,983,471
============================================================
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)!
------------------------------------------------------------
------------------------------------------------------------
<S> <C> <C> <C>
OTHER ASSETS AND LIABILITIES (-70.7%)
Dividends Receivable $ 4,032
Interest Receivable 33,553
Receivable for Investments Sold 5,535
Receivable for Forward Commitments 278,813
Receivable for Fund Shares Sold 5,580
Receivable from Investment Adviser 244
Unrealized Gain on Swap Agreements 36,545
Other Assets 536
Payable for Swap Premium (10,864)
Payable for Bank Overdraft (8,096)
Payable for Forward Commitments (5,283,297)
Payable for Fund Shares Redeemed (17,540)
Payable for Administrative Fees (468)
Payable for Trustees' Deferred Compensation
Plan-Note F (424)
Payable for Variation Margin on Futures
Contracts (1,963)
Other Liabilities (6,487)
-----------
(4,964,301)
============================================================
NET ASSETS (100%) $ 7,019,170
============================================================
INSTITUTIONAL CLASS
============================================================
NET ASSETS
Applicable to 702,026,715 outstanding shares of
beneficial interest (unlimited authorization,
no par value) $ 7,019,170
============================================================
NET ASSET VALUE PER SHARE $ 10.00
============================================================
NET ASSETS CONSIST OF:
Paid in Capital $ 7,358,323
Undistributed Net Investment Income (Loss) 52,228
Undistributed Realized Net Gain (Loss) (427,169)
Unrealized Appreciation (Depreciation) on:
Investment Securities (14,539)
Futures and Swaps 50,327
============================================================
NET ASSETS $ 7,019,170
============================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
14
<PAGE> 17
STATEMENT OF NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
------------------------------------------------------------
@ Restricted Security-Total market value of restricted
securities owned at September 30, 2000 was $5,617,000
or 0.1% of net assets.
! See Note A1 to Financial Statements.
!! Ratings are unaudited.
(+) 144A security. Certain conditions for public sale may
exist.
(!!) A portion of these securities was pledged to cover
margin requirements for futures contracts.
+ Moody's Investors Service, Inc. rating. Security is
not rated by Standard & Poor's Corporation.
## Variable or floating rate security-rate disclosed is
as of September 30, 2000.
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,
2000.
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.
--------------------------------------------------------------------------------
15
<PAGE> 18
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADVISORY
ADVISORY FOREIGN
FOREIGN FIXED ADVISORY
FIXED INCOME INCOME II MORTGAGE
PORTFOLIO PORTFOLIO PORTFOLIO
------------------ ------------------ ---------------------------
June 20,
Year Ended 2000* to Year Ended
September 30, September 30, September 30,
2000 2000 2000
(In Thousands)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 627 $ 25 $ 550,850
Dividends -- -- 7,054
---------------------------------------------------------------------------------------------------------------------------------
Total Income 627 25 557,904
---------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Services--Note B $ 47 $ 2 $ 28,776
Less: Waived Fees (47) -- (2) -- (28,776) --
Administrative Fee--Note C 10 1 6,139
Custodian Fee--Note E 2 1 519
Audit Fee 28 10 46
Legal Fee -- -- 71
Filing & Registration Fees -- -- 5
Other Expenses 5 1 430
Reimbursement of Expenses--Note B (24) (12) (551)
---------------------------------------------------------------------------------------------------------------------------------
Total Expenses 21 1 6,659
---------------------------------------------------------------------------------------------------------------------------------
Expense Offset--Note J (2) -- (519)
---------------------------------------------------------------------------------------------------------------------------------
Net Expenses 19 1 6,140
---------------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 608 24 551,764
---------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities (10) -- (34,919)
Foreign Currency Transactions 825 24 --
Futures and Swaps (65) (2) (106,402)
---------------------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) 750 22 (141,321)
---------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities (1,034) (61) (15,016)
Foreign Currency Transactions 307 41 --
Futures and Swaps 51 4 76,429
---------------------------------------------------------------------------------------------------------------------------------
Unrealized Appreciation (Depreciation) (676) (16) 61,413
