<PAGE> 1
As filed with the Securities and Exchange Commission on June 2, 1998
Registration Nos. 811-8751 and 333-50315
------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. __ [ ]
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 1 [X]
(Check appropriate box or boxes)
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PUGET SOUND ALTERNATIVE INVESTMENT SERIES TRUST
(Exact name of registrant as specified in charter)
One Yesler Building, Suite 200
Seattle, Washington 98104
Registrant's telephone number, including area code: (206) 405-4100
Name and address
of agent for service with a copy to:
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Margaret M. Towle John M. Loder, Esq.
Puget Sound Asset Management Co., LLC Ropes & Gray
One Yesler Building, Suite 200 One International Place
Seattle, Washington 98104 Boston, MA 02110
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
Title of Securities Being Registered: Shares of Beneficial Interest.
<PAGE> 2
PUGET SOUND ALTERNATIVE INVESTMENT SERIES TRUST
Cross Reference Sheet
Items required by Form N-1A
<TABLE>
<CAPTION>
PART A
ITEM NO. REGISTRATION STATEMENT CAPTION CAPTION IN PROSPECTUS
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Fund Synopsis; Summary of Expenses
3. Condensed Financial Information Not Applicable
4. General Description of Registrant Cover Page; Fund Synopsis; The Fund's Objective;
Who Should Consider Investing; Investment Strategy
and Risks; General Information
5. Management of the Fund Fund Synopsis; Investment Strategy and Risks; Portfolio
Transactions; Management of the Fund; Back Cover
5A. Management's Discussion of Fund Not Applicable
Performance
6. Capital Stock and Other Securities Cover Page; Fund Synopsis; Institutional and Investor
Shares; Distributions and Taxes; General Information
7. Purchase of Securities Being Offered Fund Synopsis; Management of the Fund; How to
Purchase Shares; Share Price; Back Cover
8. Redemption or Repurchase How to Redeem Shares; How to Purchase Shares
9. Pending Legal Proceedings Not Applicable
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
PART B
ITEM NO. REGISTRATION STATEMENT CAPTION CAPTION IN PROSPECTUS OR STATEMENT OF ADDITIONAL INFORMATION
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Policies Investment Objective, Policies and Restrictions
14. Management of the Fund Management of the Trust
15. Control Persons and Principal Holders of Ownership of Shares of the Fund
Securities
16. Investment Advisory and Other Services Investment Advisory and Other Services; Management
of the Fund (Prospectus)
17. Brokerage Allocation and Other Practices Portfolio Transactions (Prospectus); Portfolio
Transactions and Brokerage
18. Capital Stock and Other Securities Description of the Trust; How to Redeem Shares
(Prospectus); Redemptions; Distributions and Taxes
(Prospectus); Income Dividends, Capital Gain
Distributions and Tax Status
19. Purchase, Redemption and Pricing of How to Purchase Shares (Prospectus); How to Buy
Securities Being Offered Shares; Share Price (Prospectus); Net Asset Value and
Public Offering Price; Shareholder Services; How to
Redeem Shares (Prospectus); Redemptions
20. Tax Status Distributions and Taxes (Prospectus); Income
Dividends, Capital Gain Distributions and Tax Status
21. Underwriters Investment Advisory and Other Services
22. Calculations of Performance Data Performance Information
23. Financial Statements Not Applicable
</TABLE>
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<PAGE> 4
PART C
The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
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<PAGE> 5
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED __, 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of such state.
Prospectus June __, 1998
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PUGET SOUND MARKET NEUTRAL PORTFOLIO
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Puget Sound Market Neutral Portfolio (the "Fund") is a newly organized mutual
fund and the first series of Puget Sound Alternative Investment Series Trust
(the "Trust"), a registered open-end management investment company.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's objective is to seek long-term capital appreciation while maintaining
minimal exposure to general equity market risk. The Fund seeks to achieve its
objective through a diversified portfolio using a non-traditional, "market
neutral" investment strategy. For a description of the risks of an investment in
the Fund, see "The Fund's Objective" and "Investment Strategy and Risks."
FEES AND EXPENSES
The Fund offers two classes of shares: Institutional Shares and Investor Shares.
Investor Shares, unlike Institutional Shares, bear a 12b-1 marketing fee,
shareholder servicing fee and a sales commission (unless waived).
WHY READING THIS PROSPECTUS IS IMPORTANT
This Prospectus explains the objective, risks and strategy of the Fund that a
prospective investor ought to know before investing. To highlight terms and
concepts important to mutual fund investors, we have provided "Plain English"
explanations along the way. Reading this Prospectus will help you to decide
whether the Fund is the right investment for you. We suggest that you keep it
for future reference.
ADDITIONAL INFORMATION ABOUT THE FUND
A Statement of Additional Information ("SAI") (dated June __, 1998), which has
been filed with the Securities and Exchange Commission (the "SEC"), contains
more information about the Fund and is, by reference, part of this Prospectus.
The SAI may be obtained, upon request and without charge, along with other
information about the Fund, by writing to Puget Sound Alternative Investment
Series Trust, 3435 Stelzer Road, Columbus, Ohio 43219 or by calling our Investor
Information Department toll free at 1-877-77-PUGET (1-877-777-8438). The SAI,
material incorporated by reference into this Prospectus and the SAI, and other
information regarding registrants that file electronically with the SEC may also
be obtained at the SEC's Website (http://www.sec.gov).
For more information about establishing an account, or any other information
about the Fund, call toll free 1-877-77-PUGET (1-877-777-8438).
IT IS IMPORTANT TO NOTE THAT SHARES OF THE FUND ARE NOT GUARANTEED OR INSURED BY
THE FDIC OR ANY AGENCY OF THE U.S. GOVERNMENT. AS WITH ANY INVESTMENT IN COMMON
STOCKS, WHICH ARE SUBJECT TO WIDE FLUCTUATIONS IN MARKET VALUE, YOU COULD LOSE
MONEY BY INVESTING IN THE FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 6
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TABLE OF CONTENTS
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FUND SYNOPSIS..................................................................1
SUMMARY OF EXPENSES............................................................3
THE FUND'S OBJECTIVE...........................................................5
WHO SHOULD CONSIDER INVESTING..................................................5
INVESTMENT STRATEGY AND RISKS..................................................6
PORTFOLIO TRANSACTIONS........................................................10
PERFORMANCE INFORMATION OF THE SUB-ADVISER....................................11
MANAGEMENT OF THE FUND........................................................12
INSTITUTIONAL AND INVESTOR SHARES.............................................14
HOW TO PURCHASE SHARES........................................................15
SHAREHOLDER SERVICES..........................................................18
HOW TO REDEEM SHARES..........................................................19
SHARE PRICE...................................................................20
DISTRIBUTIONS AND TAXES.......................................................20
GENERAL INFORMATION...........................................................21
<PAGE> 7
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FUND SYNOPSIS
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WHO SHOULD CONSIDER INVESTING (PAGE 5)
o Investors looking for a simple, efficient way to diversify
their stock, bond and cash investments with direct exposure to
a long/short, equity strategy.
o Investors seeking a portfolio that offers the potential for
capital appreciation with minimal exposure to general equity
market risk.
o Investors wanting growth of capital over the long term--at
least five years.
WHO SHOULD NOT INVEST
o Investors unwilling to accept fluctuations in share price.
o Investors seeking a mutual fund that exposes them to equity
market risk.
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PLAIN ENGLISH ABOUT
INVESTING FOR THE LONG TERM
The Fund is intended to be a long-term investment vehicle and is not designed to
provide investors with a means of speculating on short-term fluctuations in the
stock market.
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RISKS OF THE FUND (PAGE 6)
The Fund's total return and share value will fluctuate, so an investor could
lose money over short or even extended periods. The Fund is subject to, among
other risks:
o Investment risk (The chance that Fund shares may lose value,
depending on market, economic, political and other conditions
affecting the Fund's portfolio).
o Short Sale Risk (The risk that Fund shares may lose value as a
result of selling borrowed shares).
o Portfolio Turnover Risk (The risk that the Fund's portfolio
turnover may vary significantly from time to time).
INVESTMENT ADVISER AND SUB-ADVISER (PAGE 12)
Puget Sound Asset Management Co., LLC ("PSAM"), Seattle, Washington, is the
Fund's investment adviser and Fiduciary Asset Management Co. ("FAMCO" or the
"Sub-Adviser"), Clayton, Missouri, is the Fund's sub-adviser. PSAM is recently
organized and has not previously served as a mutual fund adviser. FAMCO, in
addition to serving as the Fund's sub-adviser, also currently serves as an
investment adviser to another mutual fund and to taxable and tax-exempt
accounts.
<PAGE> 8
DISTRIBUTIONS
Distributions to Fund shareholders out of any dividends or interest that the
Fund has received as well as distributions of any net long-term capital gains
are paid at least annually. All distributions may include dividends and capital
gains that are taxable.
INCEPTION DATE: June ___, 1998
ESTIMATED EXPENSE RATIO
(giving effect to fee waivers): Institutional Shares 2.17%
Investor Shares 2.67%
SUITABLE FOR IRAs: YES
MINIMUM INITIAL INVESTMENT: $1,000,000 for Institutional Shares, $2,500 for
Investor Shares, $1,000 for IRAs and custodial accounts for minors.
HOW TO PURCHASE SHARES (PAGE 15)
SHAREHOLDER SERVICES (PAGE 18)
o Systematic Withdrawal Plan.
o Automatic Investment Plan.
o Retirement Plans.
HOW TO REDEEM SHARES (PAGE 19)
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<PAGE> 9
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SUMMARY OF EXPENSES
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The following information is designed to help you understand the various costs
and expenses you would bear, directly or indirectly, as an investor in the Fund.
This table illustrates the transaction expenses you will incur as a shareholder
in the Fund. For more information about shareholder transaction expenses, see
"Institutional and Investor Shares" and "How to Purchase Shares."
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
INVESTOR SHARES INSTITUTIONAL SHARES
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<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a % of offering price)(1) 3.00% None
Sales Load Imposed on Reinvested Distributions
(and other Distributions) None None
Deferred Sales Load None None
Redemption Fees(2) None None
Exchange Fees Not Applicable Not Applicable
</TABLE>
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(1) A reduced sales charge on Investor Shares applies in some cases. See
"How to Purchase Shares -- Reduced Sales Charges (Investor Shares Only)."
(2) Redemptions by wire transfer are subject to a wire fee (currently $5) that
is deducted from the redemption proceeds.
The next table illustrates the operating expenses that you would incur as a
shareholder of the Fund. These expenses are deducted from the Fund's income
before it is paid to you, and include investment advisory expenses as well as
the cost of maintaining accounts, administering the Fund, providing shareholder
services, distribution and other activities. Since the Fund had not commenced
operations as of the date of this Prospectus, the expenses shown are estimates
for the Fund's first full fiscal year. For more information about the Fund's
operating expenses, see "Management of the Fund" and "Institutional and Investor
Shares."
<TABLE>
<CAPTION>
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(AS A % OF AVERAGE NET ASSETS)
INVESTOR SHARES INSTITUTIONAL SHARES
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<S> <C> <C>
Management Fees (after fee waiver)(1) 1.75% 1.75%
12b-1 Fees (after fee waiver)(2) 0.25% None
Other Operating Expenses 0.67% 0.42%
Total Operating Expenses (after fee waivers)(3)(4) 2.67% 2.17%
</TABLE>
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(1) The Trust's investment adviser has voluntarily agreed to reduce its fees to
the amount shown in the table above. Without such voluntary reduction, the
adviser would be entitled to receive investment advisory fees of 2.00% of
the average daily net assets of the Fund.
(2) The Trust's distributor has voluntarily agreed to reduce its fees to the
amount shown in the table above. Without such voluntary reduction, the
distributor would be entitled to receive 12b-1 fees of 0.50% of the average
daily net assets of the Investor Shares. Because of the ongoing nature of
the 12b-1 fees, long-term shareholders of Investor Shares may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
rules of the National Association of Securities Dealers, Inc.
(3) Total Operating Expenses do not include dividend expenses incurred in
connection with short sales, which are included in and reduce the
investment return of the Fund.
(4) Without the voluntary fee reduction disclosed in footnotes (1) and (2)
above, Total Operating Expenses of the Fund would be 2.42% and 3.17% for
the Institutional Shares and Investor Shares, respectively.
-3-
<PAGE> 10
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PLAIN ENGLISH ABOUT
FUND EXPENSES
All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the net assets of
the fund. The Fund pays higher investment advisory fees than some other mutual
funds. Some types of non-traditional investments, such as market neutral
strategies, are often more complex and require greater time and resources to
manage than other more traditional equity mutual funds. This additional effort
is reflected in higher investment advisory fees.
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The following example illustrates the hypothetical expenses that you would incur
on a $1000 investment over various periods. The example assumes (1) that the
Fund provides a return of 5% a year and (2) that you redeem your investment at
the end of each period.
<TABLE>
<CAPTION>
EXAMPLE*
INVESTOR SHARES INSTITUTIONAL SHARES
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<S> <C> <C>
One Year ............................... $ 56 $22
Three Years............................. $110 $68
</TABLE>
* Under SEC rules, newly-organized funds, such as the Fund, are required to
show expenses in an example for one- and three-year periods only.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FUTURE, WHICH MAY BE HIGHER OR LOWER THAN
THOSE SHOWN.
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<PAGE> 11
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A WORD ABOUT RISK
This Prospectus describes the risks you will face as an investor in the Fund. It
is important to keep in mind one of the main axioms of investing: the higher the
risk of losing money, the higher the potential reward. As you consider an
investment in the Fund, you should also take into account your personal
tolerance for share price volatility.
Look for this "caution" symbol !! throughout this Prospectus. It is used to mark
detailed information about some of the types of risks that you, as a shareholder
of the Fund, will confront.
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THE FUND'S OBJECTIVE
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The Fund's objective is to seek long-term capital appreciation while maintaining
minimal exposure to general equity market risk. The Fund seeks to achieve its
objective by taking both long and short positions in equity securities. Although
the Fund's investment strategy seeks to minimize the risk associated with
investing in the equity market, an investment in the Fund will be subject to the
risk of poor stock selection by the Fund. In other words, the Fund may not be
successful in executing its strategy of taking long positions in stocks that
outperform the market and short positions in stocks that underperform the
market. See "Investment Strategy and Risks."
Except as explicitly set forth in this Prospectus or in the SAI, the investment
objective and policies of the Fund may be changed by the Board of Trustees of
the Trust without shareholder approval.
!! BECAUSE OF THE SEVERAL TYPES OF RISKS DESCRIBED ON THE FOLLOWING
PAGES, YOUR INVESTMENT IN THE FUND, AS IS THE CASE WITH MANY INVESTMENTS IN
STOCKS AND BONDS, COULD LOSE MONEY.
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WHO SHOULD CONSIDER INVESTING
- --------------------------------------------------------------------------------
The Fund may be a suitable investment for you if:
o You want to add a non-traditional investment strategy to your
existing mix of stock, bond and money market funds.
o You want an investment fund that seeks to provide long-term
growth of capital by taking advantage of stock market
inefficiencies while maintaining minimal exposure to general
equity market risk.
o You are looking for an investment that performs differently
than a diversified stock or bond fund.
o You characterize your investment temperament as "safety
oriented."
This Fund is not appropriate if you are a "market-timer." Investors who engage
in excessive in-and-out trading activity generate additional costs that are
borne by all the Fund's shareholders. To minimize such costs, which reduce the
ultimate returns achieved by you and other shareholders, the Fund has adopted
the following policies:
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<PAGE> 12
o The Fund reserves the right to reject any purchase request,
including requests that it regards as disruptive to the
efficient management of the portfolio. This could be because
of timing of the investment or because of a history of
excessive trading by that investor.
o The Fund reserves the right to stop offering shares at any
time.
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INVESTMENT STRATEGY AND RISKS
- --------------------------------------------------------------------------------
This section explains how the Fund tries to achieve long-term capital
appreciation while maintaining minimal exposure to general equity market risk.
It also explains three important risks--investment risk, short sale risk, and
portfolio turnover risk--faced by investors in the Fund. The investment strategy
can be changed by the Trust's Board of Trustees without shareholder approval.
Market neutral strategies are designed to produce returns that do not depend on
the stock market's direction; hence the term "market neutral." Using this type
of strategy, the Fund could hypothetically increase shareholder value in a down
market or conversely decrease shareholder value in up markets.
- --------------------------------------------------------------------------------
PLAIN ENGLISH ABOUT
MARKET NEUTRAL INVESTING
There are many different styles of market neutral investing, such as long/short
equity portfolios, convertible bond hedging, fixed income hedging and risk
arbitrage.
In this Prospectus, market neutral investing refers to an equity fund that holds
two diversified portfolios: a long portfolio of stocks identified as
undervalued, held simultaneously with a short portfolio of stocks identified as
overvalued.
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Part of the Fund's objective is to maintain minimal exposure to general equity
market risk, or volatility of total returns. This maintenance of minimal
exposure to volatility of total returns is important, since volatility is
extremely high for a diversified common stock portfolio when measured over short
periods. To illustrate the volatility of stock prices, the following table shows
the best, worst and average annual total returns (dividend income plus changes
in market value) for the U.S. stock market over various periods as measured by
the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500"), a widely
used barometer of stock market activity. Note that the returns shown do not
include the cost of buying and selling stocks or other expenses that a
real-world investment portfolio would incur.
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<PAGE> 13
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S&P 500 Average Annual Returns (1927-1997)
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1 Year 5 Years 10 Years 20 Years
------ ------- -------- --------
Best 53.99 23.92 20.06 16.86
Worst (43.34) (12.47) (0.89) 3.11
Average 10.99 10.25 10.83 10.95
The table covers all the 1-, 5-, 10-, and 20-year periods from 1927 through
1997. For example, while the average annual return on stocks for all the 5-year
periods was 10.25, average annual returns for the 5-year periods ranged from
- -12.47 (from 1927 through 1932), to 23.92 (from 1949 through 1954). These
average returns reflect past performance of the stocks that were then included
in the S&P 500 and should not be regarded as an indication of future returns
from either the stock market as a whole or the Fund in particular.
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PLAIN ENGLISH ABOUT
VOLATILITY
The most commonly accepted measure of risk in any financial asset class is the
volatility of its total returns. Volatility risk, quite simply, refers to the
fact that a diversified portfolio may fluctuate in value and show a loss during
any interim period.
Increasing the length of period during which stocks are held tends to reduce the
volatility risk. Another method is to create a long portfolio of attractive
stocks and a short portfolio of unattractive stocks in which the overall
volatility of returns is low.
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The Sub-Adviser screens a large universe of stocks to find the 1400 most liquid
common stocks that are publicly traded in the United States. Securities held in
the Fund consist of all size companies, or market capitalization.
!! THE FUND IS SUBJECT TO INVESTMENT RISK, WHICH IS THE POSSIBILITY THAT
CHANGES IN MARKET, ECONOMIC, POLITICAL AND OTHER CONDITIONS COULD HURT
STOCK PERFORMANCE.
In general, during periods of high political or economic instability, equity
investments may lose some of their appeal for investors. This could result in
loss of value for the Fund, even though the Fund seeks to be less volatile than
many other equity funds. However, if the Fund holds long positions in stocks
that underperform the market and short positions in stocks that outperform the
market, then the losses of the Fund may exceed those of other stock mutual
funds.
!! THE FUND IS SUBJECT TO SHORT SALE RISK, WHICH IS THE POSSIBILITY THAT
FUND SHARES MAY LOSE VALUE AS A RESULT OF SELLING BORROWED SHARES.
The Fund's short portfolio poses additional risks for the Fund investor. The
short portfolio represents stocks that the Fund has borrowed from their owners,
and then sold to other investors. The Fund remains obligated to return the
borrowed stocks to their owners. To do this, the Fund will have to purchase the
borrowed stocks back, at some time in the future, and pay whatever the market
price for those stocks may then be. If the price of those stocks has gone up
since the Fund borrowed the stocks and sold them, the Fund will lose money on
the investment. A fund that engages in short selling is more risky than other
equity mutual funds. Although the Fund's
-7-
<PAGE> 14
gain is limited to the amount for which it sold the borrowed security, its
potential loss is unlimited.
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PLAIN ENGLISH ABOUT
SELLING SHORT
Selling short is selling a security that you do not own. You borrow the security
from your broker, then immediately sell it. Later, you repurchase and deliver
the security to pay back your borrowed shares to the broker. Short sales are
made because the seller anticipates a decline in the price of the security.
If the price of the stock goes down between the time that you borrowed the stock
and when you repurchase it, you make money. If the price of the stock goes up
between the time that you borrowed the stock and when you repurchase it, you
lose money.
Your potential loss in short selling is unlimited. Thus, successful short
selling requires a great deal of experience, diligence and attention.
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!! THE FUND IS SUBJECT TO PORTFOLIO TURNOVER RISK, WHICH IS THE POSSIBILITY
THAT THE FUND'S PORTFOLIO TURNOVER MAY VARY SIGNIFICANTLY FROM TIME TO
TIME.
In general, the Sub-Adviser does not consider the level of portfolio turnover
when deciding which securities to buy, sell and sell short. The rate of the
Fund's portfolio turnover may vary significantly from time to time depending on
the volatility of economic and market conditions. Although the rate of portfolio
turnover is difficult to predict, under normal circumstances the Sub-Adviser
expects an annual portfolio turnover rate of each of the long and short
portfolios not to exceed 150%. This expected aggregate portfolio turnover rate
of 300% for the Fund is higher than the portfolio turnover rate for many other
mutual funds. The Sub-Adviser views the rate of portfolio turnover as indicative
of many market inefficiencies, or opportunities.
High portfolio turnover can involve correspondingly greater brokerage
commissions and other transaction costs. These costs are borne directly by the
Fund. Turnover could involve the realization of capital gains that would be
taxable when distributed to shareholders of the Fund. The extent that the Fund's
portfolio turnover results in the realization of net short-term capital gains,
such gains are usually taxed to shareholders at ordinary income tax rates. See
"Portfolio Transactions" and "Distributions and Taxes."
SECURITIES SELECTION AND PORTFOLIO DIVERSIFICATION
The Fund employs an active investment approach. The Fund attempts to achieve its
objective by taking long positions in stocks traded in the markets of the United
States that the Sub-Adviser has identified as undervalued and short positions in
stocks traded in the markets of the United States that the Sub-Adviser has
identified as overvalued. By taking long and short positions in stocks with
similar characteristics, the Fund attempts to cancel out the effect of general
stock market movements on the Fund's performance.
The Sub-Adviser will determine the size of each long or short position by
analyzing the tradeoff between the attractiveness of each position and its
impact on the risk of the overall portfolio.
-8-
<PAGE> 15
The Sub-Adviser seeks to construct a diversified portfolio containing both long
and short positions that have minimal net exposure to the U.S. equity market.
The Sub-Adviser selects long and short positions with matching risk
characteristics, within specific capitalization ranges (e.g., large cap, mid cap
and small cap) and certain other risk factors. In general, the Sub-Adviser
attempts to buy highly liquid stocks for the Fund; in other words, stocks that
trade with great frequency.
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PLAIN ENGLISH ABOUT
PORTFOLIO DIVERSIFICATION
In general, the more diversified a fund's portfolio of stocks, the less likely
that a specific stock's poor performance will hurt the fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLAIN ENGLISH ABOUT
LARGE CAP, MID CAP AND SMALL CAP STOCKS
Stocks of publicly traded companies--and mutual funds that hold these
stocks--can be classified by the companies' market value, or capitalization. The
Fund defines large cap as companies with a market value exceeding $5 billion.
Mid cap companies are those with a market value between $1 billion and $5
billion. Small cap companies are those with a market value less than $1 billion.
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The Fund borrows securities that are then sold short. Until the Fund replaces
the borrowed security, it will maintain daily a segregated account with the
Fund's custodian. This account will contain cash, U.S. Government securities or
other liquid securities. The amount deposited in the Fund's account, plus any
amount deposited with a broker or other custodian as collateral, will at least
equal the current market value of the securities sold short. Depending on the
arrangements made with such brokers or custodians, the Fund may not receive any
payments (including interest) on collateral deposited with such brokers or
custodians. The Fund will not use leverage as part of its investment strategy.
In other words, the Fund will not make a short sale if, after completing the
transaction, the market value of all the securities sold short exceeds 100% of
the Fund's net assets.
OTHER RISK CONSIDERATIONS
COMMON STOCKS AND OTHER EQUITY SECURITIES. Common stocks and similar equity
securities are securities that represent an ownership interest (or the right to
acquire such an interest) in a company and include securities exercisable for or
convertible into common stocks (e.g., warrants). While offering greater
potential for long-term growth, common stocks and similar equity securities are
more volatile and more risky than some other forms of investment. Therefore, the
value of your investment in the Fund may sometimes decrease instead of increase.
The Fund may invest in equity securities of companies with relatively small
market capitalization. Securities of such companies may be more volatile than
the securities of larger, more established companies and the broad equity market
indices. See "Small Companies"
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<PAGE> 16
below. The Fund's investments may include securities traded "over-the-counter"
as well as those traded on a securities exchange. Some over-the-counter
securities may be more difficult to sell under some market conditions. In
addition, the Fund's investments may include securities of other investment
companies, including investment companies that invest primarily in securities
other than equity securities. As an investor in another investment company, the
Fund will indirectly bear its share of the expenses of that investment company.
These expenses are in addition to the Fund's own costs of operations. In some
cases, investing in an investment company may involve the payment of a premium
over the value of the assets held in that investment company's portfolio.
SMALL COMPANIES. The Fund may invest in companies with relatively small market
capitalization. Investments in companies with relatively small capitalization
may involve greater risk than is usually associated with stocks of larger
companies. These companies often have sales and earnings growth rates which
exceed those of companies with larger capitalization. Such growth rates may in
turn be reflected in more rapid share price appreciation. However, companies
with smaller capitalization often have limited product lines, markets or
financial resources and may be dependent upon a relatively small management
group. The securities may have limited marketability and may be subject to more
abrupt or erratic movements in price than securities of companies with larger
capitalization or market averages in general. The net asset value per share of
the Fund therefore may fluctuate more widely than market averages.
REPURCHASE AGREEMENTS. Any Fund assets not invested in common stocks or other
equity securities will generally be held in the form of cash or in repurchase
agreements. Under a repurchase agreement, the Fund will buy securities from a
seller, usually a bank or brokerage firm, with the understanding that the seller
will repurchase the securities at a higher price at a later date (usually seven
days or less from the date of original purchase). If the seller fails to
repurchase the securities, the Fund has rights to sell the securities to third
parties. Repurchase agreements can be regarded as loans by the Fund to the
seller, collateralized by the securities that are the subject of the agreement.
Repurchase agreements afford an opportunity for the Fund to earn a return on
available cash at relatively low credit risk, although the Fund may be subject
to various delays and risks of loss if the seller fails to meet its obligation
to repurchase, including (a) possible declines in the value of the underlying
security during the period while the Fund seeks to enforce its rights thereto,
(b) possible reduced levels of income and lack of access to income during this
period and (c) possible inability to enforce rights and the expenses involved in
enforcement or attempted enforcement. The Fund treats repurchase agreements
maturing in more than seven days as illiquid securities. The Fund has a policy
of not investing more than 15% of the Fund's net assets (taken at current value)
in illiquid securities.
