As filed with the Securities and Exchange Commission on September 28, 1999
SECURITIES ACT FILE NO. 333-50315
INVESTMENT COMPANY ACT FILE NO. 811-8751
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post Effective Amendment No. 3
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 5
PUGET SOUND ALTERNATIVE INVESTMENT SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
One Yesler Building, Suite 200
Seattle, WA 98104
(Address of Principal Executive Offices)(Zip Code)
(206) 405-4100
(Registrant's Telephone Number, including Area Code)
Margaret M. Towle
Puget Sound Asset Management Co., LLC
One Yesler Building, Suite 200
Seattle, WA 98104
(Name and Address of Agent for Service)
Copy to:
John M. Loder, Esq.
Ropes & Gray
One International Place
Boston, MA 02110
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Amendment.
It is proposed that this filing will become effective (check appropriate box)
[X] Immediately upon filing pursuant to paragraph (b)
[ ] On _________________ pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On __________________ pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
As filed with the Securities and Exchange
Commission on September 28, 1999
Registration No. . 333-50315
File No. 811-8751
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Part A
of
Form N-1A
REGISTRATION STATEMENT
PUGET SOUND ALTERNATIVE INVESTMENT SERIES TRUST
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PUGET SOUND MARKET NEUTRAL PORTFOLIO,
A SERIES OF PUGET SOUND ALTERNATIVE INVESTMENT SERIES TRUST
Puget Sound Market Neutral Portfolio is a mutual fund that seeks long-term
capital appreciation while minimizing exposure to general equity market risk.
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES AND DOES NOT GUARANTEE THE ACCURACY OR
COMPLETENESS OF THIS PROSPECTUS. IT IS A CRIMINAL OFFENSE TO SUGGEST OTHERWISE.
The date of this Prospectus is September 28, 1999
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TABLE OF CONTENTS
AN OVERVIEW OF THE FUND..................................................... 3
FEES AND EXPENSES........................................................... 5
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES.................... 7
PRINCIPAL RISKS OF INVESTING IN THE FUND.................................... 10
MANAGEMENT OF THE FUND...................................................... 12
INSTITUTIONAL AND INVESTOR SHARES........................................... 14
HOW TO BUY SHARES........................................................... 14
HOW TO SELL SHARES.......................................................... 18
PRICING OF FUND SHARES...................................................... 20
DIVIDENDS AND DISTRIBUTIONS................................................. 21
TAX CONSEQUENCES............................................................ 21
RULE 12B-1 FEES............................................................. 22
FINANCIAL HIGHLIGHTS........................................................ 23
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AN OVERVIEW OF THE FUND
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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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THE FUND'S INVESTMENT GOAL
The Fund seeks long-term capital appreciation while minimizing exposure to
general equity market risk.
THE FUND'S PRINCIPAL INVESTMENT STRATEGIES
The Fund uses a "market neutral" investment strategy, designed to produce
returns that do not depend on the stock market's direction. Market neutral
investing means that the Fund simultaneously holds two diversified portfolios of
securities:
* a long portfolio of stocks identified by the Sub-Advisor(s) as undervalued;
and
* a short portfolio of stocks identified by the Sub-Advisor(s) as overvalued.
By taking long and short positions in stocks with similar characteristics, the
Sub-Advisor(s) attempts to cancel out the effect of general stock market
movements on the Fund's performance. The Sub-Advisor(s) determines the size of
each long or short position by analyzing the tradeoff between the attractiveness
of each position and its impact on the risk to the portfolio. Puget Sound Asset
Management Co., LLC, the Fund's Advisor, monitors and evaluates the efforts of
the Sub-Advisor(s) in pursuing the Fund's goal.
The Fund invests in common stocks that are traded on U.S. stock exchanges of any
market capitalization, from larger, well-established companies to smaller,
emerging growth companies.
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Plain English About
MAIN RISKS
This Prospectus describes the main 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.
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PRINCIPAL RISKS OF INVESTING IN THE FUND
As with all mutual funds, there is the risk that you could lose money on your
investment in the Fund. For example, the following risks could affect the value
of your investment:
+ Changes in market, economic, political and other conditions could hurt
stock performance
+ The Fund's shares may lose value as a result of selling borrowed securities
("selling short")
+ High portfolio turnover could result in more transaction costs for the Fund
and higher taxable gains for the Fund's shareholders
+ Securities of smaller and new companies involve greater risk than investing
in larger more established companies
+ Poor stock selection by the Sub-Advisor(s).
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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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WHO SHOULD CONSIDER INVESTING IN THE FUND
The Fund may be appropriate for you if:
* You are pursuing a long-term goal
* You are interested in adding a non-traditional investment strategy to
your current mix of stock, bond and money market funds
* You are seeking a fund that offers the potential for long-term capital
growth with minimal exposure to general equity market risk
* You understand and can bear the risks of investing in a fund that uses
a long/short equity strategy.
The Fund may not be appropriate for you if:
* You need regular income or stability of principal
* You are pursuing a short-term goal or investing emergency reserves.
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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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PERFORMANCE
The Fund's performance is variable and how it has performed in the past is not
necessarily an indication of how it will perform in the future. Since the Fund
had less than a full calendar year of performance as of December 31, 1998, this
Prospectus does not include a bar chart showing annual total returns or a table
showing average annual total returns, as compared against an appropriate
broad-based securities market index.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Institutional Investor
Shares Shares
------ ------
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(AS A PERCENTAGE OF OFFERING PRICE)(1)................ None 3.00%
Maximum deferred sales charge (load)
(AS A PERCENTAGE OF THE LOWER ORIGINAL PURCHASE
PRICE OR REDEMPTION PROCEEDS)......................... None None
Maximum sales charge (load) imposed on reinvested
dividends............................................. None None
Redemption Fees (AS A % OF AMOUNT REDEEMED, IF
APPLICABLE)(2)........................................ 1.00% 1.00%
- ----------
(1) A reduced sales charge on Investor Shares applies in some cases.
(2) A contingent redemption fee of 1.00% is imposed on redemptions of Fund
shares held for six months or less from the time of purchase. See "How to
Sell Shares - Contingent Redemption Fee." Redemptions by wire transfer are
subject to a wire fee (currently $9.00) that is deducted from the
redemption proceeds.
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ANNUAL FUND OPERATING EXPENSES(1)
(expenses that are deducted from Fund assets)
Institutional Investor
Shares Shares
------ ------
Management Fees...................................... 2.00% 2.00%
Distribution (12b-1) Fees(2)......................... None 0.50%
Other Expenses(3).................................... 1.70% 1.95%
Total Annual Fund Operating Expenses(3).............. 3.70% 4.45%
Fee Reduction and/or Expense Reimbursement(1)........ (1.33%) (1.58%)
Net Expenses(3)...................................... 2.37% 2.87%
- ----------
1. The Advisor has contractually agreed to reduce its fees and/or pay expenses
for the Fund's classes of shares, in order to limit such classes' expenses
(excluding brokerage costs, interest, taxes, dividends payable with respect
to securities sold short and extraordinary expenses) to the percentages of
net assets shown above, subject to later reimbursement by the Fund in
certain circumstances. See "Management of the Fund - Fund Expenses" below.
This contract has a term ending on September 30, 2000 and is renewable from
year to year thereafter.
2. Although the table discloses a 0.50% 12b-1 fee, the Trust's distributor has
waived some of the fees it is to receive so that the Trust only pays 12b-1
fees at an annual rate of 0.25% of the average daily net assets of the
Investor Shares. 12b-1 fees cause long-term Investor Class shareholders to
pay more than would be permitted if such fees were a front-end sales
charge.
3. Other Expenses, Total Annual Fund Operating Expenses and Net Expenses do
not include dividend expenses incurred in connection with short sales,
which are included in and reduce the investment return of the Fund.
Dividend expenses were 0.88% for Institutional Shares and 0.70% for
Investor Shares for the Fund's last fiscal year.
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EXAMPLE
This Example is intended to help you compare the costs of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
Institutional
Shares Investor Shares
------ ---------------
One Year* $ 240 $ 581
Three Years $1,000 $1,454
Five Years $1,779 $2,336
Ten Years $3,818 $4,585
* For redemptions of Fund shares held for six months or less from the time of
purchase, a contingent redemption fee of 1.00% is imposed. See "How to Sell
Shares - Contingent Redemption Fee" below.
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
The objective of the Fund is to seek long-term capital appreciation while
minimizing exposure to general equity market risk. This objective may be changed
without shareholder approval.
In an attempt to minimize the risk associated with investing in equity
securities, the Sub-Advisor(s) uses a "market neutral" investment strategy.