---------------------------------------------------------------------------------------------------------------------------------
Net Gain (Loss) 74 6 (79,908)
---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 682 $ 30 $ 471,856
=================================================================================================================================
</TABLE>
* Commencement of Operations
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
16
<PAGE> 19
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADVISORY ADVISORY
FOREIGN FOREIGN
FIXED FIXED ADVISORY
INCOME INCOME II MORTGAGE
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------- ---------------- ----------------------------
(In Thousands)
Year Ended September 30, June 20, 2000* Year Ended September 30,
---------------------- to September 30, ----------------------
1999 2000 2000 1999 2000
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ 638 $ 608 $ 24 $ 470,794 $ 551,764
Realized Net Gain (Loss) 1,001 750 22 (343,768) (141,321)
Change in Unrealized Appreciation
(Depreciation) (1,198) (676) (16) (112,889) 61,413
---------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 441 682 30 14,137 471,856
---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:--Note A9
Net Investment Income (9,526) (1,223) -- (390,191) (529,501)
Realized Net Gain (Loss) (1,724) -- -- -- --
In Excess of Realized Net Gain -- -- -- (140,602) --
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (11,250) (1,223) -- (530,793) (529,501)
---------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
INSTITUTIONAL CLASS:
Issued -- -- 1,776 4,166,442 963,599
In Lieu of Cash Distributions 9,223 1,105 -- 452,674 435,085
Redeemed (1,775) (5,834) -- (2,035,656) (2,785,437)
---------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions 7,448 (4,729) 1,776 2,583,460 (1,386,753)
---------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (3,361) (5,270) 1,806 2,066,804 (1,444,398)
NET ASSETS:
Beginning of Period 17,683 14,322 -- 6,396,764 8,463,568
---------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $ 14,322 $ 9,052 $1,806 $ 8,463,568 $ 7,019,170
=================================================================================================================================
Undistributed net investment
income (loss) included in end
of period net assets $ 852 $ 997 $ 46 $ 57,608 $ 52,228
---------------------------------------------------------------------------------------------------------------------------------
(1) Shares Issued and Redeemed
INSTITUTIONAL CLASS:
Shares Issued -- -- 177 408,195 97,980
In Lieu of Cash Distributions 2,231 309 -- 43,874 44,414
Shares Redeemed (246) (1,588) -- (197,750) (283,894)
---------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in
Institutional Class Shares
Outstanding 1,985 (1,279) 177 254,319 (141,500)
=================================================================================================================================
</TABLE>
* Commencement of Operations
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
17
<PAGE> 20
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
ADVISORY FOREIGN FIXED INCOME PORTFOLIO
Year Ended September 30,
-------------------------------------------------------------------
1996 1998+ 1999+ 2000+
1997+
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.80 $ 11.73 $ 10.32 $ 10.18 $ 3.85
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.68 0.58 0.48 0.19 0.18
Net Realized and Unrealized Gain
(Loss) on Investments 1.02 0.80 0.48 -- 0.03
---------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.70 1.38 0.96 0.19 0.21
---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.66) (1.88) (1.10) (5.52) (0.35)
Realized Net Gain (0.11) (0.88) -- (1.00) --
In Excess of Realized Net Gain -- (0.03) -- -- --
---------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.77) (2.79) (1.10) (6.52) (0.35)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.73 $ 10.32 $ 10.18 $ 3.85 $ 3.71
---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 16.47% 14.08% 10.19% 2.87% 5.86%
---------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(Thousands) $236,092 $93,939 $17,683 $14,322 $9,052
Ratio of Expenses to Average Net
Assets (1) 0.12% 0.14% 0.12% 0.15% 0.16%
Ratio of Net Investment Income to
Average Net Assets 6.06% 5.68% 4.84% 4.24% 4.87%
Portfolio Turnover Rate 170% 208% 318% 0% 0%
---------------------------------------------------------------------------------------------------------------------------------
(1) SUPPLEMENTAL INFORMATION ON THE
RATIO OF EXPENSES TO AVERAGE NET
ASSETS:
Reduction in Ratio due to Expense
Reimbursement/Waiver 0.38% 0.38% 0.38% 0.39% 0.57%
Ratio Including Expense Offsets 0.12% 0.14% 0.12% 0.14% 0.15%
=================================================================================================================================
</TABLE>
+ Per share amounts are based on average shares outstanding.