"YEAR 2000" MATTERS. Many of the services provided to the Fund depend on the
smooth functioning of computer systems. Many systems in use today cannot
distinguish between the year 1900 and the year 2000. Should any of the service
systems fail to process information properly, such failure could have an adverse
impact on the Fund's operations and services provided to shareholders. PSAM, the
Sub-Adviser, the Distributor, the Administrator, the Transfer Agent, the Fund
Accountant, the Custodian and certain other service providers to the Fund
have reported that each expects to modify its systems, as necessary, prior to
January 1, 2000 to address this so-called "year 2000 problem." However, there
can be no assurance that the problem will be corrected in all respects and that
the Fund's operations and services provided to shareholders will not be
adversely affected.
MANAGEMENT. The Sub-Adviser has previous experience managing a mutual fund, but
PSAM has not previously served as a mutual fund adviser.
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
Portfolio turnover considerations will not limit the Sub-Adviser's investment
discretion in managing the Fund's assets. The Sub-Adviser anticipates that the
Fund's portfolio turnover rates will vary significantly from time to time
depending on the volatility of economic and market conditions, but will not
ordinarily exceed 150% annually for each of the long and the short portfolios.
This expected aggregate portfolio turnover rate of 300% for the Fund is higher
than the portfolio turnover rate for many other mutual funds. The Sub-Adviser
views the rate of portfolio turnover as indicative of many market
inefficiencies, or opportunities. High portfolio turnover may involve higher
costs and higher levels of taxable gains.
The Sub-Adviser selects brokers and dealers to execute portfolio transactions
for the Fund. In selecting brokers the Sub-Adviser may consider research and
brokerage services furnished to it, and may cause the Fund to pay higher
commissions in recognition of the provision of these services. Subject to
seeking best price and execution, the Sub-Adviser may allocate Fund portfolio
transactions to brokers or dealers whose customers have invested in the Trust.
-10-
<PAGE> 17
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION OF THE SUB-ADVISER
- --------------------------------------------------------------------------------
The table below presents information about the investment performance of all the
discretionary, fee-paying accounts managed by FAMCO with investment objectives,
policies and strategies substantially similar to that of the Fund (the
"Accounts"). The investment performance is shown for the period from June 1,
1995, the date FAMCO began managing the Accounts, to March 31, 1998, on an
annual return basis, with returns for periods of less than one year not
annualized, and on an average annual return and cumulative return basis. During
the entire period FAMCO has managed the Accounts, John L. Dorian, the individual
responsible for the day-to-day portfolio management of the Fund, has been the
portfolio manager of the Accounts.
The gross investment performance for the Accounts has been examined by
Deloitte & Touche LLP in accordance with standards established by the American
Institute of Certified Public Accountants, for use in connection with the
registration statement of the Trust under the Securities Act of 1933, as amended
(the "Securities Act"). The gross investment performance has been computed in
accordance with the Performance Presentation Standards established by the
Association for Investment Management and Research. The gross investment
performance represents total return, assuming reinvestment of all dividends and
proceeds from capital transactions. The method for calculating performance
produces a different result than if the performance information were calculated
using the SEC's method for calculating the total return of a mutual fund. In the
table below, the gross investment performance has been adjusted for estimated
net fees and expenses, before waivers and reimbursements, of the Institutional
Shares of the Fund. The performance results would be less favorable if they had
been adjusted for estimated net fees and expenses of the Investor Shares of the
Fund. Deloitte & Touche LLP has not examined the net investment performance
presented below.
THE INFORMATION PROVIDED BELOW DOES NOT REPRESENT THE PERFORMANCE OF THE FUND,
WHICH IS NEWLY-ORGANIZED AND HAS NO PERFORMANCE RECORD OF ITS OWN. THE FOLLOWING
PERFORMANCE INFORMATION SHOULD NOT BE CONSIDERED A PREDICTION OF FUTURE
PERFORMANCE OF THE FUND. THE FUND'S PERFORMANCE MAY BE HIGHER OR LOWER THAN THAT
SHOWN BELOW.
- --------------------------------------------------------------------------------
Annual Returns Accounts(%)
- --------------------------------------------------------------------------------
1/1/98 - 3/31/98 (3.64)
1997 20.81
1996 25.28
6/1/95-12/31/95 5.02
- --------------------------------------------------------------------------------
Average Annual Returns through 3/31/98
- --------------------------------------------------------------------------------
1 Year 12.16
Since 6/1/95 16.24
- --------------------------------------------------------------------------------
Cumulative Returns through 3/31/98
- --------------------------------------------------------------------------------
1 Year 12.16
Since 6/1/95 53.15
- --------------------------------------------------------------------------------
* 6/1/95 is the date FAMCO began managing the Accounts.
The Fund's expenses, timing of purchases and sales of portfolio securities,
availability of cash flows, and brokerage commissions are all reasons that might
cause performance results of the Fund to vary from the Accounts. In addition,
the Accounts are not subject to the diversification requirements, specific tax
restrictions and investment limitations imposed on the Fund by the Investment
Company Act of 1940, as amended (the "1940 Act") or the Internal Revenue Code of
1986, as amended (the "Code"). Consequently, the performance results of the
Accounts could have been less favorable had the Accounts been subject to these
requirements, restrictions and limitations.
-11-
<PAGE> 18
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
PSAM is the investment adviser of the Fund and has responsibility for the
management of the Fund's affairs, under the supervision of the Trust's Board of
Trustees. The Fund's investment portfolio is managed on a day-to-day basis by
the Sub-Adviser, under the general oversight of PSAM and the Trust's Board of
Trustees. PSAM monitors and evaluates the Sub-Adviser to help assure it is
managing the Fund consistently with the Fund's investment objective and
restrictions and applicable laws and guidelines. PSAM does not, however,
determine what investments will be purchased or sold for the Fund.
PSAM, One Yesler Building, Suite 200, Seattle, Washington, was organized in 1998
as a Washington limited liability company. PSAM offers innovative investment
products to financial intermediaries. PSAM's principal has been in the
investment management business since 1983, however, PSAM has no prior experience
managing mutual funds. Zwick Financial Corp. Profit Sharing Trust, a profit
sharing plan, owns more than 25% of the voting interests of PSAM and therefore
is regarded to control PSAM for purposes of the 1940 Act.
FAMCO, 8112 Maryland Avenue, Suite 310, Clayton, Missouri, was organized in 1994
as a Missouri corporation and, in addition to serving as the Fund's sub-adviser,
currently serves as an investment adviser to another mutual fund and to taxable
and tax-exempt accounts. Charles Walbrant, FAMCO's President, owns 100% of the
voting interests of FAMCO and therefore is regarded to control FAMCO for
purposes of the 1940 Act. John L. Dorian has day-to-day responsibility for
managing the Fund's portfolio. Mr. Dorian has served as Chief Investment
Officer-Equities of FAMCO since May, 1995. From May, 1990 to May, 1995, Mr.
Dorian was a Managing Director-Equity Portfolio Manager at First Quadrant Corp.
- --------------------------------------------------------------------------------
PLAIN ENGLISH ABOUT
THE FUND'S SUB-ADVISER
FAMCO provides investment advisory services to many institutional clients. As of
March 31, 1998, FAMCO managed over $3 billion in assets. The individual who
manages the Fund is John L. Dorian, Chief Investment Officer-Equities of FAMCO.
Mr. Dorian has 17 years experience managing investment portfolios and 10 years
experience managing assets using a market neutral strategy. Mr. Dorian has a
B.S., M.S. and M.B.A. from Florida State University, Tallahassee, Florida.
- --------------------------------------------------------------------------------
The Trust intends to apply for an exemptive order from the SEC to permit PSAM,
subject to the approval of the Trust's Board of Trustees and certain other
conditions, to enter into sub-advisory agreements with sub-advisers other than
the current sub-adviser of the Fund without obtaining shareholder approval. The
exemptive request will also seek to permit, without obtaining shareholder
approval, the terms of an existing sub-advisory agreement to be changed or the
employment of an existing sub-adviser to be continued after events that would
otherwise cause an automatic termination of a sub-advisory agreement, if such
changes or continuation are approved by the Trust's Board of Trustees. There is
no assurance that the SEC will issue the exemptive order. This Prospectus would
be revised and the shareholders notified if the sub-adviser of the Fund is
changed or a new sub-adviser is added.
-12-
<PAGE> 19
ADVISORY AND SUB-ADVISORY FEES AND OTHER EXPENSES
The Fund has agreed to pay PSAM a management fee at the annual percentage rate
of 2.00% of the Fund's average daily net assets. PSAM has voluntarily agreed,
however, to reduce the annual rate of its fee with respect to the Fund to 1.75%
of the Fund's average daily net assets. PSAM may terminate this voluntary
agreement at any time. PSAM pays FAMCO a sub-advisory fee at the annual
percentage rate of 1.50% of the Fund's average daily net assets.
In addition to the investment advisory fee, the Fund pays all expenses not
expressly assumed by PSAM, including taxes, brokerage commissions, fees and
expenses of registering and qualifying the Fund's shares under federal and state
securities laws, fees of the Fund's custodian, transfer agent, independent
accountants and legal counsel, expenses of shareholders' and trustees' meetings,
expenses of preparing, printing and mailing prospectuses to existing
shareholders and fees of trustees who are not directors, officers or employees
of PSAM.
ADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN
BISYS Fund Services Ohio, Inc. (the "Administrator"), a wholly-owned subsidiary
of The BISYS Group, Inc., serves as the Trust's administrator and generally
assists the Trust in all aspects of its administration and operation. As
compensation for its administrative services, the Administrator receives a
monthly fee based upon an annual percentage rate of 0.15% of the average daily
net assets of the Trust.
BISYS Fund Services, Inc. (the "Transfer Agent") has entered into an agreement
with the Trust for the provision of transfer agency services and dividend
disbursing services for the Trust. As compensation for its transfer agency
services and dividend disbursing services, the Transfer Agent receives $20,000
per year as a base fee plus (i) $10,000 per year for each class after the
initial class and (ii) $25 per year per shareholder. The principal business
address of the Transfer Agent is 3435 Stelzer Road, Columbus, Ohio 43219.
Custodial Trust Company (the "Custodian") serves as the custodian of the assets
of the Fund. The principal address of the Custodian is 101 Carnegie Center,
Princeton, New Jersey 08540.
DISTRIBUTOR
Institutional and Investor Shares of the Fund are sold on a continuous basis by
BISYS Fund Services, L.P., the Trust's distributor (the "Distributor").
Solely for the purpose of compensating the Distributor for services and expenses
primarily intended to result in the sale of Investor Shares, such shares are
subject to an annual distribution fee of up to 0.50% of the average daily net
assets attributable to such shares in accordance with a Distribution Plan (the
"Distribution Plan") adopted by the Trust pursuant to Rule 12b-1 under the 1940
Act. Currently, the Fund pays the Distributor an annual distribution fee of
0.25% of the Fund's average daily net assets attributable to Investor Shares.
Activities which the Distributor may pay for using is revenues under the
Distribution Plan include (but are not limited to) the development and
implementation of direct mail promotions and advertising for sales of Investor
Shares, the preparation, printing and distribution of prospectuses for the Fund
to recipients other than existing shareholders, and payments to wholesalers of
Investor Shares. The Distribution Plan is of the type known as a "compensation"
plan. This means that, although the Trustees of the Trust are expected to take
into account the expenses of the Distributor in their
-13-
<PAGE> 20
periodic review of the Distribution Plan, the fees are payable to compensate the
Distributor for services rendered even if the amount paid exceeds the
Distributor's expenses.
SHAREHOLDER SERVICING AGENTS
The Distributor may also provide (or arrange for another intermediary or agent
to provide) certain additional services to Investor Shares' shareholders of the
Fund (the Distributor or such entity is referred to as a "Servicing Agent" in
such capacity). Such services may include transfer agent and sub-transfer agent
services, accounting services, personal and/or account maintenance services and
other administrative and recordkeeping services to both record owners and
non-record owners of Investor Shares. A Servicing Agent will be paid some or all
of the shareholder servicing fees charged with respect to Investor Shares
pursuant to a Shareholder Servicing Plan for such shares (the "Shareholder
Servicing Plan"). For the services provided, the Shareholder Servicing Plan
permits the Fund to pay annual fees of up to 0.25% of the average daily net
asset value of Investor Shares for which such Servicing Agents provide services
for the benefit of customers.
- --------------------------------------------------------------------------------
INSTITUTIONAL AND INVESTOR SHARES
- --------------------------------------------------------------------------------
The Fund offers two classes of shares to investors. The two classes of shares
are Institutional Shares and Investor Shares. The following table sets forth
basic investment and fee information for each class.
<TABLE>
<CAPTION>
Minimum Annual Annual
Fund Subsequent Shareholder Servicing Distribution
Name of Class Investment* Investments* Fee Fee
- ------------- ----------- ------------ --- ---
<S> <C> <C> <C> <C>
Institutional $ 1 million $ 10,000 None None
Investor $ 2,500 $ 250 0.25% 0.25%**
</TABLE>
- -------------------------
* Certain exceptions apply. See "Institutional Shares" and "Investor Shares"
below.
** With fee waiver.
The offering price of Fund shares is based on the net asset value per share next
determined after an order is received. See "Share Price", "How to Purchase
Shares" and "How to Redeem Shares."
INSTITUTIONAL SHARES
Institutional Shares may be purchased by individuals, endowments, foundations,
Taft-Hartley plans and plan sponsors of 401(a), 401(k), 457 and 403(b) plans and
by certain other entities that PSAM permits to purchase Institutional Shares,
which decision shall be at the sole discretion of PSAM. In order to be eligible
to purchase Institutional Shares, an institution, plan or individual must make
an initial investment of at least $1,000,000 in the Fund. In its sole
discretion, PSAM may waive this minimum investment requirement and PSAM intends
to do so for officers and affiliates of PSAM, for the spouse, parents, children,
siblings, grandparents and grandchildren of such officers and affiliates, for
employees of the Sub-Adviser, the Administrator and the Distributor and for
Trustees of the Trust and their spouses. Institutional Shares are sold without
any initial or deferred sales charges and are not subject to any ongoing
distribution expenses or shareholder servicing fees.
-14-
<PAGE> 21
INVESTOR SHARES
Investor Shares may be purchased by individuals, financial institutions, other
financial intermediaries and certain individual retirement accounts. In order to
be eligible to purchase Investor Shares, an eligible investor must make an
initial investment of at least $2,500 in the Fund. Certain exceptions apply to
this minimum investment requirement, such as for IRAs and custodial accounts for
minors. In addition, PSAM may, in its sole discretion, waive the minimum
investment requirement for any potential investors. Investor Shares are subject
to an annual shareholder servicing fee equal to an amount of up to 0.25% of the
average daily net assets attributable to Investor Shares, an annual distribution
fee equal to an amount of up to 0.50% (currently this fee has been voluntarily
reduced by the Distributor to 0.25%) of the average daily net assets
attributable to Investor Shares and a sales charge to the net asset value of the
shares being purchased, unless such sales charge is waived by PSAM. As described
above, the Distribution Plan for Investor Shares permits an annual distribution
fee of up to 0.50% of the Fund's average daily net assets attributable to
Investor Shares.
GENERAL
As described above, shares of the Fund may be sold to corporations or other
institutions such as trusts, foundations or broker-dealers purchasing for the
accounts of others ("Shareholder Organizations"). Investors purchasing and
redeeming shares of the Fund through a Shareholder Organization may be charged a
transaction-based fee or other fee for the services provided by the Shareholder
Organization. Each such Shareholder Organization is responsible for transmitting
to its customers a schedule of any such fees and information regarding any
additional or different conditions regarding purchases and redemptions of Fund
shares. Customers of Shareholder Organizations should read this Prospectus in
light of the terms governing accounts with their particular organization.
- --------------------------------------------------------------------------------
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
You may make an initial purchase of shares of the Fund by sending a completed
application form and payment to:
Puget Sound Alternative Investment Series Trust
P.O. Box 182304
Columbus, OH 43218-2304
The minimum initial investment to purchase the Fund's Institutional Shares is
$1,000,000, and subsequent investments must be $10,000. The minimum initial
investment to purchase the Fund's Investor Shares is $2,500 for regular accounts
and $1,000 for IRAs and custodial accounts for minors. Subsequent investments
must be at least $250. The minimum investment amount
-15-
<PAGE> 22
for both Institutional and Investor Shares may be waived by PSAM, in its sole
discretion. See "Shareholder Services" below for further information about
minimum investments in certain other circumstances.
Upon acceptance of your order, the Fund's shareholder servicing agent will open
an account for you, apply the payment to the purchase of full and fractional
Fund shares and mail a statement of account confirming the transaction.
After an account has been established, you may send subsequent investments at
any time directly to the Fund at the above address. The remittance must be
accompanied by either the account identification slip detached from a statement
of account or a note containing sufficient information to identify the account,
i.e., the Fund name, your account name or your name and social security number.
Subsequent investments can also be made by federal funds wire. To purchase
shares by wire, call toll free 1-877-77-PUGET (1-877-777-8438) to obtain
instructions regarding the bank account number into which the funds should be
wired and other pertinent information.
Certificates will not be issued for shares. The Fund reserves the right to
reject any purchase order for any reason which the Fund in its sole discretion
deems appropriate. Although the Fund does not anticipate that it will do so, it
reserves the right to suspend or change the terms of the offering of its shares.
For Institutional Shares, the price you pay will be the per share net asset
value next calculated after a proper investment order is received by the Fund.
The net asset value of the Fund's shares is calculated once daily as of the
close of regular trading on the New York Stock Exchange on each day the Exchange
is open for trading. See "Share Price." Portfolio securities are valued at their
market value as more fully described in the SAI. For Investor Shares, the price
you pay will be the per share net asset value next calculated after a proper
investment order is received by the Fund, plus any applicable sales charge.
The Fund may accept telephone orders from broker-dealers who have been
previously approved by the Distributor. It is the responsibility of such
broker-dealers to forward purchase or redemption orders promptly to the Fund. In
addition to any sales charge, broker-dealers may charge the investor a
transaction-based fee or other fee for their services at either the time of
purchase or the time of redemption. Such fees may vary among broker-dealers but
in all cases will be retained by the broker-dealer and not remitted to the Fund,
PSAM or the Sub-Adviser.
SALES CHARGES
Institutional Shares are offered to the public at net asset value. Investor
Shares are offered at public offering prices determined by adding the following
sales charges to the net asset value of the shares being purchased. On each
purchase, the net asset value is invested in the Fund and the sales charge is
paid to the Distributor. The Distributor reallows a portion of the sales charge
to the dealer responsible for your order, as shown in the following table.
-16-
<PAGE> 23
<TABLE>
<CAPTION>
Sales Charge Sales Charge Dealer Reallowance
as a % of Public as a % of Net as a % of Public
Amount of Purchase ($) Offering Price Amount Invested Offering Price
- ---------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Up to 100,000 3.00 3.09 2.70
Over 100,000 and up to 250,000 2.50 2.56 2.25
Over 250,000 and up to 500,000 2.00 2.04 1.80
Over 500,000 and up to 1,000,000 1.00 1.01 0.90
Over 1,000,000 0.00 0.00 0.00
</TABLE>
REDUCED SALES CHARGES (INVESTOR SHARES ONLY)
Amounts Redeemed From Other Mutual Funds
No sales charge applies on amounts invested in the Fund that represent the
proceeds of an investor's redemption, within the 30 days immediately preceding
investment in the Fund, of shares of another mutual fund on which the investor
paid a front-end sales charge equal to or greater than the amount required. To
qualify for this arrangement, the investor must furnish a broker's confirmation
statement (or other documentation satisfactory to the Fund) showing the payment
of the sales charge. This arrangement is not available if the investor paid a
contingent deferred sales charge on the redemption.
Letter Of Intent
An investor may obtain a reduced sales charge by means of a written Letter of
Intent that expresses the intention of such investor to invest a certain amount
in shares of the Fund within a period of 13 months. Each purchase of shares
under a Letter of Intent will be made at the public offering price plus the
sales charge applicable at the time of such purchase to a single transaction of
the total dollar amount indicated in the Letter of Intent. The 13-month period
during which the Letter of Intent is in effect will begin on the date of the
earliest purchase to be included. Five percent of all investments made by a
shareholder under a Letter of Intent will be held in escrow for the period of
the Letter. If the investor does not fulfill the Letter of Intent, the amount of
the sales charge that would apply in the absence of the Letter will be paid to
the Distributor out of the escrowed portion of the shareholder's account. The
Letter of Intent program may be modified or eliminated at any time or from time
to time by the Fund without notice.
Rights Of Accumulation
Pursuant to rights of accumulation, a shareholder may combine a current purchase
of shares of the Fund with prior purchases of shares of the Fund. The public
offering price applicable to a purchase of shares is based on the sum of (i) the
shareholder's current purchase of shares of the Fund and (ii) the then current
net asset value of the shareholder's holdings of shares of the Fund.
Purchase By Certain Investors
No sales charge applies in certain instances.
o Shares of the Fund may be purchased at net asset value by
investment advisers, financial planners or other
intermediaries who place trades for their own accounts or the
accounts of their clients and who charge a management,
consulting or other fee
-17-
<PAGE> 24
for their services; clients of such investment advisers,
financial planners or other intermediaries who place trades
for their own accounts if the accounts are linked to the
master account of such investment adviser, financial planner
or other intermediary on the books and records of the broker
or agent; and retirement and deferred compensation plans and
trusts used to fund those plans, including, but not limited
to, those defined in Section 401(a), 401(k), 403(b) or 457 of
the Code and rabbi trusts. Investors may be charged a fee if
they effect transactions through a broker or agent.
o There is no sales charge or initial investment minimum related
to investments by certain current and retired employees of
PSAM, the Sub-Adviser, the Distributor or the Administrator;
current and former Trustees of the Trust; registered
representatives of broker-dealers that have selling
arrangements with the Distributor or the Administrator; the
spouse, parents, children, siblings, grandparents or
grandchildren of the persons listed above; and any trust,
pension, profit sharing or other benefit plan for any of the
foregoing persons.
o Shares of the Fund are available at net asset value for
investments by accounts of bank trust departments or trust
companies.
o Shares of the Fund are available at net asset value for
investments in participant-directed 401(a) and 401(k) plans
that have 50 or more eligible employees.
o Shares of the Fund also may be purchased at net asset value
through certain broker-dealers and/or financial services
organizations without any transaction fee. Such organizations
may receive compensation, in an amount of up to 0.35% annually
of the average value of the Fund shares held by their
customers. This compensation may be paid by PSAM and/or the
Sub-Adviser out of their own assets, or may be paid indirectly
by the Fund in the form of servicing, distribution or transfer
agent fees.
The reduction or elimination of the sales charge in connection with sales
described above reflects the absence or reduction of sales expenses associated
with such sales. For more information on these reductions or waivers, please
call toll free 1-877-77-PUGET (1-877-777-8438).
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
The Fund offers the following shareholder services which are more fully
described in the SAI. Explanations and forms are available from the Fund.
SYSTEMATIC WITHDRAWAL PLAN. If the value of your account is at least $5,000, you
may have periodic cash withdrawals automatically paid to you or any person you
designate.
AUTOMATIC INVESTMENT PLAN. Voluntary monthly investments of at least $250 may be
made automatically by pre-authorized withdrawals from your checking account.
RETIREMENT PLANS. The Fund's shares may be purchased by all types of
tax-deferred retirement plans. The Fund makes available retirement plan forms
for IRAs.
-18-
<PAGE> 25
- --------------------------------------------------------------------------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
You can redeem your shares by sending a written request to Puget Sound
Alternative Investment Series Trust, P.O. Box 182304, Columbus, Ohio 43218-2304.
The request must include the name of the Fund, your account number, the exact
name(s) in which your shares are registered, and the number of shares or the
dollar amount to be redeemed. All owners of the shares must sign the request in
the exact names in which the shares are registered (this appears on your
confirmation statement) and should indicate any special capacity in which they
are signing (such as trustee or custodian or on behalf of a partnership,
corporation or other entity).
If you are redeeming shares worth more than $10,000, or requesting that the
proceeds check be made out to someone other than the registered owner(s), or be
sent to an address other than your record address, you must have your signature
guaranteed by an eligible guarantor. Eligible guarantors include commercial
banks, trust companies, savings associations, credit unions and brokerage firms
that are members of domestic securities exchanges. Before submitting your
redemption request, you should verify with the guarantor institution that it is
an eligible guarantor. Signature guarantees by notaries public are not
acceptable.
You may also redeem your shares by calling toll free 1-877-77-PUGET
(1-877-777-8438). When you telephone a redemption request, the proceeds are
wired to the bank account previously chosen by you. A telephone redemption
request must be received by the Fund prior to the close of regular trading on
the New York Stock Exchange. If you telephone your request to the Fund after the
New York Stock Exchange closes or on a day when the New York Stock Exchange is
not open for business, the Fund cannot accept your request and a new request
will be necessary. The Trust, the Transfer Agent and the Custodian are not
responsible for the authenticity of withdrawal instructions received by
telephone. Reasonable procedures will be adopted to verify that telephone
instructions are genuine.
You may select the telephone redemption service when you fill out your initial
application or you may select it later by completing a Service Option Form (with
a signature guarantee), available from the Fund. If you decide to change the
bank account to which proceeds are to be wired, you must send in this change on
the Service Option Form with a signature guarantee. Telephonic redemptions may
be made only if your bank is a member of the Federal Reserve System or has a
correspondent bank that is a member of the System. If your account is with a
savings bank, it must have only one correspondent bank that is a member of the
System. In times of heavy market activity, a shareholder who encounters
difficulty in placing a redemption or exchange order by telephone may wish to
place the order by mail as described above.
The redemption price will be the net asset value per share next determined after
the redemption request and any necessary special documentation are received by
the Fund in proper form. See "Share Price."
Proceeds resulting from a written redemption request will normally be mailed to
you within seven days after receipt of your request, if it is in good order.
Telephonic redemption proceeds will
-19-
<PAGE> 26
normally be wired to your bank on the first business day following receipt of a
proper redemption request. If you purchased your shares by check and your check
was deposited less than 10 days prior to the redemption request, the Fund may
withhold redemption proceeds until your check has cleared, which may take up to
10 days from the purchase date.
The Fund may suspend the right of redemption and may postpone redemptions for
more than seven days when the New York Stock Exchange is closed for other than
weekends or holidays, or if permitted by the rules of the SEC when trading on
the New York Stock Exchange is restricted or during an emergency which makes it
impracticable for the Fund to dispose of its securities or to determine fairly
the value of its net assets, or during any other period permitted by the SEC for
the protection of investors.
If the value of your account with the Fund falls below a minimum amount set by
the Board of Trustees of the Trust (currently $2,500), the Fund may close your
account and send you the balance. The Fund will notify you at least 60 days
before closing your account, to give you time to purchase additional shares to
bring your account value above the minimum. Accounts will not be closed solely
because the value of shares has fallen through market price movements.
- --------------------------------------------------------------------------------
SHARE PRICE
- --------------------------------------------------------------------------------
The Fund's share price, called its net asset value, is calculated each business
day as of the close of regular trading (generally 4:00 p.m. Eastern time) on the
New York Stock Exchange. Net asset value per share is computed by adding up the
total value of the Fund's investments and other assets, subtracting any
liabilities, or debts, and then dividing by the total number of Fund shares
outstanding:
Net Asset Value = Total Assets - Liabilities (attributable to each class)
-------------------------------------------------------
Number of Shares Outstanding (attributable to each class)
Daily net asset value, or NAV, is useful to you as a shareholder because the
NAV, multiplied by the number of Fund shares you own, gives you the dollar
amount you would have received had you sold all of your shares that day.