Market neutral investing means that the Fund simultaneously holds two
diversified portfolios of securities: a long portfolio of stocks identified by
the Sub-Advisor(s) as undervalued and a short portfolio of stocks identified by
the Sub-Advisor(s) as overvalued. By taking long and short positions in stocks
with similar characteristics, the Fund attempts to produce returns that do not
depend on the stock market's direction.
The Sub-Advisor(s) 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 to the portfolio. The Sub-Advisor(s) seeks to construct a
diversified portfolio containing both long and short positions that have minimal
net exposure to the domestic equity market. The Sub-Advisor(s) selects long and
short positions with matching risk characteristics within specific
capitalization ranges and certain other risk factors. In general, the
Sub-Advisor(s) attempts to buy highly liquid stocks for the Fund. Highly liquid
stocks are those that trade with great frequency.
The Fund invests in common stocks of domestic companies of any market
capitalization, from larger, well-established companies to smaller, emerging
growth companies. 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. The current Sub-Advisor screens a large universe of stocks to
find the 1,000 most liquid common stocks that are publicly traded in the United
States. In order to achieve its principal investment strategies, the Fund may
engage in active and frequent trading of portfolio securities. For a more
detailed description of such trading and the risks associated therewith see
"Principal Risks of Investing in the Fund - Portfolio Turnover Risk" below.
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Plain English About
SHORT SELLING
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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SHORT SELLING
The securities in the Fund's short portfolio are "sold short." Selling
short is selling a security that the Fund does not own. The Fund borrows the
security from a broker, then immediately sells it. Later, the Fund repurchases
the security and delivers it to the broker as repayment for the borrowed shares.
Short sales are made when the Sub-Advisor(s) anticipates a relative decline in
the price of a security held long. If the price of the stock goes down between
the time the Fund borrowed the stocks and repurchased them, the Fund will make
money. However, if the price of the stock goes up between the time the Fund
borrowed the stocks and repurchased them, the Fund will lose money. Successful
short selling requires a great deal of experience, diligence and attention.
VOLATILITY
Part of the Fund's goal is to minimize exposure to volatility of total
returns. Volatility is normally extremely high for a diversified portfolio of
common stocks when measured over short periods. Creating a long portfolio of
attractive stocks and a short portfolio of unattractive stocks has the potential
to reduce the risk of volatility in the value of the Fund's shares. 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 ("S&P 500 Index"). The S&P 500
Index is a widely recognized unmanaged index of U.S. and is widely used measure
of the performance of the U.S. stock market. Note that the returns shown for the
Index do not include the fees and expenses that a managed portfolio would
normally incur.
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Plain English About
VOLATILITY
One of the most common measures 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, even if it shows a gain over the longer term.
One way to try to reduce volatility risk 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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S&P 500 INDEX AVERAGE ANNUAL RETURNS (1928-1998)
1 Year 5 Years 10 Years 20 Years
------ ------- -------- --------
Best 54.0 24.1 20.1 17.7
Worst (43.3) (12.5) (0.9) 3.1
Average 12.7 11.0 11.1 11.2
The table covers all the 1-, 5-, 10- and 20-year periods from 1928 through 1998.
For example, while the average annual return on stocks for all the 5-year
periods was 11.0%, average annual returns for the 5-year periods ranged from
- -12.5% (from 1927 through 1932), to 24.1% (from 1993 through 1998). These
average returns reflect past performance of the stocks that were then included
in the S&P 500 Index and should not be regarded as an indication of future
returns from either the stock market as a whole or the Fund in particular.
Under normal market conditions, the Fund will be at least 90% invested in
stocks. However, the Fund may temporarily depart from its principal investment
strategies by making short-term investments in cash equivalents in response to
adverse market, economic, political or other conditions. Making such investments
may result in the Fund not achieving its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The principal risks of investing in the Fund that may adversely affect the
Fund's net asset value or total return are discussed above in "An Overview of
the Fund - Principal Risks of Investing in the Fund." These risks are discussed
in more detail below.
INVESTMENT RISK. 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 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.
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SHORT SALE RISK. The Fund's 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. Although the Fund's gain is limited to
the amount for which it sold the borrowed security, its potential loss is
unlimited. A mutual fund that engages in short selling is more risky than other
equity mutual funds.
PORTFOLIO TURNOVER RISK. In general, the current Sub-Advisor 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 market, economic,
political or other conditions. Although the rate of portfolio turnover is
difficult to predict, under normal circumstances the Fund expects an annual
portfolio turnover rate of each of the long and short portfolios not to exceed
350%. This expected aggregate annual portfolio turnover rate of 700% for the
Fund is higher than the portfolio turnover rate for many other mutual funds. A
high portfolio turnover rate has the potential to increase the taxes payable by
the Fund's shareholders. A high portfolio turnover rate may also lead to higher
transaction costs, which could negatively affect the Fund's performance.
EQUITY SECURITIES. In general, equity securities are more volatile than
fixed-income securities. The prices of equity securities will rise and fall in
response to events that affect entire financial markets or industries (changes
in inflation or consumer demand, for example) and to events that affect
particular companies (news about the success or failure of a new product, for
example.)
GROWTH STOCKS AND VALUE STOCKS. The prices of growth stocks may be more
sensitive to changes in current or expected earnings than the prices of other
stocks. The price of value stocks may fall, or simply may not increase very
much, if the market does not agree with the Sub-Advisor's view of the value of
the stock.
MARKET CAPITALIZATION. The stocks of large capitalization companies do not
always have as much growth potential as smaller and medium capitalization
issuers.
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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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SMALLER COMPANIES RISK. Investments in smaller companies can be speculative
and volatile and involve greater risks than are customarily associated with
larger companies. Many small companies are more vulnerable than larger companies
to adverse business or economic developments. They may have limited product
lines, markets or financial resources. New and improved products or methods of
development may have a substantial impact on the earnings and revenues of such
companies. Any such positive or negative developments could have a corresponding
positive or negative impact on the value of their shares.
YEAR 2000 RISK. The Fund could be adversely affected if the computer
systems used by the Advisor or Sub-Advisor(s) and other service providers, or by
companies in which the Fund invests, do not properly process and calculate
information related to dates beginning January 1, 2000. This is commonly known
as the "Year 2000 Problem." This situation may negatively affect the companies
in which the Fund invests and, by extension, the value of the Fund's shares. The
Fund's service providers are taking steps to address their Year 2000 risk
issues, but there may still be some risk of adverse effects.
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Plain English About
THE FUND'S SUB-ADVISOR
Fiduciary Asset Management Co. ("FAMCO") provides investment advisory services
to institutional clients. As of June 30, 1999, FAMCO managed over $4 billion in
assets. The individual who manages the Fund is John L. Dorian, Chief Investment
Officer-Equities of FAMCO. Mr. Dorian has 18 years experience managing
investment portfolios and 11 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.
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MANAGEMENT OF THE FUND
THE ADVISOR
Puget Sound Asset Management Co., LLC, organized in 1998, is the Advisor to
the Fund. The Advisor's address is One Yesler Building, Suite 200, Seattle,
Washington 98104. The Advisor oversees the management of the Fund's investments
by the Sub-Advisor(s). The Advisor monitors and evaluates the Sub-Advisor(s) to
help assure that the Sub-Advisor(s) is managing the Fund consistently with the
Fund's investment objectives, goals and restrictions and applicable laws and
guidelines. The Advisor does not, however, determine what investments will be
purchased or sold for the Fund. For its services the Fund pays the Advisor a
management fee based upon the Fund's average daily net assets at the rate of
2.00% annually, subject to reduction as described under "Management of the Fund
- -- Fund Expenses" below.
THE SUB-ADVISOR
Fiduciary Asset Management Co., organized in 1994, is the current
Sub-Advisor to the Fund. The Sub-Advisor's address is 8112 Maryland Avenue,
Suite 310, Clayton, MO. The Sub-Advisor is responsible for managing the Fund's
investments. The Sub-Advisor currently manages assets of approximately $4
billion for institutional clients. For its services the Advisor pays the
Sub-Advisor a management fee based upon the Fund's average daily net assets at
the rate of 1.50% annually.
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PORTFOLIO MANAGER
John L. Dorian is responsible for the day-to-day management of the Fund and
has been so since the Fund's inception. Mr. Dorian has served as Chief
Investment Officer-Equities of the Sub-Advisor since April 1995. From April 1990
to April 1995, Mr. Dorian was a Managing Director-Equity Portfolio Manager at
First Quadrant Corp. Mr. Dorian has 18 years experience managing investment
portfolios and 11 years experience managing assets using a market neutral
strategy.
FUND EXPENSES
The Advisor has contractually agreed to reduce its advisory fees and pay
other Fund expenses to the extent necessary to limit total operating expenses of
the Fund's classes (exclusive of brokerage costs, interest, taxes, dividends
payable with respect to securities sold short and extraordinary expenses) to the
annual rate of 2.37% of the average daily net assets of the Fund's Institutional
Shares and 2.87% of the average daily net assets of the Fund's Investor Shares.