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
18
<PAGE> 21
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
ADVISORY FOREIGN FIXED INCOME II PORTFOLIO
June 20,
2000** to
September 30,
2000+
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.14
Net Realized and Unrealized Gain (Loss) on Investments 0.04
------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.18
------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.18
------------------------------------------------------------------------------------------------------------
TOTAL RETURN 1.80%
------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $ 1,806
Ratio of Expenses to Average Net Assets (1) 0.15%*
Ratio of Net Investment Income to Average Net Assets 5.09%*
Portfolio Turnover Rate 0%
------------------------------------------------------------------------------------------------------------
(1) SUPPLEMENTAL INFORMATION ON THE RATIO OF EXPENSES TO
AVERAGE NET ASSETS:
Reduction in Ratio due to Expense Reimbursement/Waiver 3.02%*
Ratio Including Expense Offsets 0.15%*
============================================================================================================
</TABLE>
* Annualized
** Commencement of Operations
+ Per share amounts are based on average shares outstanding.
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
19
<PAGE> 22
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
ADVISORY MORTGAGE PORTFOLIO Institutional Class
Year Ended September 30,
------------------------------------------------
1996 1997 1998
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.41 $ 10.29 $ 10.59
---------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.72 0.75 0.69
Net Realized and Unrealized Gain (Loss) on Investments (0.06) 0.34 0.36
---------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.66 1.09 1.05
---------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.72) (0.71) (0.67)
Realized Net Gain (0.03) (0.08) (0.11)
In Excess of Realized Net Gain (0.03) -- --
---------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.78) (0.79) (0.78)
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.29 $ 10.59 $ 10.86
---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 6.56% 11.03% 10.36%
---------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $1,974,592 $3,071,427 $6,396,764
Ratio of Expenses to Average Net Assets (1) 0.09% 0.09% 0.09%
Ratio of Net Investment Income to Average Net Assets 7.17% 7.55% 6.83%
Portfolio Turnover Rate 139% 144% 126%
---------------------------------------------------------------------------------------------------------------------
(1) SUPPLEMENTAL INFORMATION ON THE RATIO OF EXPENSES TO
AVERAGE NET ASSETS:
Reduction in Ratio due to Expense Reimbursement/Waiver 0.39% 0.40% 0.40%
Ratio Including Expense Offsets 0.08% 0.08% 0.08%
=====================================================================================================================
<CAPTION>
ADVISORY MORTGAGE PORTFOLIO Institutional Class
-----------------------------
Year Ended September 30,
-----------------------------
1999 2000
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.86 $ 10.03
---------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.66 0.72
Net Realized and Unrealized Gain (Loss) on Investments (0.69) (0.08)
---------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.03) 0.64
---------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.58) (0.67)
Realized Net Gain -- --
In Excess of Realized Net Gain (0.22) --
---------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.80) (0.67)
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.03 $ 10.00
---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (0.32%) 6.76%
---------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $8,463,568 $7,019,170
Ratio of Expenses to Average Net Assets (1) 0.09% 0.09%
Ratio of Net Investment Income to Average Net Assets 6.62% 7.19%
Portfolio Turnover Rate 94% 49%
---------------------------------------------------------------------------------------------------------------------
(1) SUPPLEMENTAL INFORMATION ON THE RATIO OF EXPENSES TO
AVERAGE NET ASSETS:
Reduction in Ratio due to Expense Reimbursement/Waiver 0.39% 0.38%
Ratio Including Expense Offsets 0.08% 0.08%
=====================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
20
<PAGE> 23
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, 2000, the Fund was
comprised of twenty-four active portfolios. The accompanying financial
statements and financial highlights are those of the Advisory Foreign Fixed
Income, Advisory Foreign Fixed Income II and Advisory Mortgage Portfolios (each
referred to as a "Portfolio") only. The financial statements of the remaining
portfolios are presented separately.