- --------------------------------------------------------------------------------
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DISTRIBUTIONS
The Fund intends to declare distributions to shareholders out of any dividends
or interest that the Fund has received at least annually, although it may do so
more frequently as determined by the Board of Trustees of the Trust. The Fund
intends to pay out as dividends substantially all of its net investment income
(which comes from dividends and interest it receives from its investments and
net short-term capital gains). The Fund also intends to distribute any net
long-term capital gains at least annually. If you request redemption of all your
shares at any time during a month, you will receive all declared dividends
through the date of redemption together with the proceeds of the redemption.
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<PAGE> 27
Each shareholder's dividends and other distributions are reinvested in
additional shares of the Fund at net asset value per share generally determined
at the close of business on the ex-distribution date, unless the shareholder
elects in writing to receive dividends and other distributions in cash.
If you own your Fund shares in a non-retirement account, the Fund will notify
you each year of the amount and taxability of the Fund's dividends and
distributions paid during the previous year (that is, the amount of dividends,
capital gains, and any return of capital that you receive). You will also be
notified of the amount, if any, of federal income taxes withheld from the
distribution.
INCOME TAX CONSIDERATIONS
The Fund intends to qualify as a "regulated investment company" for federal
income tax purposes and to meet all other requirements necessary for it to be
relieved of federal taxes on income and gains it distributes to shareholders.
The Fund will distribute substantially all of its ordinary income and capital
gain net income on a current basis.
Generally, Fund distributions will be taxable to you as ordinary income to the
extent derived from the Fund's investment income and net short-term capital
gains (i.e., net gains from securities held for 12 months or less).
Distributions designated by the Fund as deriving from net gains on securities
held for more than 12 months but not more than 18 months and from net gains on
securities held for more than 18 months will be taxable to you as such,
regardless of how long you have held the shares. Distributions will be taxable
as described above whether received in cash or in shares through the
reinvestment of distributions.
Dividends and distributions on Fund shares are generally subject to federal
income tax as described above to the extent they do not exceed the Fund's
realized income and gains, even though such dividends and distributions may
economically represent a return of a particular shareholder's investment. Such
distributions are likely to occur in respect of shares purchased at a time when
the Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed.
Early in each calendar year, the Fund will notify you of the amount and tax
status of distributions paid to you for the preceding year.
Keep in mind that the tax information in this Prospectus is a summary of certain
U.S. federal income tax consequences of investing in the Fund. You should
consult your own tax adviser about the federal, foreign, state and local tax
consequences of investing in, redeeming or exchanging shares of the Fund.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Puget Sound Market Neutral Portfolio is the first series of Puget Sound
Alternative Investment Series Trust. The Trust is a diversified, open-end
management investment company organized as a Massachusetts business trust on
April 14, 1998. The Trust is authorized to issue an unlimited number of full and
fractional shares of beneficial interest in multiple series. Currently, the Fund
has two classes of shares, Institutional Shares and Investor Shares. Each share
in the Fund has one vote, with fractional shares voting proportionally. All
Trust shares entitled to vote will vote together irrespective of series or class
unless the rights of a particular series or class would be adversely
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<PAGE> 28
affected by the vote, in which case a separate vote of that series or class will
be required to decide the question. Shares are freely transferable, are entitled
to dividends as declared by the Trustees of the Trust, and, if the Fund were
liquidated, would receive the net assets of the Fund. The Fund may suspend the
sale of shares at any time and may refuse any order to purchase shares. The
Trust does not generally hold regular shareholder meetings and will do so only
when required by law. Shareholders may remove the Trustees of the Trust from
office by votes cast at a shareholder meeting or by written consent.
On May 29, 1998, BISYS Fund Services Ohio, Inc. held more than 25% of the
outstanding shares of the Fund and the Trust, and as a result, may be deemed to
"control" the Fund and the Trust as that term is defined in the 1940 Act.
Shareholders could, under certain circumstances, be held personally liable for
the obligations of the Trust. However, the risk of a shareholder incurring
financial loss on account of such liability is considered remote since it may
arise only in very limited circumstances.
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<PAGE> 29
INVESTMENT ADVISER
Puget Sound Asset Management Co., LLC
One Yesler Building, Suite 200
Seattle, Washington 98104
Toll free: 800-[ ]
Phone: 206-405-4100
Fax: 206-654-4121
DISTRIBUTOR
BISYS Fund Services, L.P.
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AGENT
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
50 Fremont Street
San Francisco, California 94105
CUSTODIAN
Custodial Trust Company
101 Carnegie Center
Princeton, New Jersey 08540
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, Massachusetts 02110
<PAGE> 30
PUGET SOUND ALTERNATIVE INVESTMENT SERIES TRUST
SUBJECT TO COMPLETION
STATEMENT OF ADDITIONAL INFORMATION
JUNE __, 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Statement of Additional Information shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any state in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws of
such state.
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the Puget Sound Market Neutral Portfolio
Prospectus dated June __, 1998, and should be read in conjunction therewith. A
copy of the Prospectus may be obtained by writing to Puget Sound Alternative
Investment Series Trust, P.O. Box 182304, Columbus, OH 43218-2304, or calling
toll free 1-877-77-PUGET (1-877-777-8438).
<PAGE> 31
TABLE OF CONTENTS
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS...............................1
MANAGEMENT OF THE TRUST.......................................................4
OWNERSHIP OF SHARES OF THE FUND...............................................5
INVESTMENT ADVISORY AND OTHER SERVICES........................................6
PORTFOLIO TRANSACTIONS AND BROKERAGE.........................................10
DESCRIPTION OF THE TRUST.....................................................12
HOW TO BUY SHARES............................................................14
NET ASSET VALUE AND PUBLIC OFFERING PRICE....................................15
SHAREHOLDER SERVICES.........................................................15
OPEN ACCOUNTS.......................................................15
SYSTEMATIC WITHDRAWAL PLAN..........................................16
IRAs................................................................16
REDEMPTIONS..................................................................17
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS.................18
PERFORMANCE INFORMATION......................................................21
EXPERTS......................................................................21
INDEPENDENT AUDITOR'S REPORT.................................................22
SPECIMEN PRICE MAKE-UP.......................................................24
APPENDIX A -- Publications That May Contain Fund Information................A-1
APPENDIX B -- Advertising and Promotional Literature........................B-1
-i-
<PAGE> 32
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The investment objective and policies of Puget Sound Market Neutral Portfolio
(the "Fund"), a series of Puget Sound Alternative Investment Series Trust (the
"Trust"), are summarized in the Prospectus under "The Fund's Objective" and
"Investment Strategy and Risks."
In addition, the following is an additional description of certain investments
of the Fund.
SHORT SALES. The Fund will seek to realize additional gains through short sales.
Short sales are transactions in which the Fund sells a security that it does not
own, in anticipation of a decline in the value of that security relative to the
long positions held by the Fund. To complete such a transaction, the Fund must
borrow the security to make delivery to the buyer. The Fund is then obligated to
replace the security borrowed by purchasing it in the market at or prior to the
time of replacement. The price at such time may be more or less than the price
at which the security was sold by the Fund. Until the security is replaced, the
Fund is required to repay the lender any dividends or interest that accrue
during the period of the loan. To borrow the security, the Fund may also be
required to pay a premium, which would increase the cost of the security sold.
The net proceeds of the short sale will be retained by the broker (or by the
Trust's custodian in a special custody account),to the extent necessary to meet
margin requirements, until the short position is closed out. The Fund will also
incur transaction costs in effecting short sales.
The Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date which the
Fund replaces the borrowed security. The Fund will realize a gain if the
security declines in price between those dates. The amount of any gain will be
decreased, and the amount of loss increased, by the amount of the premium,
dividends, interest, or expense the Fund may be required to pay in connection
with a short sale. An increase in the value of a security sold short by the Fund
over the price at which it was sold short will result in a loss to the Fund.
There can be no assurance that the Fund will be able to close out the position
at any particular time or at any acceptable price.
The staff of the Securities and Exchange Commission is of the opinion that a
short sale involves the creation of a senior security and is, therefore, subject
to the limitations of Section 18 of the Investment Company Act of 1940, as
amended (the "1940 Act"). The staff has taken the position that in order to
comply with the provisions of Section 18, the Fund must put in a segregated
account (not with the broker) an amount of cash or securities equal to the
difference between: (a) the market value of the securities sold short at the
time they were sold short, and (b) any cash or securities required to be
deposited as collateral with the broker in connection with the short sale (not
including the proceeds from the short sale). In addition, until the Fund
replaces the borrowed security, it must daily maintain the segregated account at
such a level that the amount deposited in it plus the amount deposited with the
broker as collateral will equal the current market value of the securities sold
short.
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<PAGE> 33
MISCELLANEOUS INVESTMENT PRACTICES
PORTFOLIO TURNOVER. A change in securities held by the Fund is known as
"portfolio turnover" and almost always involves the payment by the Fund of
brokerage commissions or dealer markup and other transaction costs on the sale
of the securities as well as the reinvestment of the proceeds in other
securities. Portfolio turnover is not a limiting factor with respect to
investment decisions. As disclosed in the Prospectus, high portfolio turnover
involves correspondingly greater brokerage commissions and other transaction
costs, which will be borne directly by the Fund, and could involve realization
of capital gains that would be taxable when distributed to shareholders of the
Fund. To the extent that portfolio turnover results in the realization of net
short-term capital gains, such gains are ordinarily taxed to shareholders at
ordinary income tax rates. See "Portfolio Transactions and Brokerage" and
"Income Dividends, Capital Gains Distributions and Tax Status."
INVESTMENT RESTRICTIONS
In addition to its investment objective and policies set forth in the
Prospectus, the following investment restrictions are fundamental policies of
the Fund:
The Fund will not:
(1) Borrow money in excess of 33 1/3% of the value (taken at
the lower of cost or current value) of the Fund's total assets (not
including the amount borrowed) at the time the borrowing is made. Short
sales and related borrowings of securities are not subject to this
restriction.
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<PAGE> 34
(2) Underwrite securities issued by other persons except to
the extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under certain
federal securities laws.
(3) Purchase or sell real estate, although it may purchase
securities of issuers which deal in real estate, securities which are
secured by interests in real estate, and securities which represent
interests in real estate, and it may acquire and dispose of real estate
or interests in real estate acquired through the exercise of its rights
as a holder of debt obligations secured by real estate or interests
therein.
(4) Purchase securities (other than securities of the U.S.
government, its agencies or instrumentalities) if, as a result of such
purchase, more than 25% of the Fund's total assets would be invested in
any one industry.
(5) Purchase or sell commodities or commodity contracts,
except that the Fund may purchase and sell stock index and other
financial futures contracts and options, and may enter into swap
agreements, foreign exchange contracts and other financial transactions
not involving physical commodities.
(6) Make loans, except by purchase of debt obligations, by
entering into repurchase agreements, or by lending its portfolio
securities.
(7) Issue any class of securities which is senior to the
Fund's shares of beneficial interest. (For the purpose of this
restriction none of the following is deemed to be a senior security:
any borrowing permitted by restriction (1) above; any pledge or other
encumbrance of assets; short sales; any collateral arrangements with
respect to short sales, swaps, options, future contracts and options on
future contracts and with respect to initial and variation margin; and
the purchase or sale of options, future contracts or options on future
contracts.)
Notwithstanding the latitude permitted by Restrictions 1, and 5 above and
Restrictions (g) and (h) below, the Fund has no current intention of (a)
borrowing money except (i) as a temporary measure to facilitate the meeting of
redemption requests (not for leverage) which might otherwise require the
untimely disposition of portfolio investments or (ii) for extraordinary or
emergency purposes or (b) purchasing interest rate futures.
-3-
<PAGE> 35
In addition to the foregoing fundamental investment restrictions, it is contrary
to the Fund's present policy, which may be changed without shareholder approval,
to:
(a) Invest in warrants or rights (other than warrants or rights
acquired by the Fund as a part of a unit or attached to securities at the time
of purchase).
(b) Write, purchase or sell options on particular securities (as
opposed to market indices).
(c) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts.
(d) Make investments for the purpose of exercising control of a
company's management.
(e) Purchase or sell futures contracts or options thereon.
(f) Invest in (i) securities which at the time of investment are not
readily marketable, (ii) securities restricted as to resale (excluding
securities determined by the trustees of the Trust (the "Trustees") (or the
person designated by the Trustees to make such determinations) to be readily
marketable) and (iii) repurchase agreements maturing in more than seven days,
if, as a result, more than 15% of the Fund's net assets (taken at current value)
would then be invested in (i), (ii) and (iii) above.
(g) Pledge, hypothecate, mortgage or otherwise encumber any of its
assets, except that the Fund may pledge assets having a value not exceeding 10%
of its total assets (taken at cost) to secure borrowings permitted by
fundamental restriction (1) above. (For the purposes of this restriction,
collateral arrangements with respect to options, short sales, stock index,
interest rate, currency or other futures, options on futures contracts and
collateral arrangements with respect to initial and variation margin are not
deemed to be a pledge or other encumbrance of assets. Collateral arrangements
with respect to swaps and other derivatives are also not deemed to be a pledge
or other encumbrance of assets.)
(h) Purchase securities on margin, except such short-term credits as
may be necessary for the clearance of purchases and sales of securities. (For
this purpose, the deposit or payment of initial or variation margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin.)
(i) Make short sales of securities or maintain a short position, if,
when added together, more than 100% of the value of the Fund's net assets would
be (i) deposited as collateral for the obligation to replace securities borrowed
to effect short sales, and (ii) allocated to segregated accounts in connection
with short sales. Short sales "against the box" are not subject to this
limitation.
(j) Invest in securities of other investment companies, except to the
extent permitted by the 1940 Act, or by exemptive order issued by the Securities
and Exchange Commission.
The investment policies of the Fund set forth in the Prospectus and in this
Statement of Additional Information may be changed by PSAM subject to review and
approval by the Board of Trustees of the Trust (the "Board of Trustees"),
without shareholder approval, except that any Fund policy explicitly identified
as "fundamental" may not be changed without the approval of the holders of a
majority of the outstanding shares of the Fund (which in the Prospectus and this
Statement of Additional Information means the lesser of (i) 67% of the shares of
the Fund represented at a meeting at which 50% or more of the outstanding shares
are represented or (ii) more than 50% of the outstanding shares).
MANAGEMENT OF THE TRUST
The Board of Trustees is responsible for the overall supervision of the
operations of the Fund. The Trustees can perform the duties imposed on them by
the 1940 Act and the Massachusetts General laws. In addition to their other
duties, the Trustees appoint the officers of the Fund annually and approve the
selection and termination of the Fund's sub-advisers.
The Trustees and officers of the Trust, their ages, addresses and principal
occupations during the past five years are as follows (an asterisk indicates a
Trustee who is an "interested person" of the Trust as defined in the 1940 Act):
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<PAGE> 36
*MARGARET M. TOWLE (49) --- TRUSTEE, PRESIDENT, TREASURER AND SECRETARY. Chief
Executive Officer, Chief Investment Officer and Portfolio Manager of PSAM since
February, 1998; self-employed investment advisory consultant since October,
1997; formerly Chairman, Chief Executive Officer, Director and Secretary of
Towle Associates, Inc., an investment advisory firm, from October, 1991 to
September, 1997.
The address of each Trustee and officer of the Trust affiliated with PSAM is One
Yesler Building, Suite 200, Seattle, Washington 98104.
The Trust pays no compensation to its officers or to the Trustees
listed above who are officers or employees of PSAM. Each Trustee who is not an
officer or employee of PSAM is compensated at the rate of $5,000 per annum. The
Trust provides no pension or retirement benefits to its Trustees, but has
adopted a deferred payment arrangement under which each Trustee who is to
receive fees from the Trust may elect not to receive such fees from the Trust on
a current basis but to receive in a subsequent period an amount equal to the
value that such fees would have if they had been invested in the Fund on the
normal payment date for such fees. As a result of this method of calculating the
deferred payments, the Fund, upon making the deferred payments, will be in the
same financial position as if the fees had been paid on the normal payment
dates.
The following table estimates the amount of compensation to be paid (or
deferred in lieu of current payment) by the Trust during its fiscal year ending
May 30th to the persons who are to serve as Trustees during such period:
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM TRUST AND
PERSON FROM TRUST FUND COMPLEX*
- ------ ---------- -------------
Margaret M. Towle $ 0 $ 0
* No Trustee receives any compensation from any mutual fund affiliated with PSAM
other than the Trust.
OWNERSHIP OF SHARES OF THE FUND
As of May 29, 1998, BISYS Fund Services Ohio, Inc., an Ohio corporation
and a wholly-owned subsidiary of The BISYS Group, Inc., owned of record and
beneficially 100% of the Investor Shares and Institutional Shares of the Fund as
a result of its investment of $100,000 "seed capital" in the Fund, and
therefore, may be deemed to "control" the Fund as that term is defined in the
1940 Act. The address of BISYS Fund Services Ohio, Inc., is 3435 Stelzer Road,
Columbus, Ohio 43219.
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<PAGE> 37
As of May 29, 1998, the Trustees and officers of the Trust beneficially
owned as a group no outstanding shares of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
BACKGROUND
As described in the Prospectus, the Fund is governed by the Board of
Trustees, who are generally responsible for the broad supervision and overall
direction of the Fund. The Fund has engaged PSAM, as the investment adviser of
the Fund. The assets of the Fund are managed on a day-to-day basis by Fiduciary
Asset Management Co. ("FAMCO" or the "Sub-Adviser"), the Fund's sub-adviser,
under the general oversight of PSAM and the Board of Trustees.
If the Fund in the future has multiple sub-advisers, then PSAM will
allocate assets of the Fund between the then current sub-advisers based on
continuing qualitative and quantitative assessment of the sub-advisers' skills
in managing assets.
The Sub-Adviser has discretion, subject to oversight by the Board of
Trustees and PSAM, to purchase and sell portfolio assets consistent with the
objective and policies set forth in its sub-advisory agreement with PSAM and
established for it by PSAM. PSAM is paid a management fee by the Fund for its
services, and a certain portion of that management fee (as set forth below) is
forwarded to the Sub-Adviser as compensation for its services.
INVESTMENT ADVISER AND SUB-ADVISER
Under a separate investment advisory agreement with the Fund, PSAM
provides investment advice for, and supervises the investment programs of, the
Fund. In this capacity, PSAM, subject to the authority of the Board of Trustees,
is responsible for the overall management of the Fund's business affairs.
PSAM, located at One Yesler Building, Suite 200, Seattle, Washington
98104, is an independently-owned investment adviser. The principal of PSAM,
Margaret M. Towle, has over 16 years experience in the investment management,
brokerage and consulting business. PSAM is presently owned by Margaret M. Towle
and Zwick Financial Corp. Profit Sharing Trust. Zwick Financial Corp. Profit
Sharing Trust owns more than 25% of the voting interests of PSAM and therefore
is regarded to control PSAM for purposes of the 1940 Act.
FAMCO, located at 8112 Maryland Ave., Suite 310, Clayton, Missouri, was
formed in June, 1994, and is currently 100% owned by Charles D. Walbrandt, the
President of FAMCO. As of June 1, 1998, FAMCO had managed over $3 billion of
assets.
-6-
<PAGE> 38
As disclosed in this Statement of Additional Information under the
heading "Management of the Trust", Margaret M. Towle is a Trustee and the
President, Treasurer and Secretary of the Trust as well as the Chief Executive
Officer, Chief Investment Officer, Portfolio Manager and a member of PSAM.
ADVISORY AND SUB-ADVISORY AGREEMENTS
The Fund has entered into an advisory agreement (the "Advisory
Agreement") with PSAM, and PSAM has entered into a sub-advisory agreement with
the Sub-Adviser (the "Sub-Advisory Agreement"). As compensation for its
services, PSAM is entitled to a fee, payable quarterly, at the annual rate of
2.00% of the average daily net asset value of the Fund. This fee is higher than
the management fee paid by most investment companies. As compensation for the
services provided by the Sub-Adviser, PSAM has agreed to pay the Sub-Adviser a
fee at the annual rate of 1.50% of the average daily net asset value of the
Fund, which payment will be paid out of the fee received by PSAM from the Fund.
As described in the Prospectus, PSAM has agreed to certain voluntary
arrangements to reduce its fees in order to limit the Fund's expenses. These
arrangements may be modified or terminated by PSAM at any time.
The Advisory Agreement provides that it will continue in effect for two
years from its date of execution and thereafter from year to year if its
continuance is approved at least annually (i) by the Board of Trustees or by
vote of a majority of the outstanding voting securities of the Fund and (ii) by
vote of a majority of the Trustees who are not "interested persons" of the Trust
or PSAM, as that term is defined in the 1940 Act, cast in person at a meeting
called for the purpose of voting on such approval. Any amendment to the Advisory
Agreement must be approved (i) by vote of a majority of the outstanding voting
securities of the Fund and (ii) by vote of a majority of the Trustees who are
not such interested persons, cast in person at a meeting called for the purpose
of voting on such approval. The Advisory Agreement may be terminated without
penalty by vote of the Board of Trustees or by vote of a majority of the
outstanding voting securities of the Fund, upon sixty days' written notice to
PSAM, or by PSAM upon ninety days' written notice to the Trust, and terminates
automatically in the event of its assignment. In addition, the Advisory
Agreement will automatically terminate if the Trust or the Fund shall at any
time be required by PSAM to eliminate all reference to the word "Puget Sound" in
the name of the Trust or the Fund, unless the continuance of the agreement after
such change of name is approved by vote of a majority of the outstanding voting
securities of the Fund and by vote of a majority of the Trustees who are not
interested persons of the Trust or PSAM, cast in person at a meeting called for
the purpose of voting on such approval. The Advisory Agreement also provides
that PSAM shall not be subject to any liability in connection with the
performance of its services thereunder in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations and duties.
The Sub-Advisory Agreement provides that it will continue in effect for
two years from its date of execution and thereafter from year to year if its
continuance is approved at least annually (i) by the Board of Trustees or by
vote of a majority of the outstanding voting securities
-7-
<PAGE> 39
of the Fund and (ii) by vote of a majority of the Trustees who are not
"interested persons" of the Trust, PSAM or the Sub-Adviser, as that term is
defined in the 1940 Act, cast in person at a meeting called for the purpose of
voting on such approval. Any amendment to the Sub-Advisory Agreement must be
approved (i) by vote of a majority of the outstanding voting securities of the
Fund and (ii) by vote of a majority of the Trustees who are not such interested
persons, cast in person at a meeting called for the purpose of voting on such
approval. The Sub-Advisory Agreement may be terminated without penalty by vote
of the Board of Trustees or by vote of a majority of the outstanding voting
securities of the Fund, upon sixty days' written notice to the Sub-Adviser, and
terminates automatically in the event of its assignment. The Sub-Advisory
Agreement also provides that the Sub-Adviser shall not be subject to any
liability in connection with the performance of its services thereunder in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
As described in the Prospectus, the Trust intends to apply for an
exemptive order from the Securities and Exchange Commission to permit PSAM,
subject to the approval of the Board of Trustees and certain other conditions,
to enter into sub-advisory agreements with sub-advisers other than the current
sub-adviser for the Fund and amend sub-advisory agreements with sub-advisers
without obtaining shareholder approval. See "Management of the Fund" in the
Prospectus.
The Sub-Adviser also provides investment advice to numerous other
corporate and fiduciary clients. These other clients sometimes invest in
securities in which the Fund also invests. If the Fund and such other clients
desire to buy or sell the same portfolio securities at the same time, purchases
and sales may be allocated, to the extent practicable, on a pro rata basis in
proportion to the amounts desired to be purchased or sold for each. It is
recognized that in some cases the practices described in this paragraph could
have a detrimental effect on the price or amount of the securities which the
Fund purchases or sells. In other cases, however, it is believed that these
practices may benefit the Fund. It is the opinion of the Board of Trustees that
the desirability of retaining the Sub-Adviser as the sub-adviser for the Fund
outweighs the disadvantages, if any, which might result from these practices.
ADMINISTRATOR
BISYS Fund Services Ohio, Inc. (the "Administrator"), under an
agreement with the Trust, provides management and administrative services to the
Fund, and, in general, supervises the operations of the Trust. The Administrator
does not provide investment advisory services. As part of its duties, the
Administrator provides office space, equipment and clerical personnel for
managing and administering the affairs of the Trust. The Administrator
supervises the provision of custodial, auditing, valuation, bookkeeping, legal,
and dividend disbursing services and provides other management and
administrative services. The Trust pays the Administrator a fee for its services
to the Fund at the annual rate of 0.15% of the Trust's average daily net assets.
-8-
<PAGE> 40
TRUST EXPENSES
The Trust pays the compensation of its Trustees; registration, filing
and other fees in connection with requirements of regulatory authorities; all
charges and expenses of its custodian and transfer agent; the charges and
expenses of its independent accountants; all brokerage commissions and transfer
taxes in connection with portfolio transactions; all taxes and fees payable to
governmental agencies; the expenses of meetings of the shareholders and
Trustees; the charges and expenses of the Trust's legal counsel; interest on any
borrowings by the Fund; the cost of services, including services of counsel,
required in connection with the preparation of, and the cost of printing, the
Trust's registration statements and prospectuses, including amendments and
revisions thereto, annual, semiannual and other periodic reports of the Trust,
and notices and proxy solicitation material furnished to shareholders or
regulatory authorities, to the extent that any such materials relate to the
Trust or its shareholders; and the Trust's expenses of bookkeeping, accounting,
auditing and financial reporting, including related clerical expenses.
DISTRIBUTOR
As stated in the text of the Prospectus under the heading "Management
of the Fund," Institutional and Investor Shares are sold on a continuous basis
by the Trust's distributor, BISYS Fund Services, L.P. (the "Distributor"). Under
the Distributor's Contract between the Trust and the Distributor (the
"Distributor's Contract"), the Distributor is not obligated to sell any specific
amount of shares of the Trust and will purchase shares for resale only against
orders for shares.
Pursuant to the Distribution Plan (the "Plan") described in the
Prospectus, in connection with the distribution of Investor Shares, the
Distributor receives certain distribution fees from the Trust. The Distributor
may pay all or a portion of the distribution fees it receives from the Trust to
participating and introducing brokers.
The Plan may be terminated with respect to Investor Shares by vote of a
majority of the Trustees who are not interested persons of the Trust (as defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of the Plan or the Distributor's Contract, or by a vote of majority of
the outstanding voting securities of that class. Any change in the Plan that
would materially increase the cost to the Investors Shares to which the Plan
relates requires approval by the Investor Shares' shareholders. The Trustees
review quarterly a written report of such costs and the purposes for which such
costs have been incurred. Except as described above, the Plan may be amended by
vote of the Trustees, including a majority of the Trustees who are not
interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of the Plan or the
Distributor's Contract, cast in person at a meeting called for the purpose. For
so long as the Plan is in effect, selection and nomination of those Trustees who
are not interested persons of the Trust shall be committed to the discretion of
such disinterested persons.
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The Distributor's Contract may be terminated at any time by not more
than 60 days' nor less than 30 days' written notice without payment of any
penalty either by the Distributor or by the Fund or class and will terminate
automatically, without the payment of any penalty, in the event of its
assignment.
The Distributor's Contract and the Plan will continue in effect with
respect to each class of shares to which they relate for successive one-year
periods, provided that each such continuance is specifically approved (i) by the
vote of a majority of the Trustees who are not interested persons of the Trust
(as defined in the 1940 Act) and who have no direct or indirect financial
interest in the operation of the Plan or the Distributor's Contract and (ii) by
the vote of a majority of the entire Board of Trustees cast in person at a
meeting called for that purpose.