Each class is obligated to pay the Advisor such class's deferred amount in
future years, if any, when such class's expenses (exclusive of brokerage costs,
interest, taxes, dividends payable with respect to securities sold short and
extraordinary expenses) fall below the stated percentage rate for such class,
but only to the extent that such payment would not cause such class's expenses
(exclusive of brokerage costs, interest, taxes, dividends payable with respect
to securities sold short and extraordinary expenses) in any such future year to
exceed the stated percentage rate for such class, and provided that such class
is not obligated to pay the deferred amount more than five years after the end
of the fiscal year in which they were incurred.
ADDITIONAL SUB-ADVISORS, ETC.
Puget Sound Alternative Investment Series Trust (the "Trust") has applied
for an exemptive order from the SEC to permit the Advisor, subject to the
approval of the Trust's Board of Trustees and certain other conditions, to enter
into sub-advisory agreements with Sub-Advisors other than the current
Sub-Advisor of the Fund without obtaining shareholder approval. The exemptive
request also seeks to permit, without obtaining shareholder approval, the terms
of an existing sub-advisory agreement to be changed or the employment of the
existing Sub-Advisor 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 current Sub-Advisor of the Fund is
changed or a new Sub-Advisor is added.
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Once the Fund has multiple Sub-Advisors, the Advisor will monitor and
evaluate each Sub-Advisor to help assure that it is managing its segment of the
Fund consistently with the Fund's investment objective and restrictions and
applicable laws and guidelines. Each Sub-Advisor will manage its segment of the
Fund independently from the others. Consequently, the same security may be held
in the long portfolio or sold short in the short portfolio of two different
segments of the Fund or may be acquired for the long portfolio or sold short in
the short portfolio of one segment of the Fund at a time when the Sub-Advisor of
another segment of the Fund deems it appropriate to dispose of the security from
the long portfolio or close the short position in such security in the short
portfolio of such other segment. The same security may also be held in the long
portfolio of one segment of the Fund and sold short in the short portfolio of
another segment of the Fund. Because each Sub-Advisor will direct the trading
for its own segment of the Fund, and will not aggregate its transactions with
those of the other Sub-Advisor(s), the Fund may incur higher brokerage costs
than would be the case if a single advisor or sub-advisor were managing the
entire Fund.
INSTITUTIONAL AND INVESTOR SHARES
The Fund offers two classes of shares to investors. The two classes of
shares are Institutional Shares and Investor Shares. While each class invests in
the same portfolio of securities, the classes have separate sales charges,
distribution and shareholder servicing fee structures and different investment
minimums. Both classes are subject to a contingent redemption fee. Because of
the different expense structures, each class of shares generally will have
different net asset values and dividends.
HOW TO BUY SHARES
The Fund can reject any purchase request, including those regarded as
disruptive to management of the Fund's portfolio. The Fund also may stop
offering shares or change the terms of the offering of its shares at any time.
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. At the discretion of the Advisor, certain other entities
may be permitted to purchase Institutional Shares. Institutional Shares are sold
without any initial or deferred sales charges and therefore are offered to the
public at net asset value and are not subject to any ongoing distribution
expenses or shareholder servicing fees. You may open an Institutional Shares
account with at least $1 million and add to your account at any time with
$10,000 or more. The minimum investment requirements may be waived from time to
time by the Advisor.
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INVESTOR SHARES. Investor shares may be purchased by individuals, financial
institutions, other financial intermediaries and certain individual retirement
accounts. You may open an Investor Shares account with at least $2,500 and add
to your account at any time with $250 or more. You may open an Investor Shares
retirement plan account or an Investor Shares custodial account for minors with
at least $1,000 and add to your account at any time with $250 or more. After you
have opened your Investor Shares account, you may make subsequent monthly
investments with $50 or more through the Automatic Investment Plan. The minimum
investment requirements may be waived from time to time by the Advisor.
The public offering price of Investor Shares is the net asset value of such
class of shares plus a front-end sales charge. The sales charge declines with
the size of your purchase, as shown below:
AS A % OF AS A % OF YOUR
INVESTMENT OFFERING PRICE INVESTMENT
---------- -------------- ----------
Up to $100,000 3.00 3.09
$100,000 but less than $250,000 2.50 2.56
$250,000 but less than $500,000 2.00 2.04
$500,000 but less than $1,000,000 1.00 1.01
$1,000,000 or more 0.00 0.00
You may qualify for a reduced sales charge on the purchase of Investor
Shares under certain circumstances, such as for amounts redeemed from other
mutual funds, in connection with your execution of a letter of intent acceptable
to the Fund and pursuant to rights of accumulation. Also, certain financial
intermediary firms, retirement plans and institutions, as well as persons
affiliated with the Advisor and other Fund officials and Fund agents may be
eligible to purchase Investor Shares at net asset value. For more information,
please call toll free: 1-877-77-PUGET (1-877-777-8438).
Investor Shares are also subject to an annual distribution fee of up to
0.50% (currently this fee has been voluntarily reduced by the Distributor to an
annual fee of 0.25%) of the average daily net assets attributable to Investor
Shares and an annual shareholder servicing fee of up to 0.25% of the average
daily net assets attributable to Investor Shares.
INITIAL AND SUBSEQUENT PURCHASES
Your initial and any subsequent purchases of Fund shares may be made by
check or wire. All purchases by check must be in U.S. dollars. Third party
checks and cash will not be accepted. A charge may be imposed if your check does
15
<PAGE>
not clear. YOU MUST BE SURE TO SPECIFY WHICH CLASS OF SHARES YOUR ARE PURCHASING
WHEN YOU PLACE YOUR PURCHASE ORDER. The Fund will not issue share certificates.
The Fund reserves the right to reject any purchase in whole or in part. Although
it does not anticipate that it will do so, the Fund reserves the right to
suspend or change the terms of the offering of its shares.
BY CHECK
If you are making an initial investment in the Fund, simply complete the
Application Form and mail it with a check (made payable to "Puget Sound Market
Neutral Portfolio") to:
Puget Sound Market Neutral Portfolio
c/o National Financial Data Services
P.O. Box 219407
Kansas City, MO 64121-9407
If you wish to send your Application Form and check via an overnight
delivery service (such as FedEx), delivery cannot be made to a post office box.
In that case, you should use the following address:
Puget Sound Market Neutral Portfolio
c/o National Financial Data Services
330 West 9th Street
Kansas City MO 64105
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.
If you are making a subsequent purchase, a stub is attached to the account
statement you will receive after each transaction. Detach the stub from the
statement and mail it together with a check made payable to "Puget Sound Market
Neutral Portfolio" to the Transfer Agent, National Financial Data Services, 330
West 9th Street, Kansas City, MO 64105. Your account number should be written on
the check.
BY WIRE
Initial and 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 moneys
should be wired and other pertinent information.
16
<PAGE>
BROKERS AND AGENTS
You may buy and sell shares of the Fund through certain brokers (and their
agents) that have made arrangements with the Fund to sell its shares. When you
place your order with such a broker or its authorized agent, your order is
treated as if you had placed it directly with the Fund's Transfer Agent, and you
will pay or receive the next price calculated by the Fund after your order is
received by such broker or other authorized agent in proper form. The broker (or
agent) holds your shares in an omnibus account in the broker's (or agent's)
name, and the broker (or agent) maintains your individual ownership records. The
Fund or the Advisor may pay the broker (or its agent) for maintaining these
records as well as providing other shareholder services. The broker (or its
agent) may charge you a fee for handling your order. The broker (or agent) is
responsible for processing your order correctly and promptly, keeping you
advised regarding the status of your individual account, confirming your
transactions and ensuring that you receive copies of the Fund's prospectus.
AUTOMATIC INVESTMENT PLAN
For your convenience, the Fund offers an Automatic Investment Plan for the
Investor Shares. Under this Plan, after your initial investment, you authorize
the Fund to withdraw from your personal checking account each month an amount
that you wish to invest, which must be at least $50. If you wish to enroll in
this Plan, complete the appropriate section in the Account Application. The Fund
may terminate or modify this privilege at any time. You may terminate your
participation in the Plan at any time by notifying the Transfer Agent.
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.
17
<PAGE>
HOW TO SELL SHARES
You may sell (redeem) your Fund shares on any day the Fund and the NYSE are
open for business either directly to the Fund or through your investment
representative.
You may redeem your shares by simply sending a written request to the
Transfer Agent. You should give the name of the Fund, your account number and
state whether you want all or some of your shares redeemed. The letter should be
signed by all of the shareholders whose names appear in the account
registration. You should send your redemption request to:
Puget Sound Market Neutral Portfolio
c/o National Financial Data Services
P.O. Box 219407
Kansas City, MO 64121-9407
To protect the Fund and its shareholders, 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 owners, or be sent to an address other than your
address of record, a signature guarantee is required. Signature(s) on such
redemption requests must be guaranteed by an "eligible guarantor institution."