A. SIGNIFICANT ACCOUNTING POLICIES. The following significant accounting
policies are in conformity with accounting principles generally accepted in the
United States of America for investment companies. Such policies are
consistently followed by the Fund in the preparation of its financial
statements. Accounting principles generally accepted in the United States of
America may require management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual
results may differ from those estimates.
1. SECURITY VALUATION: Market values for equity securities listed on the New
York Stock Exchange ("NYSE") or other U.S. exchanges or NASDAQ are based on
the latest quoted sales prices as of the close of the NYSE (normally 4:00
p.m. Eastern Time) on the valuation date; securities not traded on the
valuation date are valued at the mean of the most recent quoted bid and
asked prices. Equity securities not listed are valued at the mean of the
most recent bid and asked prices. Securities listed on foreign exchanges
are valued at the latest quoted sales prices on those exchanges. 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 trading in similar securities. Mortgage-backed
securities issued by certain government-related organizations are valued
using brokers' quotations based on a matrix system which considers such
factors as other security prices, yields and maturities. Short term
securities, maturing 60 days or less, are valued using the amortized cost
method of valuation, which in the opinion of the Board of Trustees reflects
fair value. Securities for which no quotations are readily available are
valued at their fair value as determined in good faith using methods
approved by the Board of Trustees.
2. FEDERAL INCOME TAXES: It is each Portfolio's intention to continue to
qualify as a regulated investment company and distribute all of its income
and net capital gain. 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 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. Any such joint repurchase agreement is
covered by the same collateral requirements as discussed above.
4. FUTURES: Financial 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 changes in the value of the related securities. Futures
contracts involve market risk in excess of the amounts recognized in the
Statement of Net Assets. Risks arise from possible
--------------------------------------------------------------------------------
21
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
movements in the prices of securities relating to these instruments. The
change in value of futures contracts primarily corresponds with the value
of their related securities, but may not precisely correlate with the
change in value of such securities. In addition, there is the risk that a
Portfolio may not be able to enter into a closing transaction because of an
illiquid secondary market.
5. SWAP AGREEMENTS: Each Portfolio may enter into swap agreements to exchange
the interest rate on or return generated by one nominal instrument for the
return generated by another nominal instrument. 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 interest payments to be received, if any, at
the date of default.
6. STRUCTURED INVESTMENTS: Each Portfolio may invest in structured investments
whose values are linked either directly or inversely to changes in foreign
currencies, interest rates, commodities, indices, or other underlying
instruments. A Portfolio uses these securities to increase or decrease its
exposure to different underlying instruments and to gain exposure to
markets that might be difficult to invest in through conventional
securities. Structured investments may be more volatile than their
underlying instruments, but any loss is limited to the amount of the
original investment.
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. Liquid securities or cash is earmarked in an amount at least
equal to these commitments. Securities held for this purpose cannot be sold
while this strategy is outstanding, unless replaced with other assets. As a
result, there is a possibility that, as asset earmarking reached certain
levels, a portfolio might lose some flexibility in managing its
investments, responding to shareholder redemption requests, or meeting
other current obligations.
8. FOREIGN EXCHANGE AND FORWARD CURRENCY CONTRACTS: The books and records of
the Fund are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars at the bid prices of such currencies against
U.S. dollars quoted by a bank. Net realized gains (losses) on foreign
currency transactions represent net foreign exchange gains (losses) from
forward foreign currency contracts, disposition of foreign currencies,
currency gains or losses realized between the trade and settlement dates on
securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on a Portfolio's
books and the U.S. dollar equivalent of amounts actually received or paid.