The Trustees believe that the Plan will provide benefits to the Trust.
The Trustees believe that the Plan will result in greater sales and/or fewer
redemptions of Investor Shares, although it is impossible to know for certain
the level of sales and redemptions of Investor Shares that would occur in the
absence of the Plan or under alternative distribution schemes. The Trustees
believe that the effect on sales and/or redemptions benefit the Trust by
reducing Fund expense ratio and/or by affording greater flexibility to the
Sub-Adviser.
ADDITIONAL ARRANGEMENTS
Custodial Arrangements. Custodial Trust Company (the "Custodian"), is
the Trust's custodian. The Custodian holds in safekeeping securities and cash
belonging to the Fund and, in such capacity, is the registered owner of
securities held in book entry form belonging to the Fund. Upon instruction, the
Custodian receives and delivers cash and securities of the Fund in connection
with Fund transactions and collects all dividends and other distributions made
with respect to Fund portfolio securities. Pursuant to an agreement with the
Trust, the Custodian receives compensation from the Fund for such services based
upon a percentage of the Fund's average daily net assets.
Independent Accountants. The Fund's independent accountants are
Deloitte & Touche LLP, 50 Fremont Street, San Francisco, California 94105.
Deloitte & Touche LLP conducts an annual audit of the Trust's financial
statements, assists in the preparation of the Fund's federal and state income
tax returns and consults with the Fund as to matters of accounting and federal
and state income taxation.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Transactions on U.S. stock exchanges and other agency transactions for
the account of the Fund involve the payment by the Fund of negotiated brokerage
commissions. Such commissions vary among different brokers. A particular broker
may charge different commissions according to such factors as the difficulty and
size of the transaction. There is generally no stated
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commission in the case of securities traded in the over-the-counter markets, but
the price paid by the Fund usually includes an undisclosed dealer commission or
markup. In underwritten offerings, the price paid by the Fund includes a
disclosed, fixed commission or discount retained by the underwriter or dealer.
In addition to selecting portfolio investments for the Fund, the
Sub-Adviser selects brokers or dealers to execute securities purchases and sales
for the Fund's account. The Sub-Adviser selects only brokers or dealers which it
believes are financially responsible, will provide efficient and effective
services in executing, clearing and settling an order and will charge commission
rates which, when combined with the quality of the foregoing services, will
produce best price and execution for the transaction. This does not necessarily
mean that the lowest available brokerage commission will be paid. However, the
commissions are believed to be competitive with generally prevailing rates. The
Sub-Adviser will use its best efforts to obtain information as to the general
level of commission rates begin charged by the brokerage community from time to
time and will evaluate the overall reasonableness of brokerage commissions paid
on transactions by reference to such data. In making such evaluation, all
factors affecting liquidity and execution of the order, as well as the amount of
the capital commitment by the broker in connection with the order, are taken
into account. The Fund will not pay a broker a commission at a higher rate than
otherwise available for the same transaction in recognition of the value of
research services provided by the broker or in recognition of the value of any
other services provided by the broker which do not contribute to the best price
and execution of the transaction.
The Sub-Adviser's receipt of research services from brokers may
sometimes be a factor in its selection of a broker that it believes will provide
best price and execution for a transaction. These research services include not
only a wide variety of reports on such matters as economic and political
developments, industries, companies, securities, portfolio strategy, account
performance, daily prices of securities, stock and bond market conditions and
projections, asset allocation and portfolio structure, but also meetings with
management representatives of issuers and with other analysts and specialists.
Although it is in many cases not possible to assign an exact dollar value to
these services, they may, to the extent used, tend to reduce the Sub-Adviser's
expenses. Such services may be used by the Sub-Adviser in managing other client
accounts and in some cases may not be used with respect to the Fund. Receipt of
services or products other than research from brokers is not a factor in the
selection of brokers. Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, purchases of shares of the Fund by customers of broker-dealers may be
considered as a factor in the selection of broker-dealers to execute the Fund's
securities transactions.
The Sub-Adviser may cause the Fund to pay a broker-dealer that provides
brokerage and research services to the Sub-Adviser an amount of commission for
effecting a securities transaction for the Fund in excess of the amount another
broker-dealer would have charged for effecting that transaction. The Sub-Adviser
must determine in good faith that such greater commission is reasonable in
relation to the value of the brokerage and research services provided by the
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executing broker-dealer viewed in terms of that particular transaction or the
Sub-Adviser's overall responsibilities to the Fund and its other clients. The
Sub-Adviser's authority to cause the Fund to pay greater commissions is also
subject to such policies as the Trustees of the Trust may adopt from time to
time.
DESCRIPTION OF THE TRUST
The Trust, registered as a diversified open-end management investment
company, is organized as a Massachusetts business trust under the laws of
Massachusetts by an Agreement and Declaration of Trust (the "Declaration of
Trust") dated April 14, 1998.
The Declaration of Trust currently permits the Trustees to issue an
unlimited number of full and fractional shares of each series. Each share of the
Fund represents an equal proportionate interest in the Fund with each other
share of the Fund and is entitled to a proportionate interest in the dividends
and distributions from the Fund. The shares of the Fund do not have any
preemptive rights. Upon termination of the Fund, whether pursuant to liquidation
of the Trust or otherwise, shareholders of the Fund are entitled to share pro
rata in the net assets of the Fund available for distribution to shareholders.
The Declaration of Trust also permits the Trustees to charge shareholders
directly for custodial, transfer agency and servicing expenses.
The Declaration of Trust also permits the Trustees, without shareholder
approval, to subdivide any series of shares into various classes of shares with
such dividend preferences and other rights as the Trustees may designate. The
Trustees may also, without shareholder approval, establish one or more
additional separate portfolios for investments in the Trust. Shareholders'
investments in such an additional portfolio would be evidenced by a separate
series of shares (i.e., a new "Fund").
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The Declaration of Trust provides for the perpetual existence of the
Trust. The Trust or the Fund, however, may be terminated at any time by vote of
at least two-thirds of the outstanding shares of the Fund. The Declaration of
Trust further provides that the Trustees may also terminate the Trust or the
Fund upon written notice to the shareholders.
The shares of the Fund are divided into two classes - the Institutional
Shares and the Investor Shares. All expenses of the Fund are borne by all the
shares in the Fund, regardless of class, on a pro rata basis relative to the net
assets of each class, except for distribution fees and shareholder servicing
fees which are charged only to the Fund's Investor Shares.
The assets received by the Fund for the issue or sale of its shares and
all income, earnings, profits, losses and proceeds therefrom, subject only to
the rights of creditors, are allocated to, and constitute the underlying assets
of, the Fund. The underlying assets of the Fund will be segregated from the
assets of any other series that may be established in the future and are charged
with the expenses with respect to the Fund and with a share of the general
expenses of the Trust. Any expenses of the Fund that are specific to a
particular class of shares of the Fund are charged only to the shares of that
class. If at any future time the Trust issues more than one series of shares,
any general expenses of the Trust that are not readily identifiable as belonging
to the Fund are allocated by or under the direction of the Trustees in such
manner as the Trustees determine to be fair and equitable. While the expenses of
the Trust will be allocated to the separate books of account of each fund of the
Trust, certain expenses may be legally chargeable against the assets of all
funds of the Trust.
VOTING RIGHTS
As summarized in the Prospectus, shareholders are entitled to one vote
for each full share held (with fractional votes for each fractional share held)
and may vote (to the extent provided in the Declaration of Trust) on the
election of Trustees and the termination of the Trust and on other matters
submitted to the vote of shareholders.
The Declaration of Trust provides that on any matter submitted to a
vote of all Trust shareholders, all Trust shares entitled to vote shall be voted
together irrespective of series or class unless the rights of a particular
series or class would be adversely affected by the vote, in which case a
separate vote of that series or class shall also be required to decide the
question. Also, a separate vote shall be held whenever required by the 1940 Act
or any rule thereunder. Rule 18f-2 under the 1940 Act provides in effect that a
series or class shall be deemed to be affected by a matter unless it is clear
that the interests of each series or class in the matter are substantially
identical or that the matter does not affect any interest of such series or
class. On matters affecting an individual series or class, only shareholders of
that series or class are entitled to vote. Consistent with the current position
of the Securities and Exchange Commission, shareholders of all series and
classes vote together, irrespective of series or class, on the election of
Trustees and the selection of the Trust's independent accountants, but
shareholders of each series vote separately on other matters requiring
shareholder approval, such as certain changes in investment policies of that
series or the approval of the investment advisory and sub-advisory agreements
relating to that series.
There will normally be no meetings of shareholders for the purpose of
electing Trustees except that, in accordance with the 1940 Act, (i) the Trust
will hold a shareholders' meeting for the election of Trustees at such time as
less than a majority of the Trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy on the Board of Trustees,
less than two-thirds of the Trustees holding office have been elected by the
shareholders, that vacancy may be filled only by a vote of the shareholders. In
addition, Trustees may be removed from office by a written consent signed by the
holders of two-thirds of the outstanding shares and filed with the Trust's
custodian or by a vote of the holders of two-thirds of the outstanding shares at
a meeting duly called for that purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by ten holders of shares having an aggregate net
asset value constituting 1% of the outstanding shares stating that such
shareholders wish to communicate with the other shareholders for the purpose of
obtaining the signatures necessary to demand a meeting to consider removal of a
Trustee, the Trust has undertaken to provide a list of shareholders or to
disseminate appropriate materials (at the expense of the requesting
shareholders).
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Except as set forth above, the Trustees shall continue to hold office
and may appoint successor Trustees. Voting rights are not cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust, except
(i) to change the Trust's name or to cure technical problems in the Declaration
of Trust and (ii) to establish, change or eliminate the par value of any shares
(currently all shares have no par value).
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or the Trustees. The Declaration of Trust provides for indemnification out of
Fund property for all loss and expense of any shareholder held personally liable
for the obligations of the Fund. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered remote since it
is limited to circumstances in which the disclaimer is inoperative and the Fund
itself would be unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. The By-Laws of the Trust provide for indemnification by the Trust of
the Trustees and officers of the Trust except with respect to any matter as to
which any such person did not act in good faith in the reasonable belief that
such action was in the best interests of the Trust. No officer or Trustee may be
indemnified against any liability to the Trust or the Trust's shareholders to
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
HOW TO BUY SHARES
Subject to minimum initial investment requirements and certain other conditions,
an investor may make an initial purchase of shares of the Fund by submitting a
completed application form and payment to:
Puget Sound Alternative Investment Series Trust
P.O. Box 182304
Columbus, OH 43218-2304
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<PAGE> 46
The procedures for purchasing shares of the Fund are summarized in "How to
Purchase Shares" in the Prospectus.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The net asset value of the shares of the Fund is determined by dividing
the Fund's total net assets (the excess of its assets over its liabilities) by
the total number of shares of the Fund outstanding and rounding to the nearest
cent. Such determination is made as of the close of regular trading on the New
York Stock Exchange on each day on which that Exchange is open for unrestricted
trading, and no less frequently than once daily on each day during which there
is sufficient trading in the Fund's portfolio securities that the value of the
Fund's shares might be materially affected. The New York Stock Exchange is
expected to be closed on the following weekdays: New Year's Day, President's
Day, Good Friday, Martin Luther King Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. Equity securities listed on an
established securities exchange or on the NASDAQ National Market System are
normally valued at their last sale price on the exchange where primarily traded
or, if there is no reported sale during the day, and in the case of
over-the-counter securities not so listed, at the last bid price. Long-term debt
securities are valued by a pricing service, which determines valuations of
normal institutional-size trading units of long-term debt securities. Such
valuations are determined using methods based on market transactions from
comparable securities and on various relationships between securities which are
generally by institutional traders. Other securities for which current market
quotations are not readily available (including restricted securities, if any)
and all other assets are taken at fair value as determined in good faith by the
Trustees, although the actual calculations may be made by persons acting
pursuant to the direction of the Trustees.
SHAREHOLDER SERVICES
OPEN ACCOUNTS
A shareholder's investment in the Fund is automatically credited to an
open account maintained for the shareholder by BISYS Fund Services, Inc., the
shareholder servicing agent for Trust (the "Shareholder Serving Agent").
Following each transaction in the account, a shareholder will receive an account
statement disclosing the current balance of shares owned and the details of
recent transactions in the account. After the close of each fiscal year, the
Shareholder Servicing Agent will send each shareholder a statement providing
federal tax information on dividends and distributions paid to the shareholder
during the year. This should be retained as a permanent record. Shareholders
will be charged a fee for duplicate information.
The open account system permits the purchase of full and fractional
shares and, by making the issuance and delivery of certificates representing
shares unnecessary, eliminates the problems
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<PAGE> 47
of handling and safekeeping certificates, and the cost and inconvenience of
replacing lost, stolen, mutilated or destroyed certificates.
The costs of maintaining the open account system are borne by the
Trust, and no direct charges are made to shareholders. Although the Trust has no
present intention of making such direct charges to shareholders, it reserves the
right to do so. Shareholders will receive prior notice before any such charges
are made.
SYSTEMATIC WITHDRAWAL PLAN
A Systematic Withdrawal Plan, referred to in the Prospectus under
"Shareholder Services--Systematic Withdrawal Plan," provides for monthly,
quarterly, semiannual or annual withdrawal payments of $100 or more from the
account of a shareholder provided that the account has a value of at least
$5,000 at the time the plan is established.
Payments will be made either to the shareholder or to any other person
designated by the shareholder. If payments are issued to an individual other
than the registered owner(s), a signature guarantee will be required on the Plan
application. Income dividends and capital gain distributions will be reinvested
at the net asset value determined as of the close of regular trading on the New
York Stock Exchange on the record date for the dividend or distribution.
Since withdrawal payments represent proceeds from the liquidation of
shares, the shareholder should recognize that withdrawals may reduce and
possibly exhaust the value of the account, particularly in the event of a
decline in net asset value. Accordingly, the shareholder should consider whether
a Systematic Withdrawal Plan and the specified amounts to be withdrawn are
appropriate in the circumstances. The Fund makes no recommendations or
representations in this regard. It may be appropriate for the shareholder to
consult a tax adviser before establishing such a plan. See "Redemptions" and
"Income Dividends, Capital Gain Distributions and Tax Status" below for certain
information as to federal income taxes.
IRAS
Under "Shareholder Services--Retirement Plans," the Prospectus refers
to IRAs established under a prototype plan made available by the Fund. These
plans may be funded with shares of the Fund.
All income dividends and capital gain distributions of plan
participants must be reinvested. Plan documents and further information can be
obtained from the Fund.
Check with your financial or tax adviser as to the suitability of Fund
shares for your retirement plan.
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<PAGE> 48
REDEMPTIONS
The procedures for redemption of Fund shares are summarized in the
Prospectus under "How to Redeem Shares."
Except as noted below, signatures on redemption requests must be
guaranteed by commercial banks, trust companies, savings associations, credit
unions or brokerage firms that are members of domestic securities exchanges.
Signature guarantees by notaries public are not acceptable. However, as noted in
the Prospectus, a signature guarantee will not be required if the proceeds of
the redemption do not exceed $10,000 and the proceeds check is made payable to
the registered owner(s) and mailed to the record address.
If a shareholder selects the telephone redemption service in the manner
described in the next paragraph, Fund shares may be redeemed by calling toll
free 1-877-77-PUGET (1-877-777-8438). When a telephonic redemption request is
received, the proceeds are wired to the bank account previously chosen by the
shareholder and a nominal wire fee (currently $5.00) is deducted. Telephonic
redemption requests must be received by the Fund prior to the close of regular
trading on the New York Stock Exchange on a day when the Exchange is open for
business. Requests made after that time or on a day when the New York Stock
Exchange is not open for business cannot be accepted by the Fund and a new
request will be necessary.
In order to redeem shares by telephone, a shareholder must either
select this service when completing the Fund application or must do so
subsequently on the Service Options Form available from the Fund. When selecting
the service, a shareholder must designate a bank account to which the redemption
proceeds should be wired. Any change in the bank account so designated must be
made by furnishing to the Fund a completed Service Options Form with a signature
guarantee. Whenever the Service Options Form is used, the shareholder's
signature must be guaranteed as described above. Telephone redemptions may only
be made if an investor's bank is a member of the Federal Reserve System or has a
correspondent bank that is a member of the System. If the account is with a
savings bank, it must have only one correspondent bank that is a member of the
System. The Trust, and its transfer agent and custodian are not responsible for
the authenticity of withdrawal instructions received by telephone.
The redemption price will be the net asset value per share next
determined after the redemption request and any necessary special documentation
are received by the Fund in proper form. Proceeds resulting from a written
redemption request will normally be mailed to you within seven days after
receipt of your request in good order. Telephonic redemption proceeds will
normally be wired on the first business day following receipt of a proper
redemption request. In those cases where you have recently purchased your shares
by check and your check was received less than 10 days prior to the redemption
request, the Fund may withhold redemption proceeds until your check has cleared,
which may take up to 10 days from the purchase date.
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<PAGE> 49
The Fund will normally redeem shares for cash; however, the Fund
reserves the right to pay the redemption price wholly or partly in kind if the
Board of Trustees determines it to be advisable in the interest of the remaining
shareholders. If portfolio securities are distributed in lieu of cash, the
shareholder will normally incur brokerage commissions upon subsequent
disposition of any such securities. However, the Trust has elected to be
governed by Rule l8f-l under the 1940 Act pursuant to which the Trust is
obligated to redeem shares solely in cash for any shareholder during any 90-day
period up to the lesser of $250,000 or 1% of the total net asset value of the
Trust at the beginning of such period.
A redemption constitutes a sale of the shares for federal income tax
purposes on which the investor may realize a long- or short-term capital gain or
loss depending on the investor's holding period and adjusted basis in the
shares. See "Income Dividends, Capital Gains Distributions and Tax Status."
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS
It is the policy of the Fund to pay its shareholders, as dividends,
substantially all net investment income and to distribute annually all net
realized capital gains, if any, after offsetting any capital loss carryovers.
Income dividends and capital gains distributions are payable in full
and fractional shares of the Fund based upon the net asset value determined as
of the close of regular trading on the New York Stock Exchange on the record
date for each dividend or distribution. Shareholders, however, may elect to
receive their income dividends or capital gains distributions, or both, in cash.
The election may be made at any time by submitting a written request to the
Fund. In order for a change to be in effect for any dividend or distribution, it
must be received by the Fund on or before the record date for such dividend or
distribution.
As required by federal law, detailed federal tax information will be
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year.
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). In order so to qualify and to qualify for the favorable tax treatment
accorded regulated investment companies and their shareholders, the Fund must,
among other things, (i) derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, gains from the sale
or other disposition of stock or securities, or other income (including but not
limited to gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock or securities; (ii)
distribute with respect to each taxable year at least 90% of the sum of its
taxable net investment income, its net tax-exempt income, and the excess, if
any, of net short-term capital gains over net long-term capital losses for such
year; and (iii) at the end of each fiscal quarter maintain at least 50% of the
value of its total assets in cash, U.S. government securities, securities
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<PAGE> 50
of other regulated investment companies, and other securities of issuers which
represent, with respect to each issuer, no more than 5% of the value of the
Fund's total assets and 10% of the outstanding voting securities of such issuer,
with no more than 25% of its assets invested in the securities (other than those
of the U.S. government or other regulated investment companies) of any one
issuer or of two or more issuers which the Fund controls and which are engaged
in the same, similar or related trades and businesses. To satisfy these
conditions, the Fund may be limited in its ability to use certain investment
techniques and may be required to liquidate assets to distribute income.
Moreover, some investment techniques used by the Fund may change the character
and amount of income recognized by the Fund. As a regulated investment company,
the Fund will not be subject to federal income tax on income paid on a timely
basis to its shareholders in the form of dividends or capital gain
distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any,
of the Fund's "required distribution" (as defined in the Code) over its actual
distributions in any calendar year. Generally, the "required distribution" is
98% of the Fund's ordinary income for the calendar year plus 98% of its capital
gain net income recognized during the one-year period ending on October 31 plus
undistributed amounts from prior years. The Fund intends to make distributions
sufficient to avoid imposition of the excise tax. Distributions declared by the
Fund during October, November or December to shareholders of record on a date in
any such month and paid by the Fund during the following January will be treated
for federal tax purposes as paid by the Fund and received by shareholders on
December 31 of the year in which declared.
Shareholders of the Fund will be subject to federal income taxes on
distributions made by the Fund, whether received in cash or additional shares of
the Fund. Distributions by the Fund of net income and short-term capital gains,
if any, will be taxable to shareholders as ordinary income. Pursuant to the
Taxpayer Relief Act of 1997, two different tax rates apply to net capital gains
(that is, the excess of net gains from capital assets held for more than one
year over net losses from capital assets held for not more than one year). One
rate (generally 28%) applies to net gains on capital assets held for more than
one year but not more than 18 months ("28% rate gains") and a second, preferred
rate (generally 20%) applies to the balance of such net capital gains ("adjusted
net capital gains"). Distributions of net capital gains will be treated in the
hands of shareholders as 28% rate gains to the extent designated by the Fund as
deriving from net gains from assets held for more than one year but not more
than 18 months, and the balance will be treated as adjusted net capital gains.
Distributions of 28% rate gains and adjusted net capital gains will be taxable
to shareholders as such, regardless of how long a shareholder has held shares in
the Fund. A loss on the sale of shares held for six months or less will be
treated as a long-term capital loss to the extent of any long-term capital gain
dividend paid to the shareholder with respect to such shares.
Dividends and distributions on Fund shares are subject to federal
income taxes even if in effect they are a return of capital.
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Redemptions, sales and exchanges of the Fund's shares are taxable
events and, accordingly, shareholders may realize gains and losses on these
transactions. Provided the shareholder holds the shares as a capital asset, any
gain realized upon a taxable disposition of shares will be treated as 28% rate
gain if the shares have been held for more than 12 months but not more than 18
months, and as adjusted net capital gains if the shares have been held for more
than 18 months. Otherwise, the gain on the redemption, sale or exchange of Fund
shares will be treated as short-term capital gain. In general, any loss realized
upon a taxable disposition of shares will be treated as a long-term capital loss
if the shares have been held for more than 12 months, and otherwise as
short-term capital loss. No loss will be allowed on the sale of Fund shares to
the extent the shareholder acquired other shares of the same Fund within 30 days
prior to the sale of the loss shares or 30 days after such sale.
If the Fund engages in hedging transactions, including hedging
transactions in options, futures contracts, and straddles, or other similar
transactions, it will be subject to special tax rules (including constructive
sale, mark-to-market, straddle, wash sale, and short sale rules), the effect of
which may be to accelerate income to the Fund, defer losses to the Fund, cause
adjustments in the holding periods of the Fund's securities, or convert
short-term capital losses into long-term capital losses. These rules could
therefore affect the amount, timing and character of distributions to
shareholders. The Fund will endeavor to make any available elections pertaining
to such transactions in a manner believed to be in the best interests of the
Fund.
The Fund is required to withhold 31% of any redemption proceeds, income
dividends and capital gain distributions it pays to you (1) if you do not
provide a correct, certified taxpayer identification number, (2) if the Fund is
notified that you have underreported income in the past, or (3) if you fail to
certify to the Fund that you are not subject to such withholding.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and regulations currently in effect. For the complete
provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative action.
Dividends and distributions also may be subject to state and local
taxes. Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, foreign, state or local taxes.
The foregoing discussion relates solely to U.S. investors. Non-U.S.
investors should consult their tax advisers concerning the tax consequences of
ownership of shares of the Fund, including the possibility that distributions
may be subject to a 30% United States withholding tax (or a reduced rate of
withholding provided by treaty).
-20-
<PAGE> 52
PERFORMANCE INFORMATION
Quotations of average annual total return for the Fund will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund or class over periods of one, five, and ten
years (or for such shorter periods as shares of the Fund have been offered),
calculated pursuant to the following formula: P (1 + T) [n exponent]= ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). Except as
noted below, all total return figures reflect the deduction of a proportional
share of Fund expenses on an annual basis, and assume that (i) the maximum sales
load (or other charges deducted from payments) is deducted from the initial
$1,000 payment and (ii) all dividends and distributions are reinvested when
paid. Quotations of total return may also be shown for other periods. The Fund
may also, with respect to certain periods of less than one year, provide total
return information for that period that is unannualized. Any such information
would be accompanied by standardized total return information.
The Fund may from time to time include its total return information in
advertisements or in information furnished to present or prospective
shareholders. The Fund may from time to time also include in advertisements or
information furnished to present or prospective shareholders the ranking of its
total return information relative to such figures for groups of mutual funds
categorized as having similar investment objectives or being in the same general
investment category. Performance information may also be used to compare the
performance of the Fund to certain standards or indices for stock market
performance.
Performance information about the Fund will be provided in the Fund's
annual report, which report will be available upon request and without charge.
In addition, from time to time, articles about the Fund regarding performance,
rankings and other characteristics of the Fund may appear in publications
including, but not limited to the publications included in Appendix A. In
particular, the performance of the Fund may be compared in some or all of these
publications to the performance of various indices and investments for which
reliable performance data is available and to averages, performance rankings, or
other information prepared by recognized mutual fund statistical services. Such
publications may also publish their own rankings or performance reviews of
mutual funds, including the Fund. References to or reprints of such articles may
be used in the Fund's promotional literature. References to articles regarding
personnel of the sub-adviser(s) who have portfolio management responsibility may
also be used in the Fund's promotional literature. For additional information
about the Fund's advertising and promotional literature, see Appendix B.
EXPERTS
The statement of assets and liabilities of the Trust as of May 28, 1998
appearing in this Statement of Additional Information has been audited by
Deloitte & Touche LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and is included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
-21-
<PAGE> 53
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Trustees
Puget Sound Market Neutral Portfolio:
We have audited the accompanying statement of assets and liabilities of the
Puget Sound Market Neutral Portfolio, a series of the Puget Sound Alternative
Investment Series Trust ("Trust"), as of May 28, 1998. This financial statement
is the responsibility of the Trust's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. 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 that our audit provides a reasonable basis for our
opinion.
In our opinion, such statement of assets and liabilities presents fairly, in
all material respects, the financial position of Puget Sound Market Neutral
Portfolio, in conformity with generally accepted accounting principles.
San Francisco, California
May 28, 1998
-22-
<PAGE> 54
PUGET SOUND MARKET NEUTRAL PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MAY 28, 1998
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Cash $100,000
Deferred organization expenses 52,500
--------
Total Assets 152,500
LIABILITIES:
Accrued organization expenses 52,500
--------
NET ASSETS: $100,000
========
NET ASSETS CONSIST OF:
Capital $100,000
========
NET ASSETS:
Institutional Shares $ 100
Investor Shares 99,900
--------
$100,000
========
SHARES OUTSTANDING:
Institutional Shares 10
Investor Shares 9,990
--------
10,000
========
NET ASSET VALUE:
Institutional Shares - Offering and redemption
price per share $ 10.00
========
Investor Shares - Redemption price per share $ 10.00
========
Maximum Sales Charge (Investor Shares) 3.00%
Investors Shares - Maximum Offering Price
per share
Net Asset Value of Investor Shares/
(100% - Maximum Sales Charge) $ 10.31
========
</TABLE>
See notes to Statement of Assets and Liabilities.