These include banks, broker-dealers, credit unions and savings institutions. A
broker-dealer guaranteeing signatures must be a member of a clearing corporation
or maintain net capital of at least $100,000. Credit unions must be authorized
to issue signature guarantees. Signature guarantees will be accepted from any
eligible guarantor institution which participates in a signature guarantee
program. A notary public is not an acceptable guarantor.
If you complete the Redemption by Telephone portion of the Account
Application, you may redeem all or some of your shares by calling the Transfer
Agent toll free: 1-877-77-PUGET (1-877-777-8438) before the close of trading on
the NYSE. This is normally 4:00 p.m., Eastern time. All orders received after
the close of trading will be processed with the next day's net asset value.
Redemption proceeds will be mailed on the next business day to the address that
appears on the Transfer Agent's records. If you request, redemption proceeds
will be wired on the next business day to the bank account you designated on the
Account Application. The minimum amount that may be wired is $1,000. Wire
charges, if any, will be deducted from your redemption proceeds. Telephone
redemptions cannot be made if you notify the Transfer Agent of a change of
address within 30 days before the redemption request. If you have a retirement
account, you may not redeem shares by telephone.
18
<PAGE>
When you establish telephone privileges, you are authorizing the Fund and
the Transfer Agent to act upon the telephone instructions of the person or
persons you have designated in your Account Application. Redemption proceeds
will be transferred to the bank account you have designated on your Account
Application.
Before executing an instruction received by telephone, the Fund and the
Transfer Agent will use reasonable procedures to confirm that the telephone
instructions are genuine. These procedures will include recording the telephone
call and asking the caller for a form of personal identification. If the Fund
and the Transfer Agent follow these reasonable procedures, they will not be
liable for any loss, expense, or cost arising out of any telephone redemption
request that is reasonably believed to be genuine. This includes any fraudulent
or unauthorized request. The Fund may change, modify or terminate these
privileges at any time upon at least 60 days' notice to shareholders.
You may request telephone redemption privileges after your account is
opened by calling the Transfer Agent toll free: 1-877-77-PUGET (1-877-777-8438)
for instructions.
You may have difficulties in making a telephone exchange or redemption
during periods of abnormal market activity. If this occurs, you may make your
exchange or redemption request in writing.
Payment of your redemption proceeds will be made promptly, but not later
than seven days after the receipt of your written request in proper form. If you
made your initial investment by wire, payment of your redemption proceeds for
those shares will not be made until one business day after your completed
Account Application is received by the Fund. If you did not purchase your shares
with a certified check or wire, the Fund may delay payment of your redemption
proceeds for up to 10 days from date of purchase or until your check has
cleared, whichever occurs first.
The Fund may redeem the shares in your account if the value of your account
is less than $2,500 as a result of redemptions you have made. This does not
apply to retirement plan or Uniform Gifts or Transfers to Minors Act accounts.
You will be notified that the value of your account is less than $2,500 before
the Fund makes an involuntary redemption. You will then have 60 days in which to
make an additional investment to bring the value of your account to at least
$2,500 before the Fund takes any action.
Subject to certain limitations imposed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund has the right to pay redemption proceeds to you in
whole or in part by a distribution of securities from the Fund's portfolio. It
is not expected that the Fund would do so except in unusual circumstances.
19
<PAGE>
SYSTEMATIC WITHDRAWAL PLAN
As another convenience, you may redeem your Fund shares through the
Systematic Withdrawal Plan. If you elect this method of redemption, the Fund
will send you or any person you designate a check in the minimum amount of $100.
You may choose to receive a check each month or on a calendar quarterly,
semi-annual and annual basis. Your Fund account must have a value of at least
$5,000 in order to participate in this Plan. This Plan may be terminated at any
time by the Fund. You may also elect to terminate your participation in this
Plan at any time by notifying the Transfer Agent.
A withdrawal under the Plan involves a redemption of shares and may result
in a gain or loss for federal income tax purposes. In addition, if the amount
withdrawn exceeds the dividends credited to your account, the account ultimately
may be depleted.
CONTINGENT REDEMPTION FEE
The Fund is intended for long-term investors. Short-term "market timers"
who engage in frequent purchases and redemptions can disrupt the Fund's
investment program and create additional transaction costs that are borne by all
shareholders. For these reasons, the Fund assesses a redemption fee in the
amount of 1.00% on redemptions of Fund shares held for 180 days or less from the
time of purchase.
The contingent redemption fee will be paid to the Fund to help offset
brokerage and other Fund costs associated with redemptions. The Fund will use
the "First-in, First-out" (FIFO) method to determine the holding period of an
investor's shares. Under the method, the date of the redemption will be compared
with the earliest purchase date of Fund shares held in the account. If this
holding period is six months or less, the contingent redemption fee will be
assessed. Redemption fees are not sales loads or contingent deferred sales
loads.
The contingent redemption fee does not apply to any shares purchased
through the reinvestment of dividends.
PRICING OF FUND SHARES
For each class of the Fund, the price of its shares is based on the class's
net asset value ("NAV"). The NAV per share of a class equals the total value of
the assets allocable to the class, minus the class's liabilities, divided by the
number of the class's outstanding shares. Excluding any transaction-based or
20
<PAGE>
other fee charged by your broker-dealer, the price you will pay to buy
Institutional or Investor shares of Fund is the NAV of such class of shares next
calculated after your order is received by the Transfer Agent or an authorized
broker-dealer of the Fund or any such broker-dealer's authorized designee with
complete information and meeting all the requirements discussed in this
Prospectus, plus any applicable sales charge. Excluding any transaction-based or
other fees charged by your broker-dealer, the amount you will receive when you
sell your Institutional or Investor shares of the Fund is the NAV of such class
of shares next calculated after your order is received by the Transfer Agent or
an authorized broker-dealer of the Fund or any such broker-dealer's authorized
designee with complete information and meeting all of the requirements discussed
in this Prospectus, minus any applicable redemption fee.
The NAV of each class of shares is determined as of the close of regular
trading on the NYSE. This is normally 4:00 p.m., Eastern time. Fund shares will
not be priced on days that the NYSE is closed for trading (including certain
U.S. holidays).
In valuing the Fund's assets for calculating NAV, readily marketable
portfolio securities listed on a national securities exchange or on NASDAQ are
valued at the last sale price on the business day as of which such value is
being determined. If there has been no sale on such exchange or on NASDAQ on
such day, the security is valued at the closing bid price on such day. Readily
marketable securities traded only in the over-the-counter market and not on
NADAQ are valued at the current or last bid price. If no bid is quoted on such
day, the security is valued by such method as the Board of Trustees of the Trust
shall determine in good faith to reflect the security's fair value. All other
assets of the Fund are valued in such manner as the Board of Trustees in good
faith deems appropriate to reflect their fair value.
DIVIDENDS AND DISTRIBUTIONS
The Fund will make distributions of dividends and capital gains, if any, at
least annually, typically after year end. The Fund will make another
distribution of any additional undistributed capital gains earned during the
12-month period ended October 31 on or about December 31. All distributions will
be reinvested in shares of the Fund unless you request in writing to receive
your distributions in cash.
TAX CONSEQUENCES
The Fund intends to make distributions of dividends and capital gains.
Dividends are taxable to you as ordinary income. The rate you pay on capital
gain distributions will depend on how long the Fund held the securities that
generated the gains, not on how long you owned your Fund shares. You will be
taxed in the same manner whether you receive your dividends and capital gain
distributions in cash or reinvest them in additional Fund shares.
21
<PAGE>
If you sell your Fund shares, it is considered a taxable event for you even
if you purchase shares of another fund. Depending on the purchase price and the
sale price of the shares you sell, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transaction.
RULE 12b-1 FEES
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Under the Plan, the Fund is authorized to pay
the principal distributor of the Fund's shares a fee for the sale and
distribution of Investor Shares. The maximum annual amount of the fee authorized
is 0.50% of the Fund's average daily net assets attributable to Investor Shares.
The principal distributor of the Fund's shares has voluntarily agreed to reduce
the fee it collects under the Plan to an annual rate of 0.25% of the Fund's
average daily net assets attributable to Investor Shares. Because these fees are
paid out of the Fund's assets on an on-going basis, over time these fees will
increase the cost of your investment in Investor Shares and may cost you more
than paying other types of sales charges.
In addition, the Fund has adopted a Shareholder Servicing Plan with respect
to Investor Shares. Under the Plan, the Fund is authorized to pay an
intermediary or agent ("Servicing Agent") an annual fee up to 0.25% of the
Fund's average daily net asset attributable to Investor Shares. Payments are
made to Servicing Agents for certain additional services they provide to
Investor Shares' shareholders.