A forward foreign currency contract is an agreement between two parties to
buy or sell currency at a set price on a future date. Each Portfolio may
enter into forward foreign currency contracts to protect securities and
related receivables and payables against future changes in foreign exchange
rates. Fluctuations in the value
--------------------------------------------------------------------------------
22
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
of such contracts are recorded as unrealized appreciation or depreciation;
realized gains or losses, which are disclosed in the Statement of
Operations, include net gains or losses on contracts which have been
terminated by settlements. Risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms
of their contracts and are generally limited to the amount of unrealized
gain on the contract, if any, at the date of default. Risks may also arise
from unanticipated movements in the value of the foreign currency relative
to the U.S. dollar.
At September 30, 2000, the Advisory Foreign Fixed Income and Advisory
Foreign Fixed Income II Portfolios' net assets included foreign denominated
securities and currency. The net assets of the 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 component of realized and unrealized foreign currency
gains (losses) representing foreign exchange changes on investments is
included in the reported net realized and unrealized gains (losses) on
investment transactions and balances. Changes in currency exchange rates
will affect the value of and investment income from such securities and
currency.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of U.S. dollar
denominated transactions as a result of, among other factors, the
possibility of lower level governmental supervision and regulation of
foreign securities markets, relative currency valuation fluctuations, and
the possibility of political or economic instability.
9. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment
income, if any, are declared and paid quarterly for the Advisory Foreign
Fixed Income and Advisory Foreign Fixed Income II Portfolios and monthly
for the Advisory Mortgage Portfolio. Net realized capital gains are
distributed at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax regulations
which may differ from accounting principles generally accepted in the
United States of America. These differences are primarily due to differing
book and tax treatments for foreign currency transactions.
Permanent book and tax differences relating to shareholder distributions
may result in reclassifications to undistributed net investment income
(loss), undistributed realized net gain (loss) and paid in capital.
Permanent book-tax differences, if any, are not included in ending
undistributed net investment income (loss) for the purpose of calculating
net investment income (loss) per share in the Financial Highlights.
10. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and losses
on the sale of investment securities are those of specific securities sold.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recognized on the accrual basis.
Discounts and premiums on securities purchased are amortized over their
respective lives. Most expenses of the Fund can be directly attributed to a
particular Portfolio. Expenses which can not be directly attributed are
apportioned among the Portfolios on the basis of their relative net assets.
B. INVESTMENT ADVISORY FEE: Under the terms of an Investment Advisory
Agreement, each Portfolio has agreed to pay 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
--------------------------------------------------------------------------------
23
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
annual percentage rate of 0.375% of the Portfolio's average daily net assets
for the quarter.
The Adviser has voluntarily agreed to reduce the fees payable to it and, if
necessary, reimburse the Portfolios if annual operating expenses, after giving
effect to custody fee offset, in the case of the Advisory Mortgage Portfolio,
would otherwise exceed 0.15%, 0.15% and 0.08% of average daily net assets of
the Advisory Foreign Fixed Income, Advisory Foreign Fixed Income II and
Advisory Mortgage Portfolios, respectively.
C. ADMINISTRATION FEE: MAS serves as Administrator to the Fund pursuant to an
Administration Agreement. Under the Agreement, MAS receives an annual fee
accrued daily and payable monthly, of 0.08% of each Portfolio's average daily
net assets. Chase Global Funds Services Company ("CGFSC") serves as Transfer
Agent to the Fund and provides fund accounting and other services pursuant to a
sub-administration agreement with MAS and receives compensation from MAS for
these services.
D. DISTRIBUTOR: MAS Funds Distribution, Inc. ("MASDI" or the "Distributor"), a
wholly owned subsidiary of the Adviser, is the distributor for the Fund. MASDI
is a limited-purpose broker/dealer whose only function is to distribute
open-end mutual fund shares.