<PAGE> 55
PUGET SOUND MARKET NEUTRAL PORTFOLIO
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
May 28, 1998
1. ORGANIZATION
The Puget Sound Alternative Investment Series Trust (the "Trust") was
organized as a Massachusetts business trust on April 14, 1998. The Trust
is a diversified open-end management investment company registered under
the Investment Company Act of 1940 (the "1940 Act"). There are an
unlimited number of authorized units of beneficial interest ("shares")
of the Trust which may be divided into an unlimited number of series of
shares. Currently, there is one series; the Puget Sound Market Neutral
Portfolio (the "Fund"). The Fund offers two classes of shares:
Institutional Shares and Investor Shares.
The Fund has had no operations other than those actions relating to
organizational matters. As of May 28, 1998, both Institutional and
Investor shares have been issued and all outstanding shares of the Fund
are owned by BISYS Fund Services Ohio, Inc.
The objective of the Fund is to seek long term capital appreciation,
while maintaining minimal exposure to general market equity risk. The
Fund seeks to achieve its objective through a diversified portfolio
using a non-traditional "market neutral" investment strategy.
2. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION EXPENSES: All costs incurred by the Trust in connection
with the organization of the Fund and the initial public offering of
shares of the Fund, principally professional fees and printing, have
been deferred. Upon commencement of investment operations of the Fund,
the deferred organization expenses will be amortized on a straight-line
basis over a period of five years. In the event that any of the initial
shares of the Fund are redeemed during the amortization period by any
holder thereof, the redemption proceeds will be reduced by any
unamortized organization expenses in the same proportion as the number
of said shares being redeemed bears to the number of initial shares
that are outstanding at the time of redemption.
FEDERAL INCOME TAXES: The Fund intends to comply with the requirements
of the Internal Revenue Code necessary to qualify as a regulated
investment company and to make the requisite distributions of taxable
income to its shareholders which will be sufficient to relieve it from
all or substantially all federal income taxes.
3. RELATED PARTY TRANSACTIONS
Puget Sound Asset Management Co., LLC ("PSAM") will serve as the
investment adviser of the Fund. The sub-adviser will be Fiduciary Asset
Management Co. ("FAMCO" or the "Sub-Adviser"). Under the terms of the
proposed investment advisory agreement between the Trust and PSAM, PSAM
will be entitled to receive a fee at the annual rate of 2.00% of the
average daily net assets of the Fund. PSAM has agreed to voluntarily
reduce the fee to the annual rate of 1.75% of the average daily net
assets of the Fund; however, PSAM may terminate this reduction of fees
at any time. PSAM will pay FAMCO a sub-advisory fee at the annual rate
of 1.50% of the average daily net assets of the Fund.
BISYS Fund Services Ohio, Inc., a wholly-owned subsidiary of The BISYS
Group, Inc., will serve as the administrator for the Fund. BISYS Fund
Services, L.P., (the "Distributor") will act as the Trust's principal
underwriter and distributor. BISYS Fund Services, Inc. will serve as
transfer agent for and provide fund accounting services to the Trust.
Under the Trust's proposed Distribution Plan (the "Distribution Plan"),
the Fund will pay a monthly distribution fee to the Distributor as
compensation for its services in connection with the Distribution Plan
at an annual rate equal to 0.50% of the average daily net assets of
Investor Shares of the Fund. Currently, the Distributor has voluntarily
reduced this annual rate to 0.25%. This reduction of fees may cease
at any time.
The Distributor may also provide a servicing agent to perform personal
and account maintenance services to the Investor Shares' shareholders of
the Fund. For these services, the Trust's Shareholder Servicing Plan
permits the Fund to pay fees up to 0.25% of average daily net assets of
Investor Shares.
Certain officers of the Trust are affiliated with PSAM or the
Distributor and its affiliates. Such persons are not paid directly by
the Trust for serving in those capacities.
-23-
<PAGE> 56
SPECIMEN PRICE MAKE-UP
PUGET SOUND MARKET NEUTRAL PORTFOLIO
INVESTOR SHARES
Total Offering Price Per Investor Share (as of May 28, 1998):
Net Asset Value and Redemption Price
Per Share ($99,900 / 9,990) $10.00
Maximum Offering Price Per Share
($10.00 x 100 / 97.0) $10.31
-24-
<PAGE> 57
APPENDIX A
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
<TABLE>
<S> <C>
ABC and affiliates Life Association News
Adam Smith's Money World Lifetime Channel
America On Line Miami Herald
Anchorage Daily News Milwaukee Sentinel
Atlanta Constitution Money
Atlanta Journal Money Maker
Arizona Republic Money Management Letter
Austin American Statesman Morningstar
Baltimore Sun Mutual Fund Market News
Bank Investment Marketing Mutual Funds Magazine
Barron's National Public Radio
Bergen County Record (NJ) National Underwriter
Bloomberg Business News NBC and affiliates
Bond Buyer New England Business
Boston Business Journal New England Cable News
Boston Globe New Orleans Times-Picayune
Boston Herald New York Daily News
Broker World New York Times
Business Radio Network Newark Star Ledger
Business Week Newsday
CBS and affiliates Newsweek
CDA Investment Technologies Nightly Business Report
CFO Orange County Register
Changing Times Orlando Sentinel
Chicago Sun Times Palm Beach Post
Chicago Tribune Pension World
Christian Science Monitor Pensions and Investments
Christian Science Monitor News Service Personal Investor
Cincinnati Enquirer Philadelphia Inquirer
Cincinnati Post Porter, Sylvia (syndicated column)
CNBC Portland Oregonian
CNN Prodigy
Columbus Dispatch Public Broadcasting Service
CompuServe Quinn, Jane Bryant (syndicated column)
Dallas Morning News Registered Representative
Dallas Times-Herald Research Magazine
Denver Post Resource
Des Moines Register Reuters
Detroit Free Press Rocky Mountain News
Donoghues Money Fund Report Rukeyser's Business (syndicated column)
Dorman, Dan (syndicated column) Sacramento Bee
Dow Jones News Service San Diego Tribune
Economist San Francisco Chronicle
FACS of the Week San Francisco Examiner
Fee Adviser San Jose Mercury
Financial News Network Seattle Post-Intelligencer
Financial Planning Seattle Times
Financial Planning on Wall Street Securities Industry Management
Financial Research Corp. Smart Money
Financial Services Week St. Louis Post Dispatch
Financial World St. Petersburg Times
Fitch Insights Standard & Poor's Outlook
Forbes Standard & Poor's Stock Guide
Fort Worth Star-Telegram Stanger's Investment Advisor
Fortune Stockbroker's Register
Fox Network and affiliates Strategic Insight
Fund Action Tampa Tribune
Fund Decoder Time
Global Finance Tobias, Andrew (syndicated column)
(the) Guarantor Toledo Blade
Hartford Courant UPI
Houston Chronicle US News and World Report
INC USA Today
Indianapolis Star USA TV Network
Individual Investor Value Line
Institutional Investor Wall Street Journal
International Herald Tribune Wall Street Letter
Internet Wall Street Week
Investment Advisor Washington Post
Investment Company Institute WBZ
Investment Dealers Digest WBZ-TV
Investment Profiles WCVB-TV
Investment Vision WEEI
Investor's Daily WHDH
IRA Reporter Worcester Telegram
Journal of Commerce World Wide Web
Kansas City Star Worth Magazine
KCMO (Kansas City) WRKO
KOA-AM (Denver)
LA Times
Leckey, Andrew (syndicated column)
Lear's
</TABLE>
A-1
<PAGE> 58
APPENDIX B
ADVERTISING AND PROMOTIONAL LITERATURE
Puget Sound Alternative Investment Series Trust's advertising and promotional
material may include, but is not limited to, discussions of the following
information:
- - Puget Sound Alternative Investment Series Trust's participation in wrap fee
and no transaction fee programs
- - Characteristics of the adviser and sub-adviser(s), including the locations
of offices, investment practices and clients
- - Specific and general investment philosophies, strategies, processes and
techniques
- - Specific and general sources of information, economic models, forecasts and
data services utilized, consulted or considered in the course of providing
advisory or other services
- - Industry conferences at which the adviser and sub-adviser(s) participate
- - Current capitalization, levels of profitability and other financial
information
- - Identification of portfolio managers, researchers, economists, principals
and other staff members and employees
- - The specific credentials of the above individuals, including but not
limited to, previous employment, current and past positions, titles and
duties performed, industry experience, educational background and degrees,
awards and honors
- - Specific identification of, and general reference to, current individual,
corporate and institutional clients, including pension and profit sharing
plans
- - Current and historical statistics relating to:
- total dollar amount of assets managed
- Puget Sound Alternative Investment Series Trust's assets managed in
total and by series
- the growth of assets
- asset types managed
References may be included in Puget Sound Alternative Investment Series
Trust's advertising and promotional literature about 401(k) and retirement plans
that offer its series.
The information may include, but is not limited to:
- - Specific and general references to industry statistics regarding 401(k)
and retirement plans including historical information and industry
trends and forecasts regarding the growth of assets, numbers of plans,
funding vehicles, participants, sponsors and other demographic data
relating to plans, participants and sponsors, third party and other
administrators, benefits consultants and firms with whom Puget Sound
Alternative Investment Series Trust may or may not have a relationship.
- - Specific and general reference to comparative ratings, rankings and
other forms of evaluation as well as statistics regarding the series of
Puget Sound Alternative Investment Series Trust as 401(k) or retirement
plan funding vehicles produced by industry authorities, research
organizations and publications.
B-1
<PAGE> 59
PUGET SOUND ALTERNATIVE INVESTMENT SERIES TRUST
PART C. OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
(A) (1) Statement of Assets and Liabilities -- included in the
Statement of Additional Information filed herewith.
(B) Exhibits
1. Agreement and Declaration of Trust of Puget Sound
Alternative Investment Series Trust (the "Trust") --
Incorporated by reference to the Registrant's
Registration Statement on Form N-1A.
2. By-Laws of the Trust -- Incorporated by reference to
the Registrant's Registration Statement on Form N-1A.
3. None.
4. None.
5. (a) Form of Management Agreement between
the Trust and Puget Sound Asset Management
Co., LLC ("PSAM") relating to Puget Sound
Market Neutral Portfolio, a series of the
Trust (the "Fund") -- Incorporated by reference
to the Registrant's Registration Statement on
Form N-1A.
(b) Form of Sub-Advisory Agreement between PSAM
and Fiduciary Asset Management Co.
("FAMCO") relating to the Fund -- Incorporated
by reference to the Registrant's Registration
Statement on Form N-1A.
6. Form of Distribution Agreement between the Trust
and BISYS Fund Services, L.P. -- Incorporated by
reference to the Registrant's Registration Statement on
Form N-1A.
7. None.
8. (a) Form of Custody Agreement between the Trust and
Custodial Trust Company ("CTC") is filed herewith.
(b) Form of Special Custody Account Agreement by and
among the Trust, CTC and Bear, Stearns Securities
Corp. is filed herewith.
9. (a) Form of Transfer Agency Agreement between
the Trust and BISYS Fund Services, Inc.
-- Incorporated by reference to the Registrant's
Registration Statement on Form N-1A.
(b) Form of Administration Agreement between
the Trust and BISYS Fund Services Ohio,
Inc. -- Incorporated by reference to the
Registrant's Registration Statement on Form N-1A.
(c) Form of Fund Accounting Agreement between
the Trust and BISYS Fund Services, Inc.
-- Incorporated by reference to the Registrant's
Registration Statement on Form N-1A.
(d) Form of Organizational Expense
Reimbursement Agreement between the Trust
and PSAM is filed herewith.
<PAGE> 60
10. Opinion and Consent of Counsel (to be filed by
amendment).
11. Consent of Independent Auditors (to be filed by
amendment).
12. None.
13. Investment Representation Letter is filed herewith.
14. None.
15. Form of Distribution Plan for Investor Shares is filed
herewith.
16. None.
17. None.
18. Form of Multi-Class Plan is filed herewith.
19. Form of Shareholder Servicing Plan for Investor Shares
is filed herewith.
-2-
<PAGE> 61
Item 25. Persons Controlled by or Under Common Control with the Trust
------------------------------------------------------------
None.
Item 26. Number of Holders of Securities
-------------------------------
The following table sets forth the number of record holders of each
class of shares of each series of the Trust as of May 29, 1998.
Title of Series Number of Record Holders
--------------- ------------------------
Puget Sound Market Neutral Portfolio
Investor Shares 1
Institutional Shares 1
Item 27. Indemnification
---------------
Article VIII of the Trust's Agreement and Declaration of
Trust (Exhibit 1 hereto) and Article 4 of the Trust's
By-Laws (Exhibit 2 hereto) provides for indemnification of
its Trustees and officers. The effect of these provisions
is to provide indemnification for each of the Trust's
Trustees and officers against liabilities and counsel fees
reasonably incurred in connection with the defense of any
legal proceeding in which such Trustee or officer may be
involved by reason of being or having been a Trustee or
officer, except with respect to any matter as to which
such Trustee of officer shall have been adjudicated not to
have acted in good faith in the reasonable belief that
such Trustee's or officer's action was in the best
interest of the Trust, and except that no Trustee or
officer shall be indemnified against any liability to the
Trust or its shareholders to which such Trustee or officer
otherwise would be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such
Trustee's or officer's office.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to
Trustees, officers and controlling persons of the Trust
pursuant to the foregoing provisions, or otherwise, the
Trust has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Trust of expenses incurred or paid by a
Trustee, officer or controlling person of the Trust in the
successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Trust
will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such
indemnification by it is
-3-
<PAGE> 62
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
(a) PSAM is the investment adviser to the Fund, and its business is
summarized in "Management of the Fund" in the Prospectus. PSAM's
members, directors and officers have been engaged during the past two
fiscal years in the following businesses, professions, vocations or
employments of a substantial nature (former affiliations are marked
with an asterisk):
<TABLE>
<CAPTION>
Name and Office Name and Address of Nature of
with PSAM Other Affiliations Connection
--------- ------------------ ----------
<S> <C> <C>
Margaret M. Towle Margaret M. Towle, Self-Employed Consultant
Chief Executive Officer, sole proprietor
Chief Investment Officer, P.O. Box 11371
Portfolio Manager and Bainbridge Island, Washington 98110
member
*Towle Associates, Inc. Chairman, Chief
One Yesler Building, Suite 200 Executive Officer,
Seattle, Washington 98104 Director and Secretary
Barry M. Zwick Six Sigma Investment Corp. #102 General Partner
Trustee of member 925 De La Vina Street
Santa Barbara, California 93101
</TABLE>
(b) FAMCO is the sub-adviser to the Fund, and its business is summarized in
"Management of the Fund" in the Prospectus. FAMCO's directors and
officers have been engaged during the past two fiscal years in the
following businesses, professions, vocations or employments of a
substantial nature (former affiliations are marked with an asterisk):
<TABLE>
<CAPTION>
Name and Office Name and Address of Nature of
with PSAM Other Affiliations Connection
--------- ------------------ ----------
<S> <C> <C>
Charles D. Walbrandt None None
President
John L. Dorian None None
Chief Investment Officer -
Equity
</TABLE>
-4-
<PAGE> 63
<TABLE>
<CAPTION>
<S> <C> <C>
Wiley D. Angell None None
Chief Investment Officer -
Fixed Income
John P. Maguire None None
Executive Vice President
Joseph E. Gallagher None None
Vice President
</TABLE>
Item 29. Principal Underwriters
----------------------
(a) BISYS Fund Services, L.P., acts as distributor for the Trust. BISYS
Fund Services, L.P., also distributes the securities of the following
investment companies: American Performance Funds, AmSouth Mutual
Funds, The ARCH Fund, Inc., The BB&T Mutual Funds Group, The Coventry
Group, The Empire Builder Tax Free Bond Fund, ESC Strategic Funds,
Inc., The Eureka Funds, Fountain Square Funds, Hirtle Callaghan
Trust, HSBC Family of Funds, The Infinity Mutual Funds, Inc., INTRUST
Funds Trust, The Kent Funds, Magna Funds, Meyers Investment Trust,
MMA Praxis Mutual Funds, M.S.D.&T. Funds, Pacific Capital Funds,
Parkstone Group of Funds, The Parkstone Advantage Fund, Pegasus
Funds, The Republic Funds Trust, The Republic Advisors Funds Trust,
The Riverfront Funds, Inc., SBSF Funds, Inc. dba Key Mutual Funds,
Sefton Funds, The Sessions Group, Summit Investment Trust, Variable
Insurance Funds, The Victory Portfolios, The Victory Variable Funds, and
Vintage Mutual Funds, Inc.
(b)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
- ---------------- ---------------- ---------------
<S> <C> <C>
BISYS Fund Services, Inc. Sole General Partner None
Overlook at Great Notch
150 Clove Road
Little Falls, NJ 07424
WC Subsidiary Corporation Sole Limited Partner None
3435 Stelzer Road
Columbus, Ohio 43219
Robert John McMullan Executive Officer None
Overlook at Great Notch
150 Clove Road
Little Falls, NJ 07424
</TABLE>
-5-
<PAGE> 64
<TABLE>
<CAPTION>
<S> <C> <C>
William J. Tomko Supervising Principal None
3435 Stelzer Road
Columbus, Ohio 43219
David P. Blackmore Fin. Op. None
3435 Stelzer Road
Columbus, Ohio 43219
</TABLE>
(c) Not applicable.
Item 30. Location of Accounts and Records
--------------------------------
Persons maintaining physical possession of accounts, books and other
documents required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the Rules promulgated thereunder are the
Trust's Secretary, Margaret M. Towle, the Trust's investment adviser,
PSAM; the Trust's principal underwriter, BISYS Fund Services, L.P.;
the Trust's custodian, Custodial Trust Company; and the Trust's
transfer agent, BISYS Fund Services, Inc. The address of the Secretary
and the investment adviser is One Yesler Building, Suite 200, Seattle,
Washington 98104; the address of the custodian is 101 Carnegie Center,
Princeton, New Jersey 08540; and the address of the transfer agent and
principal underwriter is 3435 Stelzer Road, Columbus, Ohio 43219.
Item 31. Management Services
-------------------
None.
Item 32. Undertakings
------------
(a) The undersigned Trust hereby undertakes to call a meeting of
shareholders for the purpose of voting on the removal of a
trustee or trustees when requested in writing to do so by
the holders of at least 10% of the Trust's outstanding
voting securities and in connection with such meeting to
comply with the provisions of Section 16(c) of the
Investment Company Act of 1940 relating to shareholder
communications.
(b) The Trust hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Trust's latest
Annual Report to shareholders upon request and without
charge.
-6-
<PAGE> 65
NOTICE
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts and notice
is hereby given that this instrument is executed on behalf of the Trust by an
officer of the Trust as an officer and not individually and the obligations of
or arising out of this instrument are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets and property of
the Trust.
-7-
<PAGE> 66
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Trust has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Seattle and state of Washington on the 2nd day of
June, 1998.
PUGET SOUND ALTERNATIVE
INVESTMENT SERIES TRUST
By: /s/ Margaret M. Towle
-------------------------
Margaret M. Towle
Title: President
Pursuant to the Securities Act of 1933, this registration statement has
been signed below by the following persons in the capacities and on the dates
indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Margaret M. Towle President, Treasurer, June 2, 1998
- ---------------------- Secretary and Trustee
Margaret M. Towle
<PAGE> 67
PUGET SOUND ALTERNATIVE INVESTMENT SERIES TRUST
Index to Exhibits
Exhibit No. Description
- ----------- -----------
99.8(a) Form of Custody Agreement between the Trust and Custodial
Trust Company.
99.8(b) Form of Special Custody Account Agreement by and among the
Trust, Custodial Trust Company and Bear, Stearns Securities
Corp.
99.9 (d) Form of Organizational Expense Reimbursement Agreement
between the Trust and PSAM.
99.13 Investment Representation Letter.
99.15 Form of Distribution Plan for Investor Shares.
99.18 Form of Multi-Class Plan.
99.19 Form of Shareholder Servicing Plan for Investor Shares.
<PAGE> 1
Exhibit 99.8(a)
CUSTODY AGREEMENT
AGREEMENT, dated as of June __, 1998 by and between PUGET SOUND
ALTERNATIVE INVESTMENT SERIES TRUST (the "Trust"), a business trust organized
and existing under the laws of The Commonwealth of Massachusetts, acting with
respect to and on behalf of Puget Sound Market Neutral Portfolio and each of the
other series of the Trust that are identified on Exhibit A hereto, as amended
from time to time (each, a "Portfolio"), and CUSTODIAL TRUST COMPANY, a bank
organized and existing under the laws of the State of New Jersey (the
"Custodian").
WHEREAS, the Trust desires that the securities, funds and other assets
of the Portfolios be held and administered by Custodian pursuant to this
Agreement;
WHEREAS, each Portfolio is an investment portfolio represented by a
series of Shares included among the shares of beneficial interest issued by the
Trust, an open-end management investment company registered under the 1940 Act;
WHEREAS, Custodian represents that it is a bank having the
qualifications prescribed in the 1940 Act to act as custodian for management
investment companies registered under the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Trust and Custodian hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following terms, unless the
context otherwise requires, shall mean:
1.1 "AUTHORIZED PERSON" means any person authorized by resolution of
the Board of Trustees to give Oral Instructions and Written Instructions on
behalf of the Trust and identified, by
<PAGE> 2
name or by office, in Exhibit B hereto, as amended from time to time, or any
person from Puget Sound Asset Management Co., LLC or a sub-adviser of any
Portfolio who is authorized by the Trust to do so and identified in Exhibit C
hereto, as amended from time to time.
1.2 "BOARD OF TRUSTEES" means the Board of Trustees of the Trust or,
when permitted under the 1940 Act, the Executive Committee thereof, if any.
1.3 "BOOK-ENTRY SYSTEM" means a book-entry system maintained by a
Federal Reserve Bank for securities of the United States government or of
agencies or instrumentalities thereof (including government-sponsored
enterprises).
1.4 "BUSINESS DAY" means any day on which banks in the State of New
Jersey and New York are open for business.
1.5 "CUSTODY ACCOUNT" means, with respect to a Portfolio, the account
in the name of such Portfolio, which is provided for in Section 3.2 below.
1.6 "DOMESTIC SECURITIES DEPOSITORY" means The Depository Trust Company
and any other clearing agency registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, which acts as a securities
depository.
1.7 "ELIGIBLE DOMESTIC BANK" means a bank as defined in the 1940 Act.
1.8 "ELIGIBLE FOREIGN CUSTODIAN" means any banking institution, trust
company or other entity (including any Foreign Securities Depository) organized
under the laws of a country other than the United States which is eligible under
the 1940 Act to act as a custodian for securities and other assets of a
Portfolio held outside the United States.
1.9 "FOREIGN CUSTODY MANAGER" has the same meaning as in the 1940 Act.
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1.10 "FOREIGN SECURITIES DEPOSITORY" means a foreign securities
depository or clearing agency that qualifies as an Eligible Foreign Custodian as
defined in the 1940 Act.
1.11 "MASTER REPURCHASE AGREEMENT" means the Master Repurchase
Agreement of even date herewith between the Trust and Bear, Stearns & Co. Inc.
as it may from time to time be amended.
1.12 "MASTER SECURITIES LOAN AGREEMENT" means the Master Securities
Loan Agreement of even date herewith between the Trust and Bear, Stearns
Securities Corp. as it may from time to time be amended.
1.13 "1940 ACT" means the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
1.14 "ORAL INSTRUCTIONS" means instructions orally transmitted to and
received by Custodian which are (a) reasonably believed by Custodian to have
been given by an Authorized Person and (b) completed in accordance with
Custodian's reasonable requirements from time to time as to content of
instructions and their manner and timeliness of delivery by the Trust.
1.15 "PROPER INSTRUCTIONS" means Oral Instructions or Written
Instructions. Proper Instructions may be continuing Written Instructions when
deemed appropriate by the Trust and Custodian.
1.16 "SECURITIES DEPOSITORY" means any Domestic Securities Depository
or Foreign Securities Depository.
1.17 "SHARES" means, with respect to a Portfolio, those shares in a
series or class of beneficial interests of the Trust that represent interests in
such Portfolio.
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1.18 "WRITTEN INSTRUCTIONS" means written communications received by
Custodian that are (a) reasonably believed by Custodian to have been signed or
sent by an Authorized Person, (b) sent or transmitted by letter, facsimile,
central processing unit connection, on-line terminal or magnetic tape, and (c)
completed in accordance with Custodian's reasonable requirements from time to
time as to content of instructions and their manner and timeliness of delivery
by the Trust.
ARTICLE II
APPOINTMENT OF CUSTODIAN
2.1 APPOINTMENT. The Trust hereby appoints Custodian as custodian of
all such securities, funds and other assets of each Portfolio as may be
acceptable to Custodian and from time to time delivered to it by the Trust or
others for the account of such Portfolio.
2.2 ACCEPTANCE. Custodian hereby accepts appointment as such custodian
and agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF SECURITIES, FUNDS AND OTHER ASSETS
3.1 SEGREGATION. All securities and non-cash property of a Portfolio in
the possession of Custodian (other than securities maintained by Custodian with
a sub-custodian appointed pursuant to this Agreement or in a Securities
Depository or Book-Entry System) shall be physically segregated from other such
securities and non-cash property in the possession of Custodian. All cash,
securities and other non-cash property of a Portfolio shall be identified as
belonging to such Portfolio.
3.2 CUSTODY ACCOUNT. (a) Custodian shall open and maintain in its trust
department a custody account in the name of each Portfolio, subject only to
draft or order of Custodian, in which Custodian shall enter and carry all
securities, funds and other assets of such Portfolio which are delivered to
Custodian and accepted by it.
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(b) If, with respect to any Portfolio, Custodian at any time fails to
receive any of the documents referred to in Section 3.10(a) below, then, until
such time as it receives such document, it shall not be obligated to receive any
securities into the Custody Account of such Portfolio and shall be entitled to
return to such Portfolio any securities that it is holding in such Custody
Account.
3.3 SECURITIES IN PHYSICAL FORM. Custodian may, but shall not be
obligated to, hold securities that may be held only in physical form.
3.4 DISCLOSURE TO ISSUERS OF SECURITIES. Custodian is authorized to
disclose the Trust's and any Portfolio's names and addresses, and the securities
positions in such Portfolio's Custody Account, to the issuers of such securities
when requested by them to do so.
3.5 EMPLOYMENT OF DOMESTIC SUB-CUSTODIANS. At any time and from time to
time, Custodian in its discretion may appoint and employ, and may also cease to
employ, any Eligible Domestic Bank as sub-custodian to hold securities and other
assets of a Portfolio that are maintained in the United States and to carry out
such other provisions of this Agreement as it may determine, provided, however,
that the employment of any such sub-custodian has been approved by the Trust.
The employment of any such sub-custodian shall be at Custodian's expense and
shall not relieve Custodian of any of its obligations or liabilities under this
Agreement.
3.6 EMPLOYMENT OF FOREIGN SUB-CUSTODIANS. (a) At any time and from time
to time, Custodian in its discretion may appoint and employ in accordance with
the 1940 Act, and may also cease to employ, (i) any overseas branch of any
Eligible Domestic Bank, or (ii) any Eligible Foreign Custodian selected by the
Foreign Custody Manager, in each case as a foreign sub-custodian for securities
and other assets of a Portfolio that are maintained outside the United States,
provided, however, that the employment of any such overseas branch has been
approved by the Trust and, provided further that, in the case of any such
Eligible Foreign Custodian, the Foreign Custody Manager has approved, in
writing, the agreement (and/or, in the case of a Foreign Securities Depository,
the rules and/or established practices and procedures thereof) pursuant to which
Custodian employs such Eligible Foreign Custodian.