22
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance for the past year. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned, or lost, on an investment
in the Fund, assuming reinvestment of all dividends and distributions. This
information has been audited by Deloitte & Touche LLP, independent Certified
Public Accountants, whose report, along with the Fund's financial statements,
are included in the Fund's annual report, which is available upon request.
<TABLE>
<CAPTION>
INSTITUTIONAL INVESTOR
--------------- ---------------
FOR THE PERIOD FOR THE PERIOD
ENDED ENDED
MAY 31, 1999(a) MAY 31, 1999(a)
--------------- ---------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.00
------ ------
Net investment income 0.18 0.16
Net realized and unrealized loss (0.73) (0.74)
------ ------
Total income from investment operations (0.55) (0.58)
------ ------
LESS DISTRIBUTIONS FROM:
Net investment income (0.04) (0.04)
In excess of realized gains (0.26) (0.26)
------ ------
Total distributions (0.30) (0.30)
------ ------
Net change in net asset value per share (0.85) (0.88)
------ ------
NET ASSET VALUE, END OF PERIOD $ 9.15 $ 9.12
====== ======
TOTAL RETURN (EXCLUDING SALES CHARGE) (5.76%)(b) (6.07%)(b)
RATIOS TO AVERAGE NET ASSETS, AND SUPPLEMENTAL DATA:
Net assets at end of period (000) $20,959 $8,654
Net expenses (excluding dividend expense) 2.17% (c) 2.67% (c)
Net expenses (including dividend expense) 3.05% (c) 3.37% (c)
Gross expense* (excluding dividend expense) 3.71% (c) 4.45% (c)
Gross expense* (including dividend expense) 4.58% (c) 5.16% (c)
Net Investment Income (including dividend expense) 2.57% (c) 2.07% (c)
PORTFOLIO TURNOVER RATE (D) 630.18% (d) 630.18% (d)
</TABLE>
- ----------
* During the period, certain fees were reduced and/or reimbursed. If such fee
reductions and/or reimbursements had not occurred, the ratio would have
been as indicated.
(a) Commencement of operations was June 29, 1998.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares. Percentage indicated
represents only the long transactions. ( i.e., excludes short sales).
23
<PAGE>
PUGET SOUND MARKET NEUTRAL PORTFOLIO,
A SERIES OF PUGET SOUND ALTERNATIVE INVESTMENT SERIES TRUST
For investors who want more information about the Fund, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Fund's investments
is available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year. The auditor's report and financial statements
included in the Fund's most recent annual report are incorporated by reference
into this Prospectus, which means that they are legally part of this Prospectus.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund and is incorporated by reference into this
Prospectus.
You can get free copies of the Fund's annual and semi-annual reports and the
SAI, request other information and discuss your questions about the Fund by
contacting the Fund at:
Puget Sound Alternative Investment Series Trust
One Yesler Building, Suite 200
Seattle, WA 98104
Telephone: 1-800-877-77-PUGET
You can review and copy information about the Fund, including the Fund's reports
and SAI, at the Public Reference Room of the Securities and Exchange Commission
in Washington, D.C. You can obtain information on the operation of the Public
Reference Room by calling 1-800-SEC-0330. You can get copies of such
information:
* For a fee, by writing to the Public Reference Room of the Commission,
Washington, DC 20549-6009, or
* For a fee, by calling 1-800-SEC-0330, or
* Free of charge from the Commission's Internet website at
http://www.sec.gov.
(The Trust's SEC Investment Company Act
file number is 811-8751)
24
<PAGE>
As filed with the Securities and Exchange
Commission on September 28, 1999
Registration No. . 333-50315
File No. 811-8751
Part B
of
Form N-1A
REGISTRATION STATEMENT
PUGET SOUND ALTERNATIVE INVESTMENT SERIES TRUST
================================================================================
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 28, 1999
PUGET SOUND MARKET NEUTRAL PORTFOLIO
A SERIES OF
PUGET SOUND ALTERNATIVE INVESTMENT SERIES TRUST
ONE YESLER BUILDING, SUITE 200
SEATTLE, WA 98104
(877) 77-PUGET
(877) 777-8438
This Statement of Additional Information ("SAI") is not a prospectus and it
should be read in conjunction with the Prospectus of the Puget Sound Market
Neutral Portfolio (the "Fund"). Certain disclosure has been incorporated by
reference from the Trust's Annual Report. Puget Sound Asset Management Co., LLC
(the "advisor") is the advisor to the Fund. Fiduciary Asset Management Co. (the
"Sub-Advisor"), is the sub-advisor to the Fund. Free copies of the Fund's
Prospectus dated September 28, 1999 and Annual Report are available by calling
the telephone numbers listed above.
TABLE OF CONTENTS
The Trust................................................................. B-2
Investment Objective and Policies......................................... B-2
Investment Restrictions................................................... B-7
Distributions and Tax Information......................................... B-9
Trustees and Executive Officers........................................... B-12
The Fund's Investment Advisor............................................. B-14
The Fund's Administrator.................................................. B-17
Fund Accountant........................................................... B-18
The Fund's Distributor.................................................... B-18
Execution of Portfolio Transactions....................................... B-20
Portfolio Turnover ...................................................... B-21
Additional Purchase And Redemption Information............................ B-22
Determination of Share Price.............................................. B-27
Performance Information................................................... B-28
General Information....................................................... B-29
Financial Statements...................................................... B-32
Appendix A - Commercial Paper Rating ..................................... B-34
Appendix B - Publication That May Contain Fund Information ............... B-35
Appendix C - Advertising And Promotional Literature ...................... B-37
B-1
<PAGE>
THE TRUST
Puget Sound Alternative Investment Series Trust (the "Trust") is an
open-end, management investment company organized on April 14, 1998 as a
Massachusetts business trust. The Trust may consist of various series which
represent separate investment portfolios. Currently, the Trust only has one
series, Puget Sound Market Neutral Portfolio.
The Trust is registered with the SEC as a management investment company.
Such a registration does not involve supervision of the management or the
policies of the Fund. The Prospectus of the Fund and this SAI omit certain of
the information contained in the Registration Statement filed with the SEC.
Copies of such information may be obtained from the SEC upon payment of the
prescribed fee.
INVESTMENT OBJECTIVE AND POLICIES
Puget Sound Market Neutral Portfolio is a mutual fund with the investment
objective of seeking long-term capital appreciation while minimizing exposure to
general equity market risk. The Fund is diversified, which under applicable
federal law means that as to 75% of its total assets, not more than 5% may be
invested in the securities of a single issuer and that it may hold no more than
10% of the voting securities of a single issuer. The following discussion
supplements the discussion of the Fund's investment objectives and policies as
set forth in the Prospectus. There can be no assurance the objective of the Fund
will be attained.
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. 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.
B-2
<PAGE>
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 SEC 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 segregate liquid assets 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 or custodian 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 assets 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. Depending on the arrangements made with the broker or custodians, the
Fund may not receive any payments (including interest) on collateral deposited
with such brokers or custodians.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements. Under
such agreements, the Fund buys a security from a seller and the seller agrees to
repurchase the security at a mutually agreed upon time and price. The repurchase
price may be higher than the purchase price, the difference being income to the
Fund, or the purchase and repurchase prices may be the same, with interest at a
stated rate due to the Fund together with the repurchase price on repurchase. In
either case, the income to the Fund is unrelated to the interest rate on the
U.S. Government security itself. Such repurchase agreements will be made only
with banks with assets of $500 million or more that are insured by the Federal
Deposit Insurance Corporation or with Government securities dealers recognized
by the Federal Reserve Board and registered as broker-dealers with the SEC or
exempt from such registration. The Fund will generally enter into repurchase
agreements of short durations, from overnight to one week, although the
underlying securities generally have longer maturities. The Fund may not enter
into a repurchase agreement with more than seven days to maturity if, as a
result, more than 15% of the value of its net assets would be invested in
illiquid securities including such repurchase agreements.
B-3
<PAGE>
For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan
from the Fund to the seller of the U.S. Government security subject to the
repurchase agreement. It is not clear whether a court would consider the U.S.
Government security acquired by the Fund subject to a repurchase agreement as
being owned by the Fund or as being collateral for a loan by the Fund to the
seller. In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the U.S. Government security before its repurchase
under a repurchase agreement, the Fund may encounter delays and incur costs
before being able to sell the security. Delays may involve loss of interest or a
decline in price of the U.S. Government security. If a court characterizes the
transaction as a loan and the Fund has not perfected a security interest in the
U.S. Government security, the Fund may be required to return the security to the
seller's estate and be treated as an unsecured creditor of the seller. As an
unsecured creditor, the Fund would be at the risk of losing some or all of the
principal and income involved in the transaction. As with any unsecured debt
instrument purchased for the Fund, the Advisor seeks to minimize the risk of
loss through repurchase agreements by analyzing the creditworthiness of the
other party, in this case the seller of the U.S. Government security.