E. CUSTODY: The Chase Manhattan Bank serves as custodian for the Fund in
accordance with a custodian agreement.
F. TRUSTEES' FEES: The Fund pays each Trustee, who is not an interested person,
as defined under the Investment Company Act of 1940, as amended, an annual fee
plus reimbursement of travel and other expenses incurred in attending Board
meetings. Trustees who are also affiliated persons receive no remuneration for
their service as Trustee.
Each eligible Trustee of the Fund who is not an interested person, participates
in the Trustees' Deferred Compensation Plan. Under the Trustees' Deferred
Compensation Plan, such Trustees must defer at least 25% of their fees and may
elect to defer payment up to 100% of their total fees earned as a Trustee of
the Fund. These deferred amounts are invested in the Portfolios selected by the
Trustee. Total Trustees fees incurred, for the year ended September 30, 2000 by
the Portfolios were $135,000.
Expenses for the year ended September 30, 2000 include legal fees paid to
Morgan, Lewis & Bockius, LLP. A partner of that firm is Assistant Secretary of
the Fund.
G. PORTFOLIO INVESTMENT ACTIVITY:
1. PURCHASES AND SALES OF SECURITIES. For the year ended September 30, 2000,
purchases and sales of investment securities other than temporary cash
investments were:
<TABLE>
<CAPTION>
(000)
----------------------
Portfolio Purchases Sales
--------- ---------- ----------
<S> <C> <C>
Advisory Foreign Fixed Income $ -- $ 780
Advisory Foreign Fixed Income II 780 --
Advisory Mortgage 5,485,064 9,140,275
</TABLE>
2. FEDERAL INCOME TAX COST AND UNREALIZED APPRECIATION (DEPRECIATION). At
September 30, 2000, cost, unrealized appreciation, unrealized depreciation
and net unrealized appreciation (depreciation) of securities for Federal
income tax purposes were:
<TABLE>
<CAPTION>
(000)
----------------------------------------------------
Portfolio Cost Appreciation Depreciation Net
--------- ----------- ------------ ------------ --------
<S> <C> <C> <C> <C>
Advisory Foreign
Fixed Income $ 9,632 $ -- $ (1,192) $ (1,192)
Advisory Foreign
Fixed Income II 1,780 -- (61) (61)
Advisory Mortgage 11,998,236 78,697 (93,462) (14,765)
</TABLE>
3. FORWARD FOREIGN CURRENCY CONTRACTS. Under the terms of the forward foreign
currency contracts open at September 30, 2000, the Advisory Foreign Fixed
Income and Advisory Foreign Fixed Income II Portfolios are obligated to
deliver or
--------------------------------------------------------------------------------
24
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
receive currency in exchange for U.S. dollars as indicated in the following
table:
<TABLE>
<CAPTION>
(000)
-----------------------------------------------------------------
Net
Currency In Unrealized
to Exchange Settlement Appreciation
Deliver For Date Value (Depreciation)
-------- -------- ---------- -------- --------------
ADVISORY FOREIGN FIXED INCOME
<S> <C> <C> <C> <C> <C> <C>
Sales:
EUR 2,430 US$ 2,282 10/26/00 US$2,150 US$132
EUR 3,060 2,899 10/30/00 2,707 192
DKK 2,875 343 12/7/00 341 2
----------
US$326
==========
ADVISORY FOREIGN FIXED INCOME II
Sales:
EUR 785 US$ 737 10/26/00 US$ 694 US$ 43
DKK 425 51 12/7/00 51 --
----------
US$ 43
==========
</TABLE>
<TABLE>
<S> <C> <C>
DKK -- Danish Krone
EUR -- Euro
US$ -- U.S. Dollar
</TABLE>
4. FUTURES CONTRACTS. At September 30, 2000, the Portfolios had the following
futures contracts open:
<TABLE>
<CAPTION>
Unrealized
Number Aggregate Appreciation
of Face Value Expiration (Depreciation)
Portfolio Contracts (000) Date (000)
--------- --------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Purchases:
ADVISORY FOREIGN
FIXED INCOME
5 yr. Euro BOLB 38 EUR 3,928 Dec-00 US$ 25
============
ADVISORY FOREIGN
FIXED INCOME II
5 yr. Euro BOLB 6 EUR 620 Dec-00 US$ 4
============
Sales:
ADVISORY MORTGAGE
90 day Euro 60 EUR 5,603 Dec-00 1
U.S. Treasury 5 yr.