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(b) Set forth on Exhibit D hereto, with respect to each Portfolio, are
the foreign sub-custodians (including Foreign Securities Depositories) that
Custodian may employ pursuant to Section 3.6(a) above. Exhibit D shall be
revised from time to time as foreign sub-custodians are added or deleted.
(c) If the Trust proposes to have a Portfolio make an investment which
is to be held in a country in which Custodian does not have appropriate
arrangements in place with a foreign sub-custodian selected by the Foreign
Custody Manager, then the Trust shall inform Custodian sufficiently in advance
of such investment to allow Custodian to make such arrangements.
(d) Notwithstanding anything to the contrary in Section 8.1 below,
Custodian shall have no greater liability to any Portfolio or the Trust for the
actions or omissions of any foreign sub-custodian appointed pursuant to this
Agreement than any such foreign sub-custodian has to Custodian, and Custodian
shall not be required to discharge any such liability which may be imposed on it
unless and until such foreign sub-custodian has effectively indemnified
Custodian against it or has otherwise discharged its liability to Custodian in
full.
(e) Upon the request of the Foreign Custody Manager, Custodian shall
furnish to the Foreign Custody Manager (but no more often than once per year)
information concerning all foreign sub-custodians employed pursuant to this
Agreement which shall be similar in kind and scope to any such information that
may have been furnished to the Foreign Custody Manager in connection with the
initial approval by the Foreign Custody Manager of the agreements pursuant to
which Custodian employs such foreign sub-custodians or as otherwise required by
the 1940 Act.
3.7 EMPLOYMENT OF OTHER AGENTS. Custodian may employ other suitable
agents, which may include affiliates of Custodian such as Bear, Stearns & Co.
Inc. ("Bear Stearns") or Bear, Stearns Securities Corp.("BS Securities"), both
of which are securities broker-dealers, provided, however, that Custodian shall
not employ (a) BS Securities to hold any collateral pledged by BS Securities
under the Master Securities Loan Agreement or any other securities loan
agreement between the Trust and BS Securities, whether now or hereafter in
effect, (b) Bear Stearns to hold any securities
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purchased from Bear Stearns under the Master Repurchase Agreement or any other
repurchase agreement between the Trust and Bear Stearns, whether now or
hereafter in effect or (c) any agent that, to the best of Custodian's knowledge,
would subject a Portfolio to any special audits or other requirements pursuant
to Rule 17f-1 under the 1940 Act. The appointment of any agent pursuant to this
Section 3.7 shall not relieve Custodian of any of its obligations or liabilities
under this Agreement.
3.8 BANK ACCOUNTS. In its discretion and from time to time Custodian
may open and maintain one or more demand deposit accounts with any Eligible
Domestic Bank (any such accounts to be in the name of Custodian and subject only
to its draft or order), provided, however, that the opening and maintenance of
any such account shall be at Custodian's expense and shall not relieve Custodian
of any of its obligations or liabilities under this Agreement.
3.9 DELIVERY OF ASSETS TO CUSTODIAN. Provided they are acceptable to
Custodian, the Trust shall deliver to Custodian the securities, funds and other
assets of each Portfolio, including (a) payments of income, payments of
principal and capital distributions received by such Portfolio with respect to
securities, funds or other assets owned by such Portfolio at any time during the
term of this Agreement, and (b) funds received by such Portfolio for the
issuance, at any time during such term, of Shares of such Portfolio. Custodian
shall not be under any duty or obligation to require the Trust to deliver to it
any securities or other assets owned by a Portfolio and shall have no
responsibility or liability for or on account of securities or other assets not
so delivered.
3.10 DOMESTIC SECURITIES DEPOSITORIES AND BOOK-ENTRY SYSTEMS. Custodian
and any sub-custodian appointed pursuant to Section 3.5 above may deposit and/or
maintain securities of any Portfolio in a Domestic Securities Depository or in a
Book-Entry System, subject to the following provisions:
(a) Prior to a deposit of securities of a Portfolio in any Domestic
Securities Depository or Book-Entry System, the Trust shall deliver to Custodian
a resolution of the Board of Trustees, certified by an officer of the Trust,
authorizing and instructing Custodian (and any sub-custodian
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appointed pursuant to Section 3.5 above) on an on-going basis to deposit in such
Domestic Securities Depository or Book-Entry System all securities eligible for
deposit therein and to make use of such Domestic Securities Depository or
Book-Entry System to the extent possible and practical in connection with the
performance of its obligations hereunder (or under the applicable sub-custody
agreement in the case of such sub-custodian), including, without limitation, in
connection with settlements of purchases and sales of securities, loans of
securities, and deliveries and returns of collateral consisting of securities.
(b) Securities of a Portfolio kept in a Book-Entry System or Domestic
Securities Depository shall be kept in an account ("Depository Account") of
Custodian (or of any sub-custodian appointed pursuant to Section 3.5 above) in
such Book-Entry System or Domestic Securities Depository which includes only
assets held by Custodian (or such sub-custodian) as a fiduciary, custodian or
otherwise for customers.
(c) The records of Custodian with respect to securities of a Portfolio
that are maintained in a Book-Entry System or Domestic Securities Depository
shall at all times identify such securities as belonging to such Portfolio.
(d) If securities purchased by a Portfolio are to be held in a
Book-Entry System or Domestic Securities Depository, Custodian (or any
sub-custodian appointed pursuant to Section 3.5 above) shall pay for such
securities upon (i) receipt of advice from the Book-Entry System or Domestic
Securities Depository that such securities have been transferred to the
Depository Account, and (ii) the making of an entry on the records of Custodian
(or of such sub-custodian) to reflect such payment and transfer for the account
of such Portfolio. If securities sold by a Portfolio are held in a Book-Entry
System or Domestic Securities Depository, Custodian (or such sub-custodian)
shall transfer such securities upon (A) receipt of advice from the Book-Entry
System or Domestic Securities Depository that payment for such securities has
been transferred to the Depository Account, and (B) the making of an entry on
the records of Custodian (or of such sub-custodian) to reflect such transfer and
payment for the account of such Portfolio.
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(e) Custodian shall provide the Trust with copies of any report
obtained by Custodian (or by any sub-custodian appointed pursuant to Section 3.5
above) from a Book-Entry System or Domestic Securities Depository in which
securities of a Portfolio are kept on the internal accounting controls and
procedures for safeguarding securities deposited in such Book-Entry System or
Domestic Securities Depository.
(f) At its election, the Trust shall be subrogated to the rights of
Custodian (or of any sub-custodian appointed pursuant to Section 3.5 above) with
respect to any claim against a Book-Entry System or Domestic Securities
Depository or any other person for any loss or damage to a Portfolio arising
from the use of such Book-Entry System or Domestic Securities Depository, if and
to the extent that such Portfolio has not been made whole for any such loss or
damage.
3.11 RELATIONSHIP WITH SECURITIES DEPOSITORIES. No Book-Entry System,
Securities Depository, or other securities depository or clearing agency
(whether foreign or domestic) which it is or may become standard market practice
to use for the comparison and settlement of trades in securities shall be an
agent or sub-contractor of Custodian for purposes of Section 3.7 above or
otherwise.
3.12 PAYMENTS FROM CUSTODY ACCOUNT. Upon receipt of Proper Instructions
with respect to a Portfolio but subject to its right to foreclose upon and
liquidate collateral pledged to it pursuant to Section 9.3 below, Custodian
shall make payments from the Custody Account of such Portfolio, but only in the
following cases, provided, first, that such payments are in connection with the
clearance and/or custody of securities or other assets, second, that there are
sufficient funds in such Custody Account, whether belonging to such Portfolio or
advanced to it by Custodian in its sole and absolute discretion as set forth in
Section 3.18 below, for Custodian to make such payments, and, third, that after
the making of such payments, such Portfolio would not be in violation of any
margin or other requirements agreed upon pursuant to Section 3.18 below:
(a) For the purchase of securities for such Portfolio but only (i) in
the case of securities (other than options on securities, futures contracts and
options on futures contracts), against the delivery
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to Custodian (or any sub-custodian appointed pursuant to this Agreement) of such
securities registered as provided in Section 3.20 below or in proper form for
transfer or, if the purchase of such securities is effected through a Book-Entry
System or Domestic Securities Depository, in accordance with the conditions set
forth in Section 3.10 above, and (ii) in the case of options, futures contracts
and options on futures contracts, against delivery to Custodian (or such
sub-custodian) of evidence of title thereto in favor of such Portfolio, the
Custodian, any such sub-custodian, or any nominee referred to in Section 3.20
below;
(b) In connection with the conversion, exchange or surrender, as set
forth in Section 3.13(f) below, of securities owned by such Portfolio;
(c) For transfer in accordance with the provisions of any agreement
among the Trust, Custodian and a securities broker-dealer, relating to
compliance with rules of The Options Clearing Corporation and of any registered
national securities exchange (or of any similar organization or organizations)
regarding escrow or other arrangements in connection with transactions of such
Portfolio;
(d) For transfer in accordance with the provisions of any agreement
among the Trust, Custodian and a futures commission merchant, relating to
compliance with the rules of the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or organizations) regarding margin
or other deposits in connection with transactions of such Portfolio;
(e) For the funding of any time deposit (whether certificated or not)
or other interest-bearing account with any banking institution (including
Custodian), provided that Custodian shall receive and retain such certificate,
advice, receipt or other evidence of deposit (if any) as such banking
institution may deliver with respect to any such deposit or account;
(f) For the purchase from a banking or other financial institution of
loan participations, but only if Custodian has in its possession a copy of the
agreement between the Trust and such banking
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or other financial institution with respect to the purchase of such loan
participations and provided that Custodian shall receive and retain such
participation certificate or other evidence of participation (if any) as such
banking or other financial institution may deliver with respect to any such loan
participation;
(g) For the purchase and/or sale of foreign currencies or of options to
purchase and/or sell foreign currencies, for spot or future delivery, for the
account of such Portfolio pursuant to contracts between the Trust and any
banking or other financial institution (including Custodian, any sub-custodian
appointed pursuant to this Agreement and any affiliate of Custodian);
(h) For transfer to a securities broker-dealer as margin for a short
sale of securities for such Portfolio, or as payment in lieu of dividends paid
on securities sold short for such Portfolio;
(i) For the payment of amounts in respect of equity swap contracts
entered into by such Portfolio;
(j) For the payment as provided in Article IV below of any dividends,
capital gain distributions or other distributions declared on the Shares of such
Portfolio;
(k) For the payment as provided in Article IV below of the redemption
price of the Shares of such Portfolio;
(l) For the payment of any expense or liability incurred by such
Portfolio, including but not limited to the following payments for the account
of such Portfolio: interest, taxes, and administration, investment advisory,
distribution, servicing, accounting, auditing, transfer agent, custodian,
trustee and legal fees, and other operating expenses of such Portfolio; in all
cases, whether or not such expenses are to be in whole or in part capitalized or
treated as deferred expenses; and
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(m) For any other proper purpose, but only upon receipt of Proper
Instructions, specifying the amount and purpose of such payment, certifying such
purpose to be a proper purpose of such Portfolio, and naming the person or
persons to whom such payment is to be made.
3.13 DELIVERIES FROM CUSTODY ACCOUNT. Upon receipt of Proper
Instructions with respect to a Portfolio but subject to its right to foreclose
upon and liquidate collateral pledged to it pursuant to Section 9.3 below,
Custodian shall release and deliver securities and other assets from the Custody
Account of such Portfolio, but only in the following cases, provided, first,
that such deliveries are in connection with the clearance and/or custody of
securities or other assets, second, there are sufficient amounts and types of
securities or other assets in such Custody Account for Custodian to make such
deliveries, and, third, that after the making of such deliveries, such Portfolio
would not be in violation of any margin or other requirements agreed upon
pursuant to Section 3.18 below:
(a) Upon the sale of securities for the account of such Portfolio but,
subject to Section 3.14 below, only against receipt of payment therefor or, if
such sale is effected through a Book-Entry System or Domestic Securities
Depository, in accordance with the provisions of Section 3.10 above;
(b) To an offeror's depository agent in connection with tender or other
similar offers for securities of such Portfolio; provided that, in any such
case, the funds or other consideration for such securities is to be delivered to
Custodian;
(c) To the issuer thereof or its agent when such securities are called,
redeemed or otherwise become payable, provided that in any such case the funds
or other consideration for such securities is to be delivered to Custodian;
(d) To the issuer thereof or its agent for exchange for a different
number of certificates or other evidence representing the same aggregate face
amount or number of units; provided that, in any such case, the new securities
are to be delivered to Custodian;
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(e) To the securities broker through whom securities are being sold for
such Portfolio, for examination in accordance with the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the issuer of
such securities, or pursuant to provisions for conversion contained in such
securities, or pursuant to any deposit agreement, including surrender or receipt
of underlying securities in connection with the issuance or cancellation of
depository receipts; provided that, in any such case, the new securities and
funds, if any, are to be delivered to Custodian;
(g) In the case of warrants, rights or similar securities, to the
issuer of such warrants, rights or similar securities, or its agent, upon the
exercise thereof, provided that, in any such case, the new securities and funds,
if any, are to be delivered to Custodian;
(h) To the borrower thereof, or its agent, in connection with any loans
of securities for such Portfolio pursuant to any securities loan agreement
entered into by the Trust, but only against receipt by Custodian of such
collateral as is required under such securities loan agreement;
(i) To any lender, or its agent, as collateral for any borrowings from
such lender by such Portfolio that require a pledge of assets of such Portfolio,
but only against receipt by Custodian of the amounts borrowed;
(j) Pursuant to any authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of such Portfolio or the Trust;
(k) For delivery in accordance with the provisions of any agreement
among the Trust, Custodian and a securities broker-dealer, relating to
compliance with the rules of The Options Clearing Corporation and of any
registered national securities exchange (or of any similar organization or
organizations) regarding escrow or other arrangements in connection with
transactions of such Portfolio;
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(l) For delivery in accordance with the provisions of any agreement
among the Trust, Custodian, and a futures commission merchant, relating to
compliance with the rules of the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or organizations) regarding margin
or other deposits in connection with transactions of such Portfolio;
(m) For delivery to a securities broker-dealer as margin for a short
sale of securities for such Portfolio;
(n) To the issuer of American Depositary Receipts or International
Depositary Receipts (hereinafter, collectively, "ADRs") for such securities, or
its agent, against a written receipt therefor adequately describing such
securities, provided that such securities are delivered together with
instructions to issue ADRs in the name of Custodian or its nominee and to
deliver such ADRs to Custodian;
(o) In the case of ADRs, to the issuer thereof, or its agent, against a
written receipt therefor adequately describing such ADRs, provided that such
ADRs are delivered together with instructions to deliver the securities
underlying such ADRs to Custodian or an agent of Custodian; or
(p) For any other proper purpose, but only upon receipt of Proper
Instructions, specifying the securities or other assets to be delivered, setting
forth the purpose for which such delivery is to be made, certifying such purpose
to be a proper purpose of such Portfolio, and naming the person or persons to
whom delivery of such securities or other assets is to be made.
3.14 DELIVERY PRIOR TO FINAL PAYMENT. When instructed by the Trust to
deliver securities of a Portfolio against payment, Custodian shall be entitled,
but only if in accordance with generally accepted market practice, to deliver
such securities prior to actual receipt of final payment therefor and,
exclusively in the case of securities in physical form, prior to receipt of
payment therefor. In any such case, such Portfolio shall bear the risk that
final payment for such securities may not be
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made or that such securities may be returned or otherwise held or disposed of by
or through the person to whom they were delivered, and Custodian shall have no
liability for any of the foregoing.
3.15 CREDIT PRIOR TO FINAL PAYMENT. In its sole discretion and from
time to time, Custodian may credit the Custody Account of a Portfolio, prior to
actual receipt of final payment thereof, with (a) proceeds from the sale of
securities of such Portfolio which it has been instructed to deliver against
payment, (b) proceeds from the redemption of securities or other assets in such
Custody Account, and (c) income from securities, funds or other assets in such
Custody Account. Any such credit shall be conditional upon actual receipt by
Custodian of final payment and may be reversed if final payment is not actually
received in full. Custodian may, in its sole discretion and from time to time,
permit a Portfolio to use funds so credited to its Custody Account in
anticipation of actual receipt of final payment. Any funds so used shall
constitute an advance subject to Section 3.18 below.
3.16 DEFINITION OF FINAL PAYMENT. For purposes of this Agreement,
"final payment" means payment in funds which are (or have become) immediately
available, under applicable law are irreversible, and are not subject to any
security interest, levy, lien or other encumbrance.
3.17 PAYMENTS AND DELIVERIES OUTSIDE THE UNITED STATES. Notwithstanding
anything to the contrary that may be required by Section 3.12 or Section 3.13
above, or elsewhere in this Agreement, in the case of securities and other
assets maintained outside the United States and in the case of payments made
outside the United States, Custodian and any sub-custodian appointed pursuant to
this Agreement may receive and deliver such securities or other assets, and may
make such payments, in accordance with the laws, regulations, customs,
procedures and practices applicable in the relevant local market outside the
United States.
3.18 CLEARING CREDIT. Custodian may, in its sole discretion and from
time to time, advance funds to the Trust to facilitate the settlement of a
Portfolio's transactions in the Custody Account of such Portfolio. Any such
advance (a) shall be repayable immediately upon demand made by
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Custodian, (b) shall be fully secured as provided in Section 9.3 below, and (c)
shall bear interest at such rate, and be subject to such other terms and
conditions, as Custodian and the Trust may agree.
3.19 ACTIONS NOT REQUIRING PROPER INSTRUCTIONS. Unless otherwise
instructed by the Trust, Custodian shall with respect to all securities and
other assets held for a Portfolio:
(a) Subject to Section 8.4 below, receive into the Custody Account of
such Portfolio any funds or other property, including payments of principal,
interest and dividends, due and payable on or on account of such securities and
other assets;
(b) Deliver securities of such Portfolio to the issuers of such
securities or their agents for the transfer thereof into the name of such
Portfolio, Custodian or any of the nominees referred to in Section 3.20 below;
(c) Endorse for collection, in the name of such Portfolio, checks,
drafts and other negotiable instruments;
(d) Surrender interim receipts or securities in temporary form for
securities in definitive form;
(e) Execute, as custodian, any necessary declarations or certificates
of ownership under the federal income tax laws of the United States, or the laws
or regulations of any other taxing authority, in connection with the transfer of
such securities or other assets or the receipt of income or other payments with
respect thereto;
(f) Receive and hold for such Portfolio all rights and similar
securities issued with respect to securities or other assets of such Portfolio;
(g) As may be required in the execution of Proper Instructions,
transfer funds from the Custody Account of such Portfolio to any demand deposit
account maintained by Custodian pursuant to Section 3.8 above; and
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(h) In general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase and transfer of, and other
dealings in, such securities and other assets.
3.20 REGISTRATION AND TRANSFER OF SECURITIES. All securities held for a
Portfolio that are issuable only in bearer form shall be held by Custodian in
that form, provided that any such securities shall be held in a Securities
Depository or Book-Entry System if eligible therefor. All other securities and
all other assets held for a Portfolio may be registered in the name of (a)
Custodian as agent, (b) any sub-custodian appointed pursuant to this Agreement,
(c) any Securities Depository, or (d) any nominee or agent of any of them. The
Trust shall furnish to Custodian appropriate instruments to enable Custodian to
hold or deliver in proper form for transfer, or to register as in this Section
3.20 provided, any securities or other assets delivered to Custodian which are
registered in the name of a Portfolio.
3.21 RECORDS. (a) Custodian shall maintain complete and accurate
records with respect to securities, funds and other assets held for a Portfolio,
including (i) journals or other records of original entry containing an itemized
daily record in detail of all receipts and deliveries of securities and all
receipts and disbursements of funds; (ii) ledgers (or other records) reflecting
(A) securities in transfer, if any, (B) securities in physical possession, (C)
monies and securities borrowed and monies and securities loaned (together with a
record of the collateral therefor and substitutions of such collateral), (D)
dividends and interest received, and (E) dividends receivable and interest
accrued; and (iii) cancelled checks and bank records related thereto. Custodian
shall keep such other books and records with respect to securities, funds and
other assets of a Portfolio which are held hereunder as the Trust may reasonably
request.
(b) All such books and records maintained by Custodian for a Portfolio
shall (i) be maintained in a form acceptable to the Trust and in compliance with
the rules and regulations of the Securities and Exchange Commission, (ii) be the
property of such Portfolio and at all times during the regular business hours of
Custodian be made available upon request for inspection by duly authorized
officers, employees or agents of the Trust (including, without limitation,
independent
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auditors of the Trust) and employees or agents of the Securities and Exchange
Commission, and (iii) if required to be maintained under the 1940 Act, be
preserved for the periods prescribed therein.
3.22 ACCOUNT REPORTS BY CUSTODIAN. Custodian shall furnish the Trust
with a daily activity statement, including a summary of all transfers to or from
the Custody Account of each Portfolio (in the case of securities and other
assets maintained in the United States, on the day following such transfers). At
least monthly and from time to time, Custodian shall furnish the Trust with a
detailed statement of the securities, funds and other assets held for each
Portfolio under this Agreement.
3.23 OTHER REPORTS BY CUSTODIAN. Custodian shall provide the Trust with
such reports as the Trust may reasonably request from time to time on the
internal accounting controls and procedures for safeguarding securities which
are employed by Custodian or any sub-custodian appointed pursuant to this
Agreement.
3.24 PROXIES AND OTHER MATERIALS. (a) Unless otherwise instructed by
the Trust, Custodian shall promptly deliver to the Trust all notices of
meetings, proxy materials (other than proxies) and other announcements, which it
receives regarding securities held by it in the Custody Account of a Portfolio.
Whenever Custodian or any of its agents receives a proxy with respect to
securities in the Custody Account of a Portfolio, Custodian shall promptly
request instructions from the Trust on how such securities are to be voted, and
shall give such proxy, or cause it to be given, in accordance with such
instructions. If the Trust timely informs Custodian that the Trust wishes to
vote any such securities in person, Custodian shall promptly seek to have a
legal proxy covering such securities issued to the Trust. Unless otherwise
instructed by the Trust, neither Custodian nor any of its agents shall exercise
any voting rights with respect to securities held hereunder.
(b) Unless otherwise instructed by the Trust, Custodian shall promptly
transmit to the Trust all other written information received by Custodian from
issuers of securities held in the Custody Account of any Portfolio. With respect
to tender or exchange offers for such securities or with respect to other
corporate transactions involving such securities, Custodian shall promptly
transmit to the Trust all written information received by Custodian from the
issuers of such securities or from
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any party (or its agents) making any such tender or exchange offer or
participating in such other corporate transaction. If the Trust, with respect to
such tender or exchange offer or other corporate transaction, desires to take
any action that may be taken by it pursuant to the terms of such offer or other
transaction, the Trust shall notify Custodian (i) in the case of securities
maintained outside the United States, such number of Business Days prior to the
date on which Custodian is to take such action as will allow Custodian to take
such action in the relevant local market for such securities in a timely
fashion, and (ii) in the case of all other securities, at least three Business
Days prior to the date on which Custodian is to take such action.
3.25 CO-OPERATION. Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Trust to keep or audit
the books of account of a Portfolio, to record the owners of the Portfolios'
Shares and/or to compute the value of the assets of a Portfolio.
ARTICLE IV
REDEMPTION OF PORTFOLIO SHARES;
DIVIDENDS AND OTHER DISTRIBUTIONS
4.1 TRANSFER OF FUNDS. From such funds as may be available for the
purpose in the Custody Account of a Portfolio, and upon receipt of Proper
Instructions specifying that the funds are required to redeem Shares of such
Portfolio or to pay dividends or other distributions to holders of Shares of
such Portfolio, Custodian shall transfer each amount specified in such Proper
Instructions to such account of such Portfolio or of an agent thereof (other
than Custodian), at such bank, as the Trust may designate therein with respect
to such amount.
4.2 SOLE DUTY OF CUSTODIAN. Custodian's sole obligation with respect to
the redemption of Shares of a Portfolio and the payment of dividends and other
distributions thereon shall be its obligation set forth in Section 4.1 above,
and Custodian shall not be required to make any payments to the various holders
from time to time of Shares of a Portfolio nor shall Custodian be responsible
for the payment or distribution by the Trust, or any agent designated in Proper
Instructions given pursuant to Section 4.1 above, of any amount paid by
Custodian to the account of the Trust or such agent in accordance with such
Proper Instructions.
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ARTICLE V
SEGREGATED ACCOUNTS
Upon receipt of Proper Instructions to do so, Custodian shall establish
and maintain a segregated account or accounts for and on behalf of any
Portfolio, into which account or accounts may be transferred funds and/or
securities, including securities maintained in a Securities Depository:
(a) in accordance with the provisions of any agreement among the Trust,
Custodian and a securities broker-dealer (or any futures commission merchant),
relating to compliance with the rules of The Options Clearing Corporation or of
any registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions of such Portfolio,
(b) for purposes of segregating funds or securities in connection with
securities options purchased or written by such Portfolio or in connection with
financial futures contracts (or options thereon) purchased or sold by such
Portfolio,
(c) which constitute collateral for loans of securities made by such
Portfolio,
(d) for purposes of compliance by such Portfolio with requirements
under the 1940 Act for the maintenance of segregated accounts by registered
management investment companies in connection with reverse repurchase
agreements, when-issued, delayed delivery and firm commitment transactions, and
short sales of securities, and
(e) for other proper purposes, but only upon receipt of Proper
Instructions, specifying the purpose or purposes of such segregated account and
certifying such purposes to be proper purposes of such Portfolio.
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ARTICLE VI
CERTAIN REPURCHASE TRANSACTIONS
6.1 TRANSACTIONS. If and to the extent that the necessary funds and
securities of a Portfolio have been entrusted to it under this Agreement, and
subject to Custodian's right to foreclose upon and liquidate collateral pledged
to it pursuant to Section 9.3 below, Custodian, as agent of such Portfolio,
shall from time to time (and unless the Trust gives it Proper Instructions to do
otherwise) make from the Custody Account of such Portfolio the transfers of
funds and deliveries of securities which such Portfolio is required to make
pursuant to the Master Repurchase Agreement and shall receive for the Custody
Account of such Portfolio the transfers of funds and deliveries of securities
which the seller under the Master Repurchase Agreement is required to make
pursuant thereto. Custodian shall make and receive all such transfers and
deliveries pursuant to, and subject to the terms and conditions of, the Master
Repurchase Agreement.
6.2 COLLATERAL. Custodian shall daily mark to market the securities
purchased under the Master Repurchase Agreement and held in the Custody Account
of a Portfolio, and shall give to the seller thereunder any such notice as may
be required thereby in connection with such mark-to-market.
6.3 EVENTS OF DEFAULT. Custodian shall promptly notify the Trust of any
event of default under the Master Repurchase Agreement (as such term "event of
default" is defined therein) of which it has actual knowledge.
6.4 MASTER REPURCHASE AGREEMENT. Custodian hereby acknowledges its
receipt from the Trust of a copy of the Master Repurchase Agreement. The Trust
shall provide Custodian, prior to the effectiveness thereof, with a copy of any
amendment to the Master Repurchase Agreement.