ILLIQUID SECURITIES. The Fund may invest up to 15% of the value of its net
assets in securities that at the time of purchase have legal or contractual
restrictions on resale or are otherwise illiquid. The Advisor will monitor the
amount of illiquid securities in the Fund's portfolio, under the supervision of
the Trust's Board of Trustees (the "Board of Trustees"), to ensure compliance
with the Fund's investment restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Fund might be unable
to sell restricted or other illiquid securities promptly or at reasonable prices
and might thereby experience difficulty satisfying redemption requests within
seven days. The Fund might also have to register such restricted securities in
order to sell them, resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
B-4
<PAGE>
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not reflect the actual liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the SEC under the Securities Act,
the Board of Trustees may determine that such securities are not illiquid
securities despite their legal or contractual restrictions on resale. In all
other cases, however, securities subject to restrictions on resale will be
deemed illiquid.
BORROWING. Although it is not the current intention of the Fund to engage
in borrowing, the Fund may borrow money provided that the total amount borrowed
and outstanding at the time the borrowing is made does not exceed 33 1/3% of the
value of the Fund's total assets (not including the amount borrowed). The use of
leverage through borrowing creates an opportunity for increased net income, but,
at the same time, creates special risks. There can be no assurance that a
leveraging strategy will be successful during any period in which it is
employed. The intent of using leverage would be to provide the holders of the
Fund's shares with a potentially higher return. Leverage creates risks for the
Fund, including the likelihood of greater volatility of the net asset value and
market price of the Fund's shares. To the extent the income derived from
securities purchased with funds received from leverage exceeds the cost of
leverage, the Fund's return will be greater than if leverage had not been used.
Conversely, if the income from the securities purchased with such funds is not
sufficient to cover the cost of leverage, the return to the Fund will be less
than if leverage had not been used, and therefore the amounts available for
distribution to the Fund's shareholders as dividends and other distributions
will be reduced or eliminated. In the latter case, the Sub-Advisor in its best
judgement nevertheless may determine to maintain the Fund's leveraged position
if it deems such action to be appropriate under the circumstances. During
periods in which the Fund is using leverage, the fees paid by the Fund to the
Advisor for investment advisory services will be higher than if the Fund did not
use leverage because the fees paid will be calculated on the basis of the Fund's
total net assets, including the amount borrowed.
INVESTMENT COMPANIES. The Fund may under certain circumstances invest a
portion of its assets in other investment companies, including money market
funds. An investment in a mutual fund will involve payment by the Fund of its
pro rata share of advisory and administrative fees charged by such fund.
SHORT-TERM INVESTMENTS
The Fund may invest in any of the following securities and instruments:
B-5
<PAGE>
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. The Fund
may hold certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Fund will be
dollar-denominated obligations of domestic banks, savings and loan associations
or financial institutions which, at the time of purchase, have capital, surplus
and undivided profits in excess of $100 million (including assets of both
domestic and foreign branches), based on latest published reports, or less than
$100 million if the principal amount of such bank obligations are fully insured
by the U.S. Government.
In addition to buying certificates of deposit and bankers' acceptances, the
Fund also may make interest-bearing time or other interest-bearing deposits in
commercial or savings banks. Time deposits are non-negotiable deposits
maintained at a banking institution for a specified period of time at a
specified interest rate.
B-6
<PAGE>
COMMERCIAL PAPER AND SHORT-TERM NOTES. The Fund may invest a portion of its
assets in commercial paper and short-term notes. Commercial paper consists of
unsecured promissory notes issued by corporations. Commercial paper and
short-term notes will normally have maturities of less than nine months and
fixed rates of return, although such instruments may have maturities of up to
one year.
Commercial paper and short-term notes will consist of issues rated at the
time of purchase "A-2" or higher by S&P, "Prime-1" or "Prime-2" by Moody's, or
similarly rated by another nationally recognized statistical rating organization
or, if unrated, will be determined by the Advisor to be of comparable quality.
These rating symbols are described in the Appendix.
INVESTMENT RESTRICTIONS
The following policies and investment restrictions have been adopted by the
Fund and (unless otherwise noted) are fundamental and cannot be changed without
the affirmative vote of a majority of the Fund's outstanding voting securities
as defined in the 1940 Act. The Fund may 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.
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.
B-7
<PAGE>
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.
The Fund observes the following policies, which are not deemed fundamental
and may be changed without shareholder vote. The Fund may not:
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.)
B-8
<PAGE>
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 SEC.
If a percentage restriction described in the Fund's Prospectus or this SAI
is adhered to at the time of investment, a subsequent increase or decrease in a
percentage resulting from a change in the values of assets will not constitute a
violation of that restriction, except for the policy regarding borrowing or as
otherwise specifically noted.
The investment policies of the Fund set forth in the Prospectus and in this
SAI may be changed by the Advisor subject to review and approval by 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 SAI 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).
DISTRIBUTIONS AND TAX INFORMATION
DISTRIBUTIONS
Dividends from net investment income and distributions from net profits
from the sale of securities are generally made at least annually. Also, the Fund
expects to distribute any undistributed net investment income on or about
December 31 of each year. Any net capital gains realized through the period
ended October 31 of each year will also be distributed by December 31 of each
year.
Each distribution by the Fund is accompanied by a brief explanation of the
form and character of the distribution. In January of each year the Fund will
issue to each shareholder a statement of the federal income tax status of all
distributions.
B-9
<PAGE>
TAX INFORMATION
The Fund intends to qualify and continue to elect to be treated as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986 (the "Code"), provided it complies with all applicable requirements
regarding the source of its income, diversification of its assets and timing of
distributions. The Fund's policy is to distribute to its shareholders all of its
investment company taxable income and any net realized capital gains for each
fiscal year in a manner that complies with the distribution requirements of the
Code, so that the Fund will not be subject to any federal income or excise
taxes. To comply with the requirements, the Fund must also distribute (or be
deemed to have distributed) by December 31 of each calendar year (i) at least
98% of its ordinary income for such year, (ii) at least 98% of the excess of its
realized capital gains over its realized capital losses for the 12-month period
ending on October 31 during such year and (iii) any amounts from the prior
calendar year that were not distributed and on which the Fund paid no federal
income tax.
If the Fund does not qualify for taxation as a regulated investment company
for any taxable year, the Fund's income will be subject to corporate income
taxes imposed at the Fund level, and all distributions from earnings and
profits, including distributions of net exempt-interest income and net capital
gain (i.e., the excess, if any, of net long-term capital gain over net
short-term capital loss), will be taxable to shareholders as ordinary income. In
addition, in order to requalify for taxation as a regulated investment company,
the Fund may be required to recognize unrealized gains, pay substantial taxes
and interest, and make certain distributions.
The Fund's ordinary income generally consists of interest and dividend
income less expenses. Net realized capital gains for a fiscal period are
computed by taking into account any capital loss carryforward of the Fund.
Distributions of net investment income and net short-term capital gains are
taxable to shareholders as ordinary income. In the case of corporate
shareholders, a portion of the distributions may qualify for the intercorporate
dividends-received deduction to the extent the Fund designates the amount
distributed as a qualifying dividend. This designated amount cannot, however,
exceed the aggregate amount of qualifying dividends received by the Fund for its
taxable year. In view of the Fund's investment policy, it is expected that
dividends from domestic corporations will be part of the Fund's gross income and
that, accordingly, part of the distributions by the Fund may be eligible for the
dividends-received deduction for corporate shareholders. However, the portion of
the Fund's gross income attributable to qualifying dividends is largely
dependent on the Fund's investment activities for a particular year and
therefore cannot be predicted with any certainty. The deduction may be reduced
or eliminated if the Fund shares held by a corporate investor are treated as
debt-financed or are held for less than 46 days and certain other conditions are
not met.
B-10
<PAGE>
A redemption of Fund shares may result in recognition of a taxable gain or
loss. Any loss realized upon a redemption of shares within six months from the
date of their purchase will be treated as a long-term capital loss to the extent
of any amounts treated as distributions of long-term capital gains during such
six-month period. Any loss realized upon a redemption of Fund shares may be
disallowed under certain wash sale rules to the extent shares of the Fund are
purchased (through reinvestment of distributions or otherwise) within 30 days
before or after the redemption.