Note 3,300 US$ 80,337 Dec-00 (1,294)
U.S. Treasury 10 yr.
Note 103 US$ 10,313 Dec-00 (76)
U.S. Treasury Long
Bond 10,163 US$986,280 Dec-00 15,151
------------
US$13,782
============
</TABLE>
<TABLE>
<S> <C> <C>
EUR -- Euro
US$ -- U.S. Dollar
</TABLE>
5. SWAP AGREEMENTS. At September 30, 2000, the Advisory Mortgage Portfolio had
the following open Interest Rate Swap Agreements:
<TABLE>
<CAPTION>
Unrealized
Notional Appreciation
Amount (Depreciation)
(000) Description (000)
--------------------------------------------------------------------
<C> <S> <C>
ADVISORY MORTGAGE
$290,000 Agreement with Salomon
Brothers terminating
February 10, 2030 to pay 3
month LIBOR monthly and to
receive fixed rate at 7.26%
semiannually. $ 9,802
$222,000 Agreement with Goldman Sachs
terminating March 2, 2030 to
pay 3 month LIBOR quarterly
and to receive fixed rate at
7.36% semiannually. 10,523
$ 60,125 Agreement with Goldman Sachs
terminating March 3, 2030 to
pay 3 month LIBOR monthly
and to receive fixed rate at
7.34% semiannually. 2,655
$120,900 Agreement with Salomon
Brothers terminating March
3, 2030 to pay 3 month LIBOR
quarterly and to receive
fixed rate at 7.29%
semiannually. 4,649
$106,000 Agreement with Goldman Sachs
terminating March 9, 2030 to
pay 3 month LIBOR quarterly
and to receive fixed rate at
7.31% semiannually. 4,299
$127,000 Agreement with Salomon
Brothers terminating March
13, 2030 to pay 3 LIBOR
quarterly and to receive
fixed rate at 7.27%
semiannually. 4,617
------------
$36,545
============
</TABLE>
LIBOR -- London Interbank Offer Rate
H. CAPITAL LOSS CARRY FORWARD. At September 30, 2000, the Advisory Mortgage
Portfolio had $307,517,000 available for Federal income tax purposes unused
capital losses, all of which will expire on September 30, 2008.
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, 2000, the Advisory Foreign Fixed Income and Advisory
Mortgage Portfolios may elect to defer capital losses
--------------------------------------------------------------------------------
25
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
occurring between November 1, 1999 and September 30, 2000 up to the amount of
$70 and $101,268,000 respectively.
J. EXPENSE OFFSETS. The Portfolios have entered into an arrangement with their
custodian whereby credits realized on uninvested cash balances were used to
offset a portion of each applicable fund's expenses. For the period, expense
offsets appearing in the Statement of Operations include custodian balance
credits of $2,000 and $519,000 for the Advisory Foreign Fixed Income and
Advisory Mortgage Portfolios.