ARTICLE VII
CERTAIN SECURITIES LENDING TRANSACTIONS
7.1 TRANSACTIONS. If and to the extent that the necessary funds and
securities of a Portfolio have been entrusted to it under this Agreement, and
subject to Custodian's right to foreclose upon and liquidate collateral pledged
to it pursuant to Section 9.3 below, Custodian, as agent of such
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Portfolio, shall from time to time (and unless the Trust gives it Proper
Instructions to do otherwise) make from the Custody Account of such Portfolio
the transfers of funds and deliveries of securities which such Portfolio is
required to make pursuant to the Master Securities Loan Agreement and shall
receive for the Custody Account of such Portfolio the transfers of funds and
deliveries of securities which the borrower under the Master Securities Loan
Agreement is required to make pursuant thereto. Custodian shall make and receive
all such transfers and deliveries pursuant to, and subject to the terms and
conditions of, the Master Securities Loan Agreement.
7.2 COLLATERAL. Custodian shall daily mark to market, in the manner
provided for in the Master Securities Loan Agreement, all loans of securities
which may from time to time be outstanding thereunder.
7.3 DEFAULTS. Custodian shall promptly notify the Trust of any default
under the Master Securities Loan Agreement (as such term "default" is defined
therein) of which it has actual knowledge.
7.4 MASTER SECURITIES LOAN AGREEMENT. Custodian hereby acknowledges its
receipt from the Trust of a copy of the Master Securities Loan Agreement. The
Trust shall provide Custodian, prior to the effectiveness thereof, with a copy
of any amendment to the Master Securities Loan Agreement.
ARTICLE VIII
CONCERNING THE CUSTODIAN
8.1 STANDARD OF CARE. Custodian shall be held to the exercise of
reasonable care in carrying out its obligations under this Agreement, and shall
be without liability to any Portfolio or the Trust for any loss, damage, cost,
expense (including attorneys' fees and disbursements), liability or claim which
does not arise from willful misfeasance, bad faith or negligence on the part of
Custodian. In no event shall Custodian be liable for special, incidental or
consequential damages, even if Custodian
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has been advised of the possibility of such damages, or be liable in any manner
whatsoever for any action taken or omitted upon instructions from an Authorized
Person of the Trust or any authorized agent of the Trust in conformity with such
instructions.
8.2 ACTUAL COLLECTION REQUIRED. So long as and to the extent that it is
in the exercise of reasonable care, Custodian shall not be liable for, or
considered to be the custodian of, any funds belonging to a Portfolio or any
money represented by a check, draft or other instrument for the payment of
money, until Custodian or its agents actually receive such funds or collect on
such instrument.
8.3 NO RESPONSIBILITY FOR TITLE, ETC. So long as and to the extent that
it is in the exercise of reasonable care, Custodian shall not be responsible for
the title, validity or genuineness of any assets or evidence of title thereto
received or delivered by it or its agents.
8.4 LIMITATION ON DUTY TO COLLECT. Custodian shall promptly notify the
Trust whenever any money or property due and payable from or on account of any
securities or other assets held hereunder for a Portfolio is not timely received
by it. Custodian shall not, however, be required to enforce collection, by legal
means or otherwise, of any such money or other property not paid when due, but
will use commercially reasonable efforts to obtain such money or property and
shall receive the proceeds of such collections as may be effected by it or its
agents in the ordinary course of Custodian's custody and safekeeping business or
of the custody and safekeeping business of such agents.
8.5 EXPRESS DUTIES ONLY. Custodian shall have no duties or obligations
whatsoever except such duties and obligations as are specifically set forth in
this Agreement, and no covenant or obligation shall be implied in this Agreement
against Custodian. Custodian shall have no discretion whatsoever with respect to
the management, disposition or investment of the Custody Account of any
Portfolio and is not a fiduciary to any Portfolio or the Trust. In particular,
Custodian shall not be under any obligation at any time to monitor or to take
any other action with respect to compliance by any Portfolio or the Trust with
the 1940 Act, the provisions of the Trust's trust instruments or
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by-laws, or any Portfolio's investment objectives, policies and limitations as
in effect from time to time.
ARTICLE IX
INDEMNIFICATION
9.1 INDEMNIFICATION. Each Portfolio shall indemnify and hold harmless
Custodian, any sub-custodian appointed pursuant to this Agreement and any
nominee of any of them, from and against any loss, damages, cost, expense
(including reasonable attorneys' fees and disbursements), liability (including,
without limitation, liability arising under the Securities Act of 1933, the
Securities Exchange Act of 1934, the 1940 Act, and any federal, state or foreign
securities and/or banking laws) or claim arising directly or indirectly (a) from
the fact that securities or other assets in the Custody Account of such
Portfolio are registered in the name of any such nominee, or (b) from any action
or inaction, with respect to such Portfolio, by Custodian or such sub-custodian
or nominee (i) at the request or direction of or in reliance on the advice of an
Authorized Person of the Trust or any of its authorized agents, or (ii) upon
Proper Instructions, or (c) generally, from the performance of its obligations
under this Agreement with respect to such Portfolio, provided that Custodian,
any such sub-custodian or any nominee of any of them shall not be indemnified
and held harmless from and against any such loss, damage, cost, expense,
liability or claim arising from willful misfeasance, bad faith or negligence on
the part of Custodian or any such sub-custodian or nominee.
9.2 INDEMNITY TO BE PROVIDED. If the Trust requests Custodian to take
any action with respect to securities or other assets of a Portfolio, which may,
in the opinion of Custodian, result in Custodian or its nominee becoming liable
for the payment of money or incurring liability of some other form, Custodian
shall not be required to take such action until such Portfolio shall have
provided indemnity therefor to Custodian in an amount and form satisfactory to
Custodian.
9.3 SECURITY. As security for the payment of any present or future
obligation or liability of a Portfolio arising under Section 3.18 or Section 9.1
or Section 9.2 hereof to Custodian (but not to any affiliate of Custodian or any
other person), the Trust hereby pledges to Custodian all securities, funds and
other assets of every kind which are in such Custody Account or otherwise held
for such
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Portfolio pursuant to this Agreement in an amount not to exceed the total amount
advanced under Section 3.18 and the total amount due and owing under Section 9.1
and 9.2 as agreed between the parties or finally determined in a court of
competent jurisdiction and hereby grants to Custodian a lien, right of set-off
and continuing security interest in such securities, funds and other assets.
ARTICLE X
FORCE MAJEURE
Custodian shall not be liable for any failure or delay in performance
of its obligations under this Agreement arising out of or caused, directly or
indirectly, by circumstances beyond its reasonable control.
ARTICLE XI
REPRESENTATIONS AND WARRANTIES
11.1 REPRESENTATIONS WITH RESPECT TO PORTFOLIOS. The Trust represents
and warrants that (a) it has all necessary power and authority to perform the
obligations hereunder of each Portfolio, (b) the execution and delivery by it of
this Agreement, and the performance by it of the obligations hereunder of each
Portfolio, have been duly authorized by all necessary action and will not
violate any law, regulation, trust instrument, by-law, or other instrument,
restriction or provision applicable to it or such Portfolio or by which it or
such Portfolio, or their respective assets, may be bound, and (c) this Agreement
constitutes a legal, valid and binding obligation of the Trust, enforceable
against the Trust in accordance with its terms.
11.2 REPRESENTATIONS OF CUSTODIAN. Custodian represents and warrants
that (a) it has all necessary power and authority to perform its obligations
hereunder, (b) the execution and delivery by it of this Agreement, and the
performance by it of its obligations hereunder, have been duly authorized by all
necessary action and will not violate any law, regulation, charter, by-law, or
other instrument, restriction or provision applicable to it or by which it or
its assets may be bound, and (c) this Agreement constitutes a legal, valid and
binding obligation of it, enforceable against it in accordance with its terms.
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ARTICLE XII
COMPENSATION OF CUSTODIAN
Each Portfolio shall pay Custodian such fees and charges as are set
forth in Exhibit E hereto, as such Exhibit E may from time to time be revised by
mutual consent of the parties. Any annual fee or other charges payable by a
Portfolio shall be paid monthly by automatic deduction from funds available
therefor in the Custody Account of such Portfolio, or, if there are no such
funds, upon presentation of an invoice therefor. Out-of-pocket expenses incurred
by Custodian in the performance of its services hereunder for any Portfolio and
all other proper charges and disbursements of the Custody Account of such
Portfolio shall be charged to such Custody Account by Custodian and paid in the
same manner as the annual fee and other charges referred to in this Article XII.
ARTICLE XIII
TAXES
13.1 TAXES PAYABLE BY PORTFOLIOS. Any and all taxes, including any
interest and penalties with respect thereto, which may be levied or assessed
under present or future laws in respect of the Custody Account of any Portfolio
or any income thereof shall be charged to such Custody Account by Custodian and
paid in the same manner as the annual fee and other charges referred to in
Article XII above.
13.2 TAX RECLAIMS. Custodian shall exercise, on behalf of any
Portfolio, any tax reclaim rights of such Portfolio which arise in connection
with foreign securities in the Custody Account of such Portfolio.
ARTICLE XIV
AUTHORIZED PERSONS; NOTICES
14.1 AUTHORIZED PERSONS. Custodian may rely upon and act in accordance
with any notice, confirmation, instruction or other communication which is
reasonably believed by Custodian to have been given or signed on behalf of the
Trust by one of the Authorized Persons designated by the Trust in Exhibit B
hereto, as it may from time to time be revised. The Trust may revise Exhibit B
hereto
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at any time by notice in writing to Custodian given in accordance with Section
14.4 below, but no revision of Exhibit B hereto shall be effective until
Custodian actually receives such notice.
14.2 INVESTMENT ADVISER AND SUB-ADVISERS. Custodian may also rely upon
and act in accordance with any Written or Oral Instructions given with respect
to a Portfolio which are reasonably believed by Custodian to have been given or
signed by one of the persons from Puget Sound Asset Management Co., LLC or any
of the sub-advisers of such Portfolio who are designated from time to time by
the Trust and specified in Exhibit C hereto (if any) as it may from time to time
be revised. The Trust may revise Exhibit C hereto at any time by notice in
writing to Custodian given in accordance with Section 14.4 below, but no
revision of Exhibit C hereto (if any) shall be effective until Custodian
actually receives such notice.
14.3 ORAL INSTRUCTIONS. Custodian may rely upon and act in accordance
with Oral Instructions. All Oral Instructions shall be confirmed to Custodian in
Written Instructions. However, if Written Instructions confirming Oral
Instructions are not received by Custodian prior to a transaction, it shall in
no way affect the validity of the transaction authorized by such Oral
Instructions or the authorization given by an Authorized Person to effect such
transaction. Custodian shall incur no liability to any Portfolio or the Trust in
acting upon Oral Instructions. To the extent such Oral Instructions vary from
any confirming Written Instructions, Custodian shall advise the Trust of such
variance but unless confirming Written Instructions are timely received, such
Oral Instructions shall govern.
14.4 ADDRESSES FOR NOTICES. Unless otherwise specified herein, all
demands, notices, instructions, and other communications to be given hereunder
shall be sent, delivered or given to the recipient at the address, or the
relevant telephone number, set forth after its name hereinbelow:
If to the Trust:
PUGET SOUND ALTERNATIVE INVESTMENT SERIES TRUST
for [INSERT NAME OF PORTFOLIO]
One Yesler Building, Suite 200
Seattle, WA 98104
Attention: Margaret Towle
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Telephone: (206) 405-4100
Facsimile: (206) 654-4121
If to Custodian:
CUSTODIAL TRUST COMPANY
101 Carnegie Center
Princeton, New Jersey 08540-6231
Attention: Vice President - Trust Operations
Telephone: (609) 951-2320
Facsimile: (609) 951-2327
or at such other address as either party hereto shall have provided to the other
by notice given in accordance with this Section 14.4. Writing shall include
transmissions by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
14.5 REMOTE CLEARANCE. Written Instructions for the receipt, delivery
or transfer of securities may include, and Custodian shall accept, Remote
Clearance Instructions (as defined hereinbelow) and Bulk Input Instructions (as
defined hereinbelow), provided that such Instructions are given in accordance
with the procedures prescribed by Custodian from time to time as to content of
instructions and their manner and timeliness of delivery by Trust. Custodian
shall be entitled to conclusively assume that all Remote Clearance Instructions
and Bulk Input Instructions have been given by an Authorized Person, and
Custodian is hereby irrevocably authorized to act in accordance therewith. For
purposes of this Agreement, "Remote Clearance Instructions" means instructions
that are input directly via a remote terminal which is located on the premises
of the Trust, or Puget Sound Asset Management Co., LLC or a sub-adviser named in
Exhibit C hereto, and linked to Custodian; and "Bulk Input Instructions" means
instructions that are input by bulk input computer tape delivered to Custodian
by messenger or transmitted to it via such transmission mechanism as the Trust
and Custodian shall from time to time agree upon.
ARTICLE XV
TERMINATION
Either party hereto may terminate this Agreement with respect to one or
more of the Portfolios by giving to the other party a notice in writing
specifying the date of such termination,
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which shall be not less than thirty (30) days after the date of the giving of
such notice. Upon the date set forth in such notice, this Agreement shall
terminate with respect to each Portfolio specified in such notice, and Custodian
shall, upon receipt of a notice of acceptance by the successor custodian, on
that date (a) deliver directly to the successor custodian or its agents all
securities (other than securities held in a Book-Entry System or Securities
Depository) and other assets then owned by such Portfolio and held by Custodian
as custodian, and (b) transfer any securities held in a Book-Entry System or
Securities Depository to an account of or for the benefit of such Portfolio,
provided that such Portfolio shall have paid to Custodian all fees, expenses and
other amounts to the payment or reimbursement of which it shall then be
entitled.
ARTICLE XVI
LIMITATION OF LIABILITIES
To the extent that the trustees of the Trust are regarded as entering
into this Agreement, they do so only as trustees of the Trust and not
individually. The obligations under this Agreement of the Trust or any Portfolio
shall not be binding upon any trustee, officer or employee of the Trust
individually, or upon any holder of Shares individually, but shall be binding
only upon the assets and property of such Portfolio. Such trustees, officers,
employees and holders, when acting in such capacities, shall not be personally
liable under this Agreement, and Custodian shall look solely to the assets and
property of each Portfolio for the performance of this Agreement with respect to
such Portfolio and the payment of any claim against such Portfolio under this
Agreement.
ARTICLE XVII
MISCELLANEOUS
17.1 BUSINESS DAYS. Nothing contained in this Agreement shall require
Custodian to perform any function or duty on a day other than a Business Day.
17.2 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to the
conflict of laws principles thereof.
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17.3 REFERENCES TO CUSTODIAN. The Trust shall not circulate any printed
matter which contains any reference to Custodian without the prior written
approval of Custodian, excepting printed matter contained in the prospectus or
statement of additional information for a Portfolio and such other printed
matter as merely identifies Custodian as custodian for a Portfolio. The Trust
shall submit printed matter requiring approval to Custodian in draft form,
allowing sufficient time for review by Custodian and its counsel prior to any
deadline for printing.
17.4 NO WAIVER. No failure by either party hereto to exercise, and no
delay by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise of any other right, and the remedies provided herein are
cumulative and not exclusive of any remedies provided at law or in equity.
17.5 AMENDMENTS. This Agreement cannot be changed orally and, except as
otherwise provided herein with respect to the Exhibits attached hereto, no
amendment to this Agreement shall be effective unless evidenced by an instrument
in writing executed by the parties hereto.
17.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
17.7 SEVERABILITY. If any provision of this Agreement shall be invalid,
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions shall not be affected or
impaired thereby.
17.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement shall not be assignable by
either party hereto without the written consent of the other party. Any
purported assignment in violation of this Section 17.8 shall be void.
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17.9 JURISDICTION. Any suit, action or proceeding with respect to this
Agreement may be brought in the Supreme Court of the State of New York, County
of New York, in the United States District Court for the Southern District of
New York, in the Superior Court of the State of Washington or in the United
States District Court for the Western District of Washington, and the parties
hereto hereby submit to the non-exclusive jurisdiction of such courts for the
purpose of any such suit, action or proceeding, and hereby waive for such
purpose any other preferential jurisdiction by reason of their present or future
domicile or otherwise.
17.10 HEADINGS. The headings of sections in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its representative
thereunto duly authorized, all as of the day and year first above written.
PUGET SOUND ALTERNATIVE CUSTODIAL TRUST COMPANY
INVESTMENT SERIES TRUST,
on behalf of the Portfolios identified on
Exhibit A hereto
By: _________________________ By: __________________________
Name: Name: Ronald D. Watson
Title: Title: President
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EXHIBIT A
PORTFOLIOS
- Puget Sound Market Neutral Portfolio
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EXHIBIT B
AUTHORIZED PERSONS
Set forth below are the names and specimen signatures of the persons
authorized by the Trust to administer the Custody Accounts of the Portfolios.
Name Signature
____________________________ ______________________________
____________________________ ______________________________
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EXHIBIT C
INVESTMENT ADVISERS
ALL PORTFOLIOS
Puget Sound Asset Management Co., LLC
SUB-ADVISERS
ALL PORTFOLIOS
Fiduciary Asset Management Co.
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EXHIBIT D
APPROVED FOREIGN SUB-CUSTODIANS AND SECURITIES DEPOSITORIES
ALL PORTFOLIOS
Foreign Sub-custodian Country(ies) Securities Depositories
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EXHIBIT E
CUSTODY FEES AND TRANSACTION CHARGES
(PUGET SOUND MARKET NEUTRAL PORTFOLIO)
DOMESTIC FEES. Assets maintained by the Custodian in the Custody
Account of Puget Sound Market Neutral Portfolio ("the Market Neutral Portfolio")
in the United States are hereinafter referred to as "Domestic Assets". For
purposes of calculating the annual fee hereinafter provided for and charging the
transaction fees hereinafter provided for, all Domestic Assets held in the
account established pursuant to the Special Custody Account among the Trust,
Custodian and Bear Stearns, dated as of June __, 1998, shall be deemed to be
held in the Custody Account of the Market Neutral Portfolio under this Agreement
and all transactions in such Domestic Assets shall be deemed to have occurred in
such Custody Account.
The Market Neutral Portfolio shall pay Custodian the following fees for
Domestic Assets and the following charges for transactions in the United States,
all such fees and charges to be payable monthly:
(1) an annual fee equal to the greater of (i) the sum of (a) 0.02% (two
basis points) per annum of the value of the Domestic Assets held in the Market
Neutral Portfolio's Custody Account up to $300 million, plus (b) 0.01% (one
basis point) per annum of the amount by which the value of such Domestic Assets
exceeds $300 million, with each such percentage fee to be based upon the average
daily net asset value of such Domestic Assets for the month for which such fee
is charged, or (ii) $5000;
(2) a transaction charge for each repurchase transaction in such
Custody Account which represents a cash sweep investment for the Market Neutral
Portfolio's account, computed on the basis of a 360-day year and for the actual
number of days such repurchase transaction is outstanding at a rate of 0.10%
(ten basis points) per annum on the amount of the purchase price paid by the
Market Neutral Portfolio in such repurchase transaction;
-36-
<PAGE> 37
(3) a charge of $10 for each "free" transfer of funds from such Custody
Account;
(4) a charge of $5 for each check disbursement from such Custody
Account;
(5) an administrative fee for each purchase in such Custody Account of
shares or other interests in a money market or other fund, which purchase
represents a cash sweep investment for the Market Neutral Portfolio's account,
computed for each day that there is a positive balance in such fund to equal
1/365th of 0.10% (ten basis points) on the amount of such positive balance for
such day; and
(6) a service charge for each holding of securities or other assets of
the Market Neutral Portfolio that are sold by way of private placement or in
such other manner as to require services by Custodian which in its reasonable
judgment are materially in excess of those ordinarily required for the holding
of publicly traded securities in the United States.
INTERNATIONAL FEES. The Market Neutral Portfolio shall pay Custodian
fees for assets maintained by the Custodian in the Custody Account of the Market
Neutral Portfolio outside the United States ("Foreign Assets") and charges for
transactions by the Market Neutral Portfolio outside the United States
(including, without limitation, charges for funds transfers and tax reclaims) in
accordance with such schedule of fees and charges for each country in which
Foreign Assets of the Market Neutral Portfolio are held as Custodian shall from
time to time provide to the Trust. Any asset-based fee shall be based upon the
average daily net asset value of the applicable Foreign Assets for the month for
which such fee is charged.
-37-
<PAGE> 1
Exhibit 99.8(b)
SPECIAL CUSTODY ACCOUNT AGREEMENT
(Short Sales)
AGREEMENT (hereinafter "Agreement") dated as of June ___,
1998, by and among Custodial Trust Company in its capacity as custodian
hereunder (the "Bank"), Puget Sound Alternative Investment Series Trust on
behalf of its Puget Sound Market Neutral Portfolio ("Customer"), and Bear,
Stearns Securities Corp. (the "Broker").
WHEREAS, Broker is a securities broker-dealer and is a member of
several national securities exchanges; and
WHEREAS, Customer is a registered investment company which desires from
time to time to execute various securities transactions, including short sales
(which are permitted by Customer's investment policies), and in connection
therewith has executed Broker's Customer Agreement (the "Customer Agreement")
which provides for margin transactions; and
WHEREAS, to facilitate Customer's transactions in short sales of
securities, Customer and Broker desire to establish procedures for the
compliance by Broker with the provisions of Regulation T of the Board of
Governors of the Federal Reserve System and other applicable requirements
("Margin Rules"); and
WHEREAS, to assist Broker and Customer in complying with the Margin
Rules, Bank is prepared to act as custodian to hold Collateral as defined below.
NOW THEREFORE, be it agreed as follows:
1. DEFINITIONS
As used herein, the following terms have the following meanings:
(a) "Adequate Margin" in respect of short sales shall mean such
collateral as is adequate in Broker's reasonable judgment
under the Margin Rules and the internal policies of Broker,
the latter of which shall be subject to modifications by
Broker only upon prior notice given to Customer and Bank.
(b) "Advice from Broker" or "Advice" means a written notice sent
to Customer and Bank or transmitted by a facsimile sending
device, except that Advice for initial or additional
Collateral or with respect to Broker's ability to effect a
short sale for the Customer may be given orally. With respect
to any short sale or Closing Transaction, the Advice from
Broker shall mean a standard confirmation in use by Broker and
sent or transmitted to Customer and Bank. With respect to
substitutions
<PAGE> 2
or releases of Collateral, Advice from Broker means a written
notice signed by Broker and sent or transmitted to Customer
and Bank. An authorized agent of Broker will certify to
Customer and Bank the names and signatures of those employees
who are authorized to sign Advice from Broker, which
certification may be amended from time to time. When used
herein, the term "advise" means the act of sending an Advice
from Broker.
(c) "Closing Transaction" is a transaction in which Customer
purchases securities which have been sold short.
(d) "Collateral" shall mean cash or U.S. Government securities or
other securities acceptable to Broker.
(e) "Custody Agreement" shall mean the agreement for general
custodial services between the Bank and Customer.
(f) "Insolvency" means that (A) an order, judgment or decree has
been entered under the bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law (herein called the "Bankruptcy
law") of any competent jurisdiction adjudicating Customer
insolvent; or (B) Customer has petitioned or applied to any
tribunal for, or consented to the appointment of, or taking
possession by, a trustee, receiver, liquidator or similar
official, of Customer, or commenced a voluntary case under the
Bankruptcy Law of the United States or any proceedings
relating to Customer under the Bankruptcy Law of any other
competent jurisdiction, whether now or hereinafter in effect;
or (C) any such petition or application has been filed, or any
such proceedings commenced, against Customer and Customer by
any act has indicated its approval thereof, consent thereto or
acquiescence therein, or an order for relief has been entered
in an involuntary case under the Bankruptcy Law of the United
States, as now or hereinafter constituted, or an order,
judgment or decree has been entered appointing any such
trustee, receiver, liquidator or similar official, or
approving the petition in any such proceedings, and such
order, judgment or decree remains unstayed and in effect for
more than 60 days.
(g) "Instructions from Customer" or "Instructions" means a
request, direction or certification in writing signed by
Customer and delivered to Bank and Broker or transmitted by a
facsimile sending device. An officer of Customer will certify
to Bank and Broker the names and signatures of those persons
authorized to sign the instructions, which certification may
be amended from time to time. When used herein, the term
"Instruct" shall mean the act of sending an Instruction from
Customer.
2
<PAGE> 3
(h) "Receipt of Payment" means receipt by Bank of (1) a certified
or official bank check or wire transfer to Bank; (2) a written
or telegraphic Advice from a registered clearing agency that
funds have been or will be credited to the account of Bank; or
(3) a transfer of funds from any of Broker's accounts
maintained at Bank.
(i) "Receipt of Securities" means receipt by Bank of (1)
securities in proper form for transfer; or (2) a written or
telegraphic Advice from a registered clearing agency that
securities have been credited to the account of Bank for the
Special Custody Account.
(j) "Special Custody Account" shall have the meaning assigned to
that term in Section 2 hereof.
2. SPECIAL CUSTODY ACCOUNT
(a) Opening Custody Account. Bank shall open an account on its
books entitled "Special Custody Account for Bear, Stearns
Securities Corp. as Pledgee of Puget Sound Alternative
Investment Series Trust on behalf of its Puget Sound Market
Neutral Portfolio (the "Special Custody Account") and shall
hold therein all securities and similar property as shall be
received and accepted by it therein pursuant to this
Agreement. Customer agrees to instruct Bank in Instructions
from Customer as to cash and specific securities which Bank is
to identify on its books and records as pledged to Broker as
Collateral in the Special Custody Account. Customer agrees
that the value of such cash and securities shall be at least
equal in value to what Broker shall initially and from time to
time advise Customer in an Advice from Broker as being
necessary to constitute Adequate Margin. Such Collateral (i)
will be held by Bank for Broker as agent of Broker, (ii) may
be released only in accordance with the terms of this
Agreement, and (iii) except as required to be released
hereunder to Broker, shall not be made available to Broker or
any other person claiming through Broker, including the
creditors of Broker. In the event Customer wishes to add
another series of Puget Sound Alternative Investment Series
Trust to this Agreement, the title of such account shall be
appended to this Agreement as a schedule.
(b) Security Interest. Customer hereby grants a continuing
security interest to Broker in the Collateral in the Special
Custody Account. To perfect Broker's security interest, Bank
will hold the Collateral in the Special Custody Account,
subject to the interest therein of Broker as the pledgee and
secured party thereof in accordance with the terms of this
Agreement. Such security interest will terminate at such time
as Collateral is released as provided herein. Bank shall have
no responsibility for the validity or enforceability of such
security interest.
3
<PAGE> 4
(c) Confirmation. Bank will confirm in writing to Broker and
Customer all pledges, releases or substitutions of Collateral
and will supply Broker and Customer with a monthly statement
of Collateral and transactions in the Special Custody Account
for such month. Bank will also advise Broker upon request of
the kind and amount of Collateral pledged to Broker.
(d) Excess Collateral. Upon the request of Customer, Broker shall
advise Bank and Customer of any excess of Collateral in the
Special Custody Account. Such excess shall at Customer's
request be transferred from the Special Custody Account to
Customer upon Bank's receipt of Advice from Broker.
(e) Accounts and Records. Bank will maintain accounts and records
for the Collateral in the Special Custody Account as more
fully described in sub-paragraph 5(a) below. The Collateral
shall at all times remain the property of Customer subject
only to the extent of the interest and rights therein of
Broker as the pledgee thereof.