Under the Code, the Fund generally will be required to report to the
Internal Revenue Service ("IRS") all distributions of ordinary income and
capital gains as well as gross proceeds from the redemption or exchange of Fund
shares. Pursuant to the backup withholding provisions of the Code, distributions
of any taxable income and capital gains and proceeds from the redemption of Fund
shares may be subject to withholding of federal income tax at the rate of 31
percent in the case of non-exempt shareholders who fail to furnish the Fund with
their taxpayer identification numbers and with required certifications regarding
their status under the federal income tax law. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld. Corporate and other exempt shareholders should provide the Fund with
their taxpayer identification numbers or certify their exempt status in order to
avoid possible erroneous application of backup withholding. The Fund reserves
the right to refuse to open an account for any person failing to provide a
certified taxpayer identification number.
The Fund will not be subject to corporate income tax in the Commonwealth of
Massachusetts as long as its qualifies as a regulated investment company for
federal income tax purposes. Distributions and the transactions referred to in
the preceding paragraphs may be subject to state, local and foreign income
taxes, and the tax treatment thereof may differ from the federal income tax
treatment.
The Fund's transactions in options, futures contracts, hedging
transactions, forward contracts, straddles and foreign currencies will be
subject to special tax rules (including mark-to-market, constructive sale,
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, convert long-term capital gains
into short-term capital gains and convert short-term capital losses into
long-term capital losses. These rules could therefore affect the amount, timing
and character of distributions to shareholders of the Fund.
The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts and estates. Each shareholder who is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30 percent (or at a lower rate
under an applicable income tax treaty) on amounts constituting ordinary income.
B-11
<PAGE>
In addition, the foregoing discussion of tax law is based on existing
provisions of the Code, existing and proposed regulations thereunder, and
current administrative rulings and court decisions, all of which are subject to
change. Any such changes could affect the validity of this discussion. The
discussion also represents only a general summary of tax law and practice
currently applicable to the Fund and certain shareholders therein, and, as such,
is subject to change. In particular, the consequences of an investment in shares
of the Fund under the laws of any state, local or foreign taxing jurisdictions
are not discussed herein. Each prospective investor should consult his or her
own tax advisor to determine the application of the tax law and practice in his
or her own particular circumstances.
TRUSTEES AND EXECUTIVE OFFICERS
The Trustees of the Trust, who were elected for an indefinite term by the
initial shareholders of the Trust, are responsible for the overall management of
the Trust, including general supervision and review of the investment activities
of the Fund. The Trustees, in turn, elect the officers of the Trust, who are
responsible for administering the day-to-day operations of the Trust and its
separate series. The current Trustees and officers, their affiliations, dates of
birth and principal occupations for the past five years are set forth below.
MARGARET M. TOWLE* (50) Chairman of the Board of Trustees, Trustee, President,
Treasurer and Secretary.
One Yesler Building, Suite 200, Seattle, Washington 98104. Chief Executive
Officer, Chief Investment Officer and Portfolio Manager of the Advisor since
February, 1998; self-employed investment advisory consultant since October,
1997; formerly Chairman, Chief Executive Officer, Director and Secretary of
Towle Associates, Inc., an international investment advisory firm, from October,
1991 to September, 1997. Ph.D. in Political Economy and Public Finance from the
University of Washington in 1982 and M.A. in Public Administration from the
University of Washington in 1976.
MARY BECHMANN (41) Trustee
13416 Middle Fork Lane, Los Altos Hills, California 94022; Self-employed private
investor since June, 1996; formerly Managing Director at Baccharis Capital, a
private equity fund, from June, 1992 to June, 1996. M.B.A.
from Stanford University in 1985.
JOHN W. PEAVY III (54) Trustee
7512 Glenshannon Circle, Dallas, Texas 75225;Chief Investment Officer on an
interim basis of the Teacher Retirement System of Texas, since June, 1999;
President of Peavy Financial Services, Inc. since March, 1982; formerly Chairman
of the Board of Directors and Chief Investment Officer of Founders Trust Company
from April, 1993 to May, 1998. Ph.D. in Finance from the University of Texas at
Arlington in 1978; M.B.A. from the Wharton School at the University of
Pennsylvania in 1968.
B-12
<PAGE>
JOSEPH C. PELLEGRINO (57) Trustee
201 Isabella Street, 5th Floor, Pittsburgh, Pennsylvania 15212-5858; Vice
President - Pension Fund Investments and Analysis at Aluminum Company of America
since August, 1991. Doctor of Jurisprudence Degree from Duquesne University in
1984; Ph.D. in Finance from Northwestern University in 1972 and M.B.A. from the
University of Pittsburgh in 1966.
- ----------
* Indicates an "interested person" of the Trust as defined in the 1940 Act.
The Trust pays no compensation to its officers or to the Trustees listed
above who are officers or employees of the Advisor. Each Trustee who is not an
officer or employee of the Advisor 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 been 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 sets forth information concerning the total
compensation paid (or deferred in lieu of current payment) by the Trust during
its fiscal year ended May 31, 1999 to the persons who served as Trustees during
such period:
Total Compensation From
Aggregate Compensation Trust and Fund paid to
Name of Trustee from Fund Trustee*
--------------- ---------------------- -----------------------
Margaret M. Towle $0 $0
Mary Bechmann $5,000** $5,000**
John W. Peavy III $5,000** $5,000**
Joseph C. Pellegrino $5,000 $5,000
* No Trustee received any compensation from any mutual fund affiliated with the
Advisor other than the Trust.
** The total amount of deferred compensation payable to each of Mary Bechmann
and John W. Peavy III as of May 31, 1999 was $4,669.
As of the date of this SAI, the Trustees and officers of the Trust as a
group did not own more than 1% of the outstanding shares of any class of the
Fund.
B-13
<PAGE>
THE FUND'S INVESTMENT ADVISOR
As stated in the Prospectus, investment advisory services are provided to
the Fund by Puget Sound Asset Management Co., LLC, the Advisor, pursuant to an
Investment Advisory Agreement (the "Advisory Agreement"). As compensation, the
Fund pays the Advisor a monthly management fee (accrued daily) based upon the
average daily net assets of the Fund at the annual rate of 2.00%. Such
management fee is paid by each class of shares of the Fund based upon the
average daily net assets of such class. Zwick Financial Corp. Profit Sharing
Plan, a profit sharing plan, owns more than 25% of the voting interests of the
Advisor and therefore is regarded to control the Advisor for purposes of the
1940 Act. As discussed previously, Margaret Towle is the Chief Executive
Officer, Chief Investment Officer and Portfolio Manager of the Advisor and is
the Chairman of the Board of Trustees, a Trustee, the President, Treasurer and
Secretary of the Trust.
The Advisor is obligated to manage the investment and reinvestment of the
Fund's assets, subject to the authority of the Advisor to delegate certain of
its responsibilities hereunder to one or more sub-advisors. Upon delegation of
the management of the investment and reinvestment of the Fund's assets to one or
more sub-advisors, the Advisor, among other things, supervises and oversees each
such sub-advisor's provision of portfolio management services with respect to
the Fund, evaluates periodically the portfolio management services provided by
each such sub-advisor and the investment performance of the Fund and advises and
consults with the Board of Trustees with respect to matters relating to the
investment operations of the Fund, including matters relating to the selection,
evaluation, retention and possible termination of each sub-advisor.
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 the Advisor, 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
the Advisor, or by the Advisor 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 the Advisor to eliminate all reference to the word
"Puget Sound" in the name of the Trust or the Fund, unless the continuance of
the Advisory 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 the
Advisor, cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement also provides that the Advisor shall not be
B-14
<PAGE>
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.
For the period of June 29, 1998 (commencement of operations) through May
31, 1999, the Advisor received advisory fees of $413,227(before giving effect to
expense reductions under the expense deferral arrangement described below), less
a permanent waiver of $8,530. During such period, the amount of expense
reductions under the expense deferral arrangement was $308,840.
As described in the Prospectus, the Advisor has contractually agreed to
reduce its advisory fees and pay the expenses of the Institutional Shares and
the Investor Shares to the extent necessary to limit such classes' expenses
(exclusive of brokerage costs, interest, taxes, dividends payable with respect
to securities sold short and extraordinary expenses) to the annual rate of 2.37%
of the average daily net assets of the Institutional Shares and 2.87% of the
average daily net assets of the Investor Shares, subject to the obligation of
each class of the Fund to repay the Advisor such class's deferred fees and
expenses in future years, if any, when such class's expenses (exclusive of
brokerage costs, interest, taxes, dividends payable with respect to securities
sold short and extraordinary expenses) fall below the stated percentage rate for
such class, but only to the extent that such repayment would not cause such
class's expenses (exclusive of brokerage costs, interest, taxes, dividends
payable with respect to securities sold short and extraordinary expenses) in any
such future year to exceed the stated percentage rate for such class, and
provided that such class is not obligated to repay any such deferred fees and
expenses more than five years after the end of the fiscal year in which they
were incurred. This agreement has a term ending on September 30, 2000 and
renewable year to year thereafter.