K. OTHER. At September 30, 2000, the Advisory Foreign Fixed Income and Advisory
Foreign Fixed Income II Portfolios had 3 and 4 unaffiliated record owners of
10% or greater, respectively. Investment activities of these shareholders could
have a material impact on the Portfolios. These Portfolios and the aggregate
percentage of such owners was as follows:
<TABLE>
<CAPTION>
Percentage
Portfolios of Ownership
---------- ------------
<S> <C>
Advisory Foreign Fixed Income 37.4%
Advisory Foreign Fixed Income II 53.2
</TABLE>
--------------------------------------------------------------------------------
26
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of MAS Funds:
We have audited the accompanying statement of net assets of the Advisory
Foreign Fixed Income Portfolio, the Advisory Foreign Fixed Income II Portfolio,
and the Advisory Mortgage Portfolio of the MAS Funds (hereafter referred to as
the "Funds"), including the portfolio of investments, as of September 30, 2000,
and the related statements of operations, changes in net assets and the
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The Funds' financial statements and
financial highlights for the periods ended prior to September 30, 2000, were
audited by other auditors whose report, dated November 19, 1999, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to provide reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
the securities owned at September 30, 2000, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Funds as of
September 30, 2000, the results of its operations, the changes in its net assets
and its financial highlights for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Boston, Massachusetts
November 17, 2000
--------------------------------------------------------------------------------
27
<PAGE> 30
FEDERAL INCOME TAX INFORMATION: (UNAUDITED)
For the year ended September 30, 2000*, the Advisory Foreign Fixed Income
Portfolio, Advisory Foreign Fixed Income II Portfolio and the Advisory Mortgage
Portfolio earned 19.3%, 10.9% and 11.0%, respectively, of income from direct
U.S. Treasury Obligations.
* Amounts for the period ended December 31, 2000 will be provided with Form
1099-DIV, to be mailed in January 2001.
ADDITIONAL INFORMATION: (UNAUDITED) On July 14, 2000, the Fund's Trustees, upon
the recommendation of the Audit Committee, accepted the resignation of
PricewaterhouseCoopers LLP ("PWC") as the Fund's independent auditors and voted
to appoint Deloitte & Touche LLP for the fiscal year ending September 30, 2000.
PWC's report on the Fund's financial statements for the fiscal year ending
September 30, 1999, contained no adverse opinion or disclaimer of opinion, nor
was it qualified or modified as to uncertainty, audit scope, or accounting
principles. Further, there were no disagreements between the Fund and
PricewaterhouseCoopers LLP on accounting principles, financial statement
disclosure or audit scope, which if not resolved to the satisfaction of
PricewaterhouseCoopers LLP would have caused them to make reference to the
disagreement in their report.
--------------------------------------------------------------------------------
28
<PAGE> 31
MAS FUNDS TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
The following is a list of the Trustees and the principal officers of the Fund
and a brief statement of their present positions and principal occupations:
THOMAS L. BENNETT, CFA*
Chairman of the Board of Trustees; Managing Director, Morgan Stanley & Co.
Incorporated; 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,
ICG-Commerce Inc., Investor Force Holdings; Sunoco; Fannie Mae; Reliance Group
Holdings; CVS Corporation; Knight-Ridder, Inc.; Internet Capital Group; formerly
Director, IKON Office Solutions, Inc., Fiserv, 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.
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.
JAMES H. SCOTT, CFA*
Trustee; Principal, Morgan Stanley & Co. Incorporated; Product Specialist, Core
Equity Strategy, Miller Anderson & Sherrerd, LLP; formerly Vice President,
Corporate Secretary and Assistant Treasurer for Texas Utilities Company.
LORRAINE TRUTEN, CFA
President, MAS Funds; Principal, Morgan Stanley & Co. Incorporated; Head of
Mutual Fund Services, Miller Anderson & Sherrerd, LLP; President and Director,
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 & Co. Incorporated;
formerly Vice President and Director of Investment Accounting, PFPC, Inc.
RICHARD J. SHOCH
Secretary, MAS Funds; Fund Administration Manager, Miller Anderson & Sherrerd,
LLP; Vice President, Morgan Stanley & Co. Incorporated; formerly Counsel, Vice
President and Assistant Secretary; SEI Corporation.
*Trustees Bennett & Scott are deemed to be "interested persons" 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 2000.
<PAGE> 32
[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.
927-advmas-1100