3. ORIGINAL AND VARIATION MARGIN ON SHORT SALES
(a) Short Sales. From time to time, Customer may place orders with
Broker for the short sale of securities. Prior to the
acceptance of such orders Broker will advise Customer of
Broker's ability to borrow such securities or other
properties, and acceptance of short sale orders will be
contingent upon same.
(b) Open Short Sales Balance. Broker shall, based on the closing
market price on each business day, compute the aggregate net
credit or debit balance on Customer's open short sales and
advise Customer and/or Customer's designated agent by 11:00
A.M. New York time on the next business day (the
"Determination Day") of the amount of the net debit or credit,
as the case may be. If a net debit balance exists on the
Determination Day, Customer will cause an amount equal to such
net debit balance to be paid to Broker by the close of
business on the Determination Day. If a net credit balance
exists on the Determination Day, Broker will pay such credit
balance to Customer by the close of business on the
Determination Day. As Customer's open short positions are
marked-to-market each business day, payments will be made by
or to Customer to reflect changes (if any) in the credit or
debit balances. To the extent payments are not made as
aforesaid, Broker will charge interest on debit balances, and
Broker will pay interest on credit balances. Balances will be
appropriately adjusted when short sales are closed out.
4. PLACING ORDERS
It is understood and agreed that Customer, when placing with Broker any
order to sell short for Customer's account, will designate the order as such and
hereby authorizes Broker to mark such
4
<PAGE> 5
order as being "short" and, when placing with Broker any order to sell long for
Customer's account, will designate the order as such and hereby authorizes
Broker to mark such order as being "long." Any sell order which Customer shall
designate as being for long account as above provided is for securities then
owned by Customer, and if such securities are not then deliverable by Broker
from any account of Customer, the placing of such order shall constitute a
representation by Customer that it is impracticable for Customer then to deliver
such securities to Broker but that Customer shall deliver them by the settlement
date or as soon as possible thereafter.
5. RIGHTS AND DUTIES OF THE BANK
(a) Generally. The Bank shall receive and hold in the Special
Custody Account, as custodian upon the terms of this
Agreement, all Collateral deposited and maintained pursuant to
the terms of this Agreement and, except as provided in
sub-paragraph 5(b) below, shall receive and hold all monies
and other property paid, distributed or substituted in respect
of such Collateral or realized on the sale or other
disposition of such Collateral; provided, however, that the
Bank shall have no duty to require any money or securities to
be delivered to it or to determine that the amount and form of
assets delivered to it comply with any applicable
requirements. Collateral held in the Special Custody Account
shall be released only in accordance with this Agreement or as
required by applicable law. The Customer grants its authority
to deposit in such account any money, securities and other
property received by the Bank. The Bank may hold the
securities in the Special Custody Account in bearer, nominee,
book entry, or other form and in a depository or clearing
corporation, with or without indicating that the securities
are held hereunder; provided, however, that all securities
held in the Special Custody Account shall be identified on the
Bank's records as subject to this Agreement and shall be in a
form that permits transfer without additional authorization or
consent of Customer.
(b) Dividends and Interest. Any interest, dividends or other
distributions paid with respect to the Collateral held in the
Special Custody Account shall be retained therein as
additional Collateral, unless requested by Customer in
accordance with the provision in this Agreement concerning the
release of excess Collateral.
(c) Reports. The Bank shall, as promptly as practical, but in no
event later than the next business day, provide Broker and
Customer and/or Customer's designated agent with written
confirmation of each transfer into and out of the Special
Custody Account. The Bank also shall render to the Broker and
Customer and/or Customer's designated agent a monthly
statement of the Collateral held in the Special Custody
Account. In addition, the Bank will advise the Broker and
Customer and/or Customer's designated agent, upon request of
the Broker or Customer, at any time of the type and amount of
Collateral held in the account; provided, however, that the
5
<PAGE> 6
Bank shall have no responsibility for making any determination
as to the value of such Collateral.
(d) Limitation of Bank's Liability. The Bank's duties and
responsibilities are set forth in this Agreement. The Bank
shall act only upon receipt of Advice from Broker regarding
release or substitution of Collateral. The Bank shall not be
liable or responsible for anything done or omitted to be done
by it in good faith and in the absence of negligence and may
rely and shall be protected in acting upon any notice,
instruction or other communication which it reasonably
believes to be genuine and authorized. As between Customer and
the Bank, the terms of the Custody Agreement entered into
thereby shall apply with respect to the responsibilities of
the Bank and any losses or liabilities of such parties arising
out of matters covered by this Agreement. As between the Bank
and Broker, Broker shall indemnify and hold the Bank harmless
with regard to any losses or liabilities of the Bank
(including counsel fees) imposed on or incurred by the Bank
arising out of any action or omission of the Bank in
accordance with any Advice, notice or instruction of Broker
under this Agreement. In matters concerning or relating to
this Agreement, the Bank shall not be responsible for
compliance with any statute or regulation regarding the
establishment or maintenance of margin credit, including but
not limited to Regulations T or X of the Board of Governors of
the Federal Reserve System, or with any rules or regulations
of the Office of the Controller of the Currency (or the
Securities and Exchange Commission). With respect to all
securities, however registered, it is understood that all
voting rights and other rights and powers shall be exercised
exclusively by Customer. Bank shall mail to Customer any
documents received, including proxy statements and offering
circulars, with any proxies for securities registered in a
nominee name executed by such nominee. The Bank shall not be
liable to any party for any acts or omissions of the other
parties to this Agreement.
6. DEFAULT
In the event of any failure by Customer to timely comply with any
obligation on Customer's part to be performed or observed under this Agreement
or the Customer Agreement, including, but not limited to, the obligation to
maintain Adequate Margin, or in the event of Customer's Insolvency, Broker may
effect a Closing Transaction or buy-in of any securities of which Customer's
account may be short, provided that Broker shall first use reasonable efforts to
(i) give notice to Customer or Manager specifying such default (which notice may
be by telegraph, facsimile transmission or hand delivery) and (ii) hold a
discussion with Customer or Manager regarding such default and Broker's intended
actions in response thereto. Notwithstanding the foregoing, neither notice nor a
discussion shall be required in the event market conditions render same
impracticable in the reasonable discretion of Broker. In the event of any such
default, after making a reasonable attempt to give notice to and hold a
6
<PAGE> 7
discussion with Customer or Manager, Broker shall also have the right to sell
any and all Collateral in the Special Custody Account and to give Advice to Bank
to deliver such Collateral free of payment to Broker, which Advice shall state
that, pursuant to this Agreement, the condition precedent to Broker's right to
receive such Collateral free of payment has occurred. The Bank will provide
immediate notice to Customer or Manager by telephone of any receipt by Bank of
Advice from Broker to deliver Collateral free of payment, and shall promptly
effect delivery of Collateral to Broker. Subject to applicable requirements of
the New York Uniform Commercial Code, such sale or purchase may be made
according to Broker's judgement and may be made at Broker's discretion, on the
principal exchange or other market for such securities, or in the event such
principal market is closed, in a manner commercially reasonable for such
securities. For purposes of this paragraph, the term "Manager" shall be deemed
to mean Puget Sound Asset Management Co., LLC, the investment manager to
Customer.
7. LIMITATION OF BROKER LIABILITY
Broker shall not be liable for any losses, costs, damages, liabilities
or expenses suffered or incurred by Customer as a result of any transaction
executed hereunder, or any other action taken or not taken by Broker hereunder
for Customer's account at Customer's direction or otherwise, except to the
extent that such loss, cost, damage, liability or expense is the result of
Broker's own negligence, recklessness, willful misconduct or bad faith.
8. CUSTOMER REPRESENTATION
Customer represents and warrants that the Collateral will not be
subject to any other liens or encumbrances other than those granted to the Bank
under the Custody Agreement.
9. TERMINATION
Any of the parties hereto may terminate this Agreement by 30 days'
notice in writing to the other parties hereto; provided, however, that the
status of any short sales, and of Collateral held at the time of such notice to
margin such short sales shall not be affected by such termination until the
release of such Collateral pursuant to applicable law or regulations or rules of
any self regulatory organization to which the Broker is subject. In the event of
the release of Collateral, the Collateral shall be transferred to a proper
custody account of Customer in the Bank.
10. NOTICE
Written communications hereunder shall be telegraphed, sent by
facsimile transmission or hand delivered as required herein, when another method
of delivery is not specified, may be mailed first class postage prepaid, except
that written notice of termination shall be sent by certified mail, addressed:
7
<PAGE> 8
(a) if to Bank, to:
Custodial Trust Company
101 Carnegie Center
Princeton, New Jersey 08540
Attn: Vice President - Trust Operations
Phone: (609) 951-2320
Facsimile: (609) 951-2327
(b) if to Customer, to:
Puget Sound Alternative Investment Series Trust
P.O. Box
Columbus, OH 43218
Attn:
Phone:
Facsimile:
(c) if to Broker, to:
Bear, Stearns Securities Corp.
245 Park Avenue
New York, New York 10167
Attn: Michael Minikes, Treasurer
Phone: (212) 272-2009
Facsimile: (212) 272-3099
11. CONTROLLING LAW
The construction and enforcement of this Agreement shall be subject to
and governed by the laws of the State of New York.
12. AMENDMENTS
No amendment of this Agreement shall be effective unless in writing and
signed by an authorized officer of each Broker, Customer and Bank.
8
<PAGE> 9
13. LIMITATION OF LIABILITY
To the extent that the trustees of Puget Sound Alternative Investment
Series Trust are regarded as entering into this Agreement, they do so only as
trustees thereof and not individually. The obligations under this Agreement of
Puget Sound Alternative Investment Series Trust or Puget Sound Market Neutral
Portfolio shall not be binding upon any trustee, officer or employee of Puget
Sound Alternative Investment Series Trust individually, but shall be binding
only upon the assets and property of Puget Sound Market Neutral Portfolio. Such
trustees, officers, employees and holders, when acting in such capacities, shall
not be personally liable under this Agreement, and Broker and Bank shall look
solely to the assets and property of Puget Sound Market Neutral Portfolio for
the performance of this Agreement thereby and for the payment of any claim
against Puget Sound Market Neutral Portfolio pertaining to this Agreement.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their duly authorized officers as of the day and
year first above written.
PUGET SOUND ALTERNATIVE INVESTMENT SERIES TRUST ON
BEHALF OF ITS PUGET SOUND MARKET NEUTRAL PORTFOLIO
By:
--------------------------------
Name:
Title:
CUSTODIAL TRUST COMPANY
By:
--------------------------------
Name:
Title:
BEAR, STEARNS SECURITIES CORP.
By:
--------------------------------
Name:
Title:
10
<PAGE> 1
Exhibit 99.9(d)
ORGANIZATIONAL EXPENSE
REIMBURSEMENT AGREEMENT
This Agreement is made and entered into this _____ day of June,
1998, by and between PUGET SOUND ALTERNATIVE INVESTMENT SERIES TRUST, a
Massachusetts business trust (the "Trust"), and PUGET SOUND ASSET MANAGEMENT
CO., LLC, a Washington limited liability company ("PSAM").
WITNESSETH:
----------
WHEREAS, the Trust is in the process of registering as an open-end
management investment company under the Investment Company Act of 1940;
WHEREAS, there have been and will be certain organizational expenses
incurred as a part of such registration, which are properly expenses of the
Trust, that have been and will in the future be paid by PSAM by reason of the
fact that the Trust was not or will not be capitalized when such expenses
otherwise became or become due and payable;
WHEREAS, such organizational expenses include expenses necessary to
organize and establish the Trust and to create the necessary relationships and
legal qualifications to enable it to commence business and operations,
including, but not by way of limitation, such expenses as outside legal counsel
fees, fees and taxes imposed by the Commonwealth of Massachusetts on
Massachusetts business trusts, independent public accountant fees and state blue
sky filing and registration fees (such expenses being hereinafter referred to as
"Organizational Expenses"):
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed as follows:
1. After the issuance and sale of shares of beneficial interest of the
Trust to the public, the Trust shall reimburse and pay to PSAM the amounts
expended by PSAM for Organizational Expenses for the Trust.
2. Such reimbursement shall be paid by the Trust to PSAM upon demand,
without interest, and in no event later than five years from the commencement of
operations of the Trust. Upon demand for payment, PSAM shall present copies of
invoices or receipts, and copies of canceled checks or other evidence of payment
by PSAM, of the Organizational Expenses for which it is demanding reimbursement.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this
Organizational Expense Reimbursement Agreement as of the day and year first
above written.
PUGET SOUND ALTERNATIVE
INVESTMENT SERIES TRUST
-----------------------------
By: Margaret M. Towle
Title: President
PUGET SOUND ASSET MANAGEMENT
CO., LLC
-----------------------------
By: Margaret M. Towle
Title: Chief Executive Officer
<PAGE> 1
Exhibit 99.13
BISYS FUND SERVICES OHIO, INC.
3435 Stelzer Road
Columbus, Ohio 43219
May 27, 1998
Puget Sound Alternative
Investment Series Trust
One Yesler Building, Suite 200
Seattle, Washington 98104
Ladies and Gentlemen:
In connection with your sale to us today of 10,000 shares (the
"Shares") of beneficial interest in Puget Sound Market Neutral Portfolio (the
"Fund"), we understand that: (i) the Shares have not been registered under the
Securities Act of 1933, as amended (the "1933 Act"); (ii) your sale of the
Shares to us is in reliance on the sale being exempt under Section 4(2) of the
1933 Act as not involving any public offering; and (iii) in part, your reliance
on such exemption is predicated on our representation, which we hereby confirm,
that we are acquiring the Shares for investment and for our own account as the
sole beneficial owner hereof, and not with a view to or in connection with any
resale or distribution of any or all of the Shares or of any interest therein.
We hereby agree that we will not sell, assign or transfer the Shares or any
interest therein except upon repurchase or redemption by the Fund unless and
until the Shares have been registered under the 1933 Act or you have received an
opinion of your counsel indicating to your satisfaction that such sale,
assignment or transfer will not violate the provisions of the 1933 Act or any
rules and regulations promulgated thereunder.
This letter is intended to take effect as an instrument under seal and
is delivered at Seattle, Washington as of the date above written.
Very truly yours,
BISYS FUND SERVICES OHIO, INC.
By: /s/ William J. Tomko
----------------------------------
Name: William J. Tomko
Title: Senior Vice President
<PAGE> 1
Exhibit 99.15
PUGET SOUND ALTERNATIVE INVESTMENT SERIES TRUST
Distribution Plan (Investor Shares)
(Effective as of June __, 1998)
This Plan (the "Plan"), as amended from time to time, constitutes the
Distribution Plan with respect to Investor Shares of PUGET SOUND ALTERNATIVE
INVESTMENT SERIES TRUST, a Massachusetts business trust (the "Trust").
Section 1. The Trust will pay to the principal distributor of the
Trust's shares (the "Distributor") a fee (the "Distribution Fee") for services
rendered and expenses borne by the Distributor in connection with the
distribution of Investor Shares of the Trust. The Distribution Fee shall be paid
at an annual rate with respect to each Fund (series) of the Trust (a "Fund") not
to exceed 0.50% of the Fund's average daily net assets attributable to its
Investor Shares. Subject to such limits and subject to the provisions of Section
9 hereof, the Distribution Fee shall be as approved from time to time by (a) the
Trustees of the Trust and (b) the Independent Trustees of the Trust. If at any
time this Plan shall not be in effect with respect to all Funds of the Trust,
the Distribution Fee shall be computed on the basis of sales of Investor Shares
or net assets attributable to Investor Shares (as applicable) of those Funds for
which the Plan is in effect. The Distribution Fee shall be accrued daily and
paid monthly or at such other intervals as the Trustees shall determine.
Section 2. The Distribution Fee may be spent by the Distributor on any
activities or expenses primarily intended to result in the sale of Investor
Shares of the Trust, including, but not limited to, compensation to, and
expenses (including overhead and telephone expenses) of, financial consultants
or other employees of the Distributor or of participating or introducing brokers
who engage in distribution of Investor Shares, printing of prospectuses and
reports for other than existing shareholders of the Fund, advertising and
preparation, printing and distribution of sales literature. The Distributor's
expenditures may include, but shall not be limited to, compensation to, and
expenses (including telephone and overhead expenses) of, financial consultants
or other employees of the Distributor or of participating or introducing
brokers, certain banks and other financial intermediaries who aid in the
processing of purchase or redemption requests for Investor Shares or the
processing of dividend payments with respect to Investor Shares, who provide
information periodically to shareholders showing their positions in a Fund's
Investor Shares, who forward communications from the Trust to Investor
shareholders, who render ongoing advice concerning the suitability of particular
investment opportunities offered by the Trust in light of the shareholder's
needs, who respond to inquiries from Investor Share shareholders relating to
such services, or who train personnel in the provision of such services.
-1-
<PAGE> 2
Section 3. This Plan shall not take effect with respect to any class of
shares of any Fund of the Trust until it has been approved by a vote of at least
a majority of the outstanding voting securities of that class. This Plan shall
be deemed to have been effectively approved with respect to any class if a
majority of the outstanding voting securities of that class votes for the
approval of this Plan, notwithstanding that this Plan has not been approved by a
majority of the outstanding voting securities of any other class of that Fund or
that this Plan has not been approved by a majority of the outstanding voting
securities of that Fund or the Trust as a whole.
Section 4. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of the majority (or whatever
greater percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940, as amended (the "Act"), or the rules and
regulations thereunder), of both (a) the Trustees of the Trust, and (b) the
Independent Trustees of the Trust cast in person at a meeting called for the
purpose of voting on this Plan or such agreement.
Section 5. This Plan shall continue in effect for a period of more than
one year after it takes effect only so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 4. It is acknowledged that the Distributor may expend or impute interest
expense in respect of its activities or expenses under this Plan and the
Trustees and the Independent Trustees may give such weight to such interest
expense as they determine in their discretion.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Section 7. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding voting securities of the Fund's Investor class of shares.
Section 8. All agreements with any person relating to implementation of
this Plan with respect to any Fund shall be in writing, and any agreement
related to this Plan with respect to any Fund shall provide:
A. That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the
Independent Trustees or by vote of a majority of the
outstanding voting securities of the Fund's Investor class of
shares, on not more than 60 days' written notice to any other
party to the agreement; and
B. That such agreement shall terminate automatically in the event
of its assignment.
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<PAGE> 3
Section 9. This Plan may not be amended to increase materially the
Distribution Fee permitted pursuant to Section 1 hereof without approval in the
manner provided in Section 3 hereof, and all material amendments to this Plan
shall be approved in the manner provided for approval of this Plan in Section 4
hereof.
Section 10. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, (b) the terms "assignment",
"interested person" and "majority of the outstanding voting securities" shall
have the respective meanings specified in the Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission, (c) the term "introducing broker" shall mean any broker or
dealer who is a member of the National Association of Securities Dealers, Inc.
and who is acting as an introducing broker pursuant to clearing agreements with
the Distributor; and (d) the term "participating broker" shall mean any broker
or dealer which is a member of the National Association of Securities Dealers,
Inc. and who has entered into a selling or dealer agreement with the
Distributor.
Section 11. This Plan has been adopted pursuant to Rule 12b-1 under the
Act and is designed to comply with all applicable requirements imposed under
such Rule. All Distribution Fees shall be deemed to have been paid under this
Plan and pursuant to clause (b) of such Rule.
Dated: June __, 1998
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<PAGE> 1
Exhibit 99.18
PUGET SOUND ALTERNATIVE INVESTMENT SERIES TRUST
Plan pursuant to Rule 18f-3(d) under the Investment Company Act of 1940
Effective ______________, 1998
WHEREAS, the Board of Trustees of Puget Sound Alternative Investment
Series Trust (the "Trust") has considered the following multi-class plan (the
"Plan") under which the Trust may offer multiple classes of shares of its now
existing and hereafter created series pursuant to Rule 18f-3 (the "Rule") under
the Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, a majority of the Trustees of the Trust and a majority of the
Trustees who are not interested persons of the Trust have found the Plan, as
proposed, to be in the best interests of each class of shares of each series of
the Trust individually and the Trust as a whole.
NOW, THEREFORE, the Trust hereby approves and adopts the following Plan
pursuant to the Rule.
THE PLAN
Each now existing and hereafter created series ("Fund")1 of the Trust
may from time to time issue one or more of the following classes of shares:
Institutional Shares and Investor Shares. Each class is subject to such
investment minimums and other conditions of eligibility as are set forth in the
Trust's prospectuses, each as from time to time in effect (each, a
"Prospectus"). The differences in expenses among these classes of shares, and
the exchange features of each class of shares, are set forth below in this Plan,
which is subject to change, to the extent permitted by law and by the Agreement
and Declaration of Trust and By-laws of the Trust, as amended from time to time,
by action of the Board of Trustees of the Trust. There are no conversion rights
or features relating to either Institutional Shares or Investor Shares. Nothing
in this Plan shall limit the authority of the Trustees to create additional
classes of shares of any Fund.
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1 Currently, the Trust only consists of the Puget Sound Market Neutral
Portfolio.
<PAGE> 2
CLASS CHARACTERISTICS
Institutional Shares and Investor Shares of a Fund represent interests
in the assets of such Fund. The classes differ materially only with respect to
the existence of a shareholder servicing fee (the "Shareholder Servicing Fee"),
a distribution fee (the "Distribution Fee") and an initial sales charge borne
exclusively by the Investor Shares. Shareholder Servicing Fees are paid pursuant
to Shareholder Servicing Agreement(s) between the Trust and appropriate
shareholder servicing agent(s) and under a related plan (the "Shareholder
Servicing Plan") relating to the Investor Shares adopted by the Trustees of the
Trust. Shareholder Servicing Fees, in the aggregate, will not exceed for any
Fund 0.25% of such Fund's average daily net assets attributable to Investor
Shares. Distribution Fees are paid in connection with services and expenses
primarily intended to result in the sale of shares pursuant to a Distribution
Agreement between the Trust and BISYS Fund Services, L.P., the Funds'
distributor (the "Distributor"), and under a separate plan (the "Distribution
Plan") for the Investor Shares adopted by the Trust pursuant to Rule 12b-1 under
the 1940 Act. Distribution Fees, in the aggregate, will not exceed for any Fund
0.50% of such Fund's average daily net assets attributable to Investor Shares.
EXPENSE ALLOCATIONS
Investor Shares pay Shareholder Servicing Fees and Distribution Fees,
while Institutional Shares do not pay any Shareholder Servicing Fees or
Distribution Fees. Each class may, at the Trustees' discretion, also pay a
different share of other expenses, not including advisory or custodial fees or
other expenses related to the management of the Trust's assets, if these
expenses are actually incurred in a different amount by that class, or if the
class receives services of a different kind or to a different degree than the
other classes ("Class Expenses"). All other expenses will be allocated to each
class on the basis of the net asset value of that class in relation to the net
asset value of a particular Fund attributable to that class.
EXCHANGE FEATURES
Shares of either class of a Fund may be exchanged only for shares of
the same class of another Fund, if any. There is no sales charge on exchanges.
In addition, although the Trust has no current intention of terminating or
modifying the exchange privilege, it reserves the right to do so at any time.
All exchanges will be made based on the respective net asset values next
determined following receipt of the request by the Funds in proper form.
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<PAGE> 3
VOTING RIGHTS
Each class of shares of each Fund has identical voting rights except
that each class has exclusive voting rights on any matter submitted to
shareholders that relates solely to that class, and has separate voting rights
on any matter submitted to shareholders in which the interests of one class
differ from the interests of any other class. In matters as to which one or more
classes do not have exclusive voting rights, all classes of shares of a Fund
will vote together, except when a class vote is required by the 1940 Act.
AMENDMENTS
The Plan may be amended from time to time in accordance with the
provisions and requirements of the Rule.
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<PAGE> 1
Exhibit 99.19
PUGET SOUND ALTERNATIVE INVESTMENT SERIES TRUST
Shareholder Servicing Plan (Investor Shares)
(Effective as of _______, 1998)
This Plan (the "Plan"), as amended from time to time, constitutes the
Shareholder Servicing Plan with respect to each series of shares of beneficial
interest containing Investor Shares heretofore or hereinafter organized (each a
"Fund," and collectively, the "Funds") of PUGET SOUND ALTERNATIVE INVESTMENT
SERIES TRUST, a Massachusetts business trust (the "Trust").
Section 1. The Trust, on behalf of the Investor Shares of each Fund,
will pay to BISYS Fund Services, L.P., an Ohio limited partnership, as the
shareholder servicing agent of the Investor Shares of the Funds, or such other
entity as shall from time to time act as the shareholder servicing agent of such
Investor Shares (the "Servicing Agent"), a fee (the "Shareholder Servicing Fee")
for services rendered and expenses borne by the Servicing Agent in connection
with the provision of certain services provided to Investor Share shareholders,
at an annual rate not to exceed 0.25% of a Fund's average daily net assets
attributable to Investor Shares. Such services may include (and are in addition
to any such general services provided to a Fund as a whole): (i) transfer agent
and sub-transfer agent services for beneficial owners of Investor Shares, (ii)
aggregating and processing purchase and redemption orders for Investor Share
shareholders, (iii) providing beneficial owners of Investor Shares who are not
record owners with statements showing their positions in the Fund, (iv)
processing dividend payments for Investor Shares, (v) providing sub-accounting
services for Investor Shares held beneficially, (vi) forwarding shareholder
communications, such as proxies, shareholder reports, dividend and tax notices,
and updating prospectuses to beneficial owners of Investor Shares who are not
record owners, (vii) receiving, tabulating and transmitting proxies executed by
beneficial owners of Investor Shares who are not record owners and (viii)
personal services provided to investors in Investor Shares and/or the
maintenance of shareholder accounts (collectively, the "Shareholder Services").
Subject to such limit and subject to the provisions of Section 6 hereof, the
Shareholder Servicing Fee shall be as approved from time to time by (a) the
Trustees of the Trust and (b) the Independent Trustees of the Trust. The
Shareholder Servicing Fee shall be computed and paid monthly or at such other
intervals as the Trustees shall determine. The Servicing Agent may pay all or
any portion of the Shareholder Servicing Fee to shareholder servicing agents or
other organizations (including, but not limited to, any affiliate of the
Servicing Agent) as shareholder servicing fees pursuant to agreements with such
organizations for providing all or any portion of the Shareholder Services, and
may retain all or any portion of the Shareholder Servicing Fee as compensation
for providing the Shareholder Services.
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<PAGE> 2
Section 2. This Plan shall not take effect until it has been approved
by votes of the majority of both (a) the Trustees of the Trust, and (b) the
Independent Trustees of the Trust.
Section 3. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Section 4. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees of the Trust.
Section 5. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Independent
Trustees of the Trust, on not more than 60 days' written notice
to any other party to the agreement; and
B. That such agreement shall terminate automatically in the event of
its assignment; provided, however, in the event of consolidation
or merger in which the Servicing Agent is not the surviving
corporation or which results in the acquisition of substantially
all the Servicing Agent's outstanding stock by a single person or
entity or by a group of persons and/or entities acting in
concert, or in the event of the sale or transfer of substantially
all the Servicing Agent's assets, the Servicing Agent may assign
any such agreement to such surviving entity, acquiring entity,
assignee or purchaser, as the case may be.
Section 6. This Plan may not be amended to increase materially the
amount of expenses permitted pursuant to Section 1 hereof without approval in
the manner provided for the continuation of this Plan in Section 2 hereof.
Section 7. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, all subject to such exemptions as may be
granted by the Securities and Exchange Commission.
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