SUB-ADVISOR
Fiduciary Asset Management Co. is the Sub-Advisor to the Fund pursuant to a
Sub-Advisory Agreement (the "Sub-Advisory Agreement"). The Sub-Advisor, under
the general oversight of the Advisor and the Board of Trustees, manages the
Fund's assets on a day-to-day basis. Charles Walbrandt, the Sub-Advisor's
president, owns 100% of the voting interests of the Sub-Advisor and therefore is
regarded to control the Sub-Advisor for purposes of the 1940 Act.
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 of the Fund and (ii) by
vote of a majority of the Trustees who are not "interested persons" of the
Trust, the Advisor 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
B-15
<PAGE>
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 applied for an exemptive
order from the SEC to permit the Advisor, subject to the approval of the Board
of Trustees and certain other conditions, to enter into sub-advisory agreements
with sub-advisors other than the Sub-Adviser and amend sub-advisory agreements
with sub-advisors without obtaining shareholder approval. See "Management of the
Fund" in the Prospectus.
For its services, the Sub-Advisor receives a sub-advisory fee from the
Advisor 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 the Advisor from the
Fund. For the period of June 29, 1998 (commencement of operations) through May
31, 1999, the Sub-Advisor received fees from the Advisor of $310,083.
B-16
<PAGE>
THE FUND'S ADMINISTRATOR
The Fund has an Administration Agreement with Investment Company
Administration, LLC (the "Administrator"), with offices at 4455 E. Camelback
Rd., Ste. 261-E, Phoenix, AZ 85018. The Adminstrator is an affiliate of the
Fund's distributor. The Administration Agreement provides that the Administrator
will prepare and coordinate reports and other materials supplied to the
Trustees; prepare and/or supervise the preparation and filing of all securities
filings, periodic financial reports, prospectuses, statements of additional
information, marketing materials, tax returns, shareholder reports and other
regulatory reports or filings required of the Fund; prepare all required notice
filings necessary to maintain the Fund's ability to sell shares in all states
where the Fund currently does, or intends to do business; coordinate the
preparation, printing and mailing of all materials (e.g., annual reports)
required to be sent to shareholders; coordinate the preparation and payment of
Fund related expenses; monitor and oversee the activities of the Fund's
servicing agents (i.e., transfer agent, custodian, fund accountants, etc.);
review and adjust as necessary the Fund's daily expense accruals; and perform
such additional services as may be agreed upon by the Fund and the
Administrator. For its services, the Administrator receives a monthly fee at the
following annual rate:
AVERAGE NET ASSETS FEE OR FEE RATE(1)
- ------------------ ------------------
Under $200 million .10% of average net assets
$200 million to $500 million .05% of average net assets
Over $500 million .03% of average net assets
Subject to an annual minimum of $40,000 per Fund and $15,000 per each additional
share class.
(1) The Administrator has agreed to reduce its fees for eighteen months
starting July 1, 1999, to .05% on the Fund's average net assets up to $500
million and .03% thereafter. In addition, the Administrator will reduce its
annual minimum to $30,000 per Fund and $5,000 per each additional share of class
for twelve months starting July 1, 1999.
Prior to July 1, 1999, BISYS Fund Services Ohio, Inc was the Fund's
Administrator. For the period of June 29, 1998 (commencement of operations)
through May 31, 1999, the Fund paid BISYS Fund Services Ohio, Inc. a monthly fee
at the annual rate of 0.15% of the average daily net assets of the Fund plus out
of pocket expenses, which fee and expenses totaled $30,992.
B-17
<PAGE>
FUND ACCOUNTANT
The Fund has an Investment Accounting Agreement with State Street Bank and
Trust Company ("State Street"). State Street, in its capacity as fund
accountant, performs certain investment accounting and recordkeeping functions
for the assets of the Fund. For its services, State Street receives a fee at the
following annual rate: 0.02% on the first $100 million of the Fund's average
daily net assets, 0.015% on the next $100 million of the Fund's average daily
net assets and 0.01% on assets over $200 million of the daily net assets,
subject to a $42,000 minimum.
Prior to July 1, 1999, BISYS Fund Services, Inc., performed investment
accounting and recordkeeping functions for the assets of the Fund. For such
services the Fund was obligated to pay BISYS Fund Services, Inc., an annual fee
of 0.03% of the Fund's average daily net assets (subject to an annual minimum of
$35,000 and, for the first year of operations, a maximum of $40,000 in total
fees), and $10,000 per each additional share class created after the effective
date of such arrangement. The Fund was also obligated to reimburse BISYS Fund
Services, Inc., for its out-of-pocket expenses in providing such services. For
the period of June 29, 1998 (commencement of operations) through May 31, 1999,
the Fund paid BISYS Fund Services, Inc., $37,582 for its investment accounting
and recordkeeping functions for the assets of the Fund.
THE FUND'S DISTRIBUTOR
First Fund Distributors, Inc., (the "Distributor"), 4455 E. Camelback Road,
Suite 261E, Phoenix, AZ 85018, a corporation owned by Mr. Banhazl, Mr. Paggioli
and Mr. Wadsworth, acts as the Fund's principal underwriter in a continuous
public offering of the Fund's shares. Under the Distribution Agreement between
the Fund and the Distributor, the Distributor is not obligated to sell any
specific amount of shares of the Trust. The Distribution Agreement continues in
effect for a period of one year, and from year to year thereafter, if approved
at least annually by (i) the Board of Trustees and (ii) a majority of the
Trustees who are not interested persons of the Trust and have no direct or
indirect financial interest in the operation of the Trust's Distribution Plan,
the Distribution Agreement or any other agreement related to the Distribution
Plan, in each case cast in person at a meeting called for the purpose of voting
on such approval. The Distribution Agreement may be terminated without penalty
by the parties thereto upon no more than sixty days' and no less than 30 days'
written notice, and is automatically terminated in the event of its assignment
(as defined in the 1940 Act).
Prior to July 1, 1999, BISYS Fund Services Limited Partnership ("BISYS,
L.P.") was the Fund's Distributor. For the period of June 29, 1998 (commencement
of operations) through May 31, 1999, the aggregate sales commissions received by
BISYS L.P. with respect to Investor Shares were $33,231, of which $8,141 was
paid in concession to authorized dealers.
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 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 participating
and introducing brokers 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
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.
B-18
<PAGE>
The Distribution 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 Distribution Plan or the Distribution
Agreement, or by a vote of majority of the outstanding voting securities of that
class. Any change in the Distribution Plan that would materially increase the
cost to the Investors Shares to which the Distribution 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 Distribution 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 Distribution Plan
or the Distribution Agreement, cast in person at a meeting called for the
purpose of voting on such approval. For so long as the Distribution 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
Trustees.
The Distribution Plan will continue in effect with respect to each class of
shares to which it relates 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 Distribution Plan or the Distribution Agreement and (ii) by the vote of a
majority of the entire Board of Trustees, cast in person at a meeting called for
the purpose of voting on such approval.
For the period of June 29, 1998 (commencement of operations) through May
31, 1999, the Fund paid fees to the Fund's former Distributor of $39,669 under
the Distribution Plan, of which $19,835 was permanently waived, $3,363 was paid
out as selling compensation to dealers and $16,471 was for reimbursement of
printing and mailing of prospectuses to other than current shareholders and
reimbursement of advertising and marketing materials expenses. Margaret M. Towle
(Chairman of the Board of Trustees, as trustee and the President, Treasurer and
Secretary of the Trust) had a direct financial interest in the Distribution Plan
as she was compensated by BISYS, L.P., for services performed under the
Distribution Plan as a registered representative of BISYS, L.P.
The Trustees believe that the Distribution Plan is reasonably likely to
will provide benefits to the Trust. The Trustees believe that the Distribution
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 Distribution Plan or
under alternative distribution schemes. The Trustees believe that the effect on
sales and/or redemptions benefit the Trust by reducing the Fund's expense ratios
and/or by affording greater flexibility to the Sub-Advisor in managing the
Fund's portfolio.
B-19
<PAGE>
The Distributor, as shareholder servicing agent, may also provide (or
arrange for another intermediary or agent to provide) certain additional
services to Investor Shares' shareholders (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. 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.
For the period of June 29, 1998 (commencement of operations) through May
31, 1999, fees of $19,835 were paid to BISYS, L.P., as the Fund's former
shareholder servicing agent.
EXECUTION OF PORTFOLIO TRANSACTIONS
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 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, markup or markdown. 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 being 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.
B-20
<PAGE>
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
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.
For the period of June 29, 1998 (commencement of operations) through May
31, 1999, the Fund paid $235,833 in brokerage commissions. During such period,
the Fund directed brokerage transactions totaling $8,797,980 for commissions
totaling $5,100 to firms who furnished research services.
PORTFOLIO TURNOVER
Portfolio securities may be sold without regard to the length of time they
have been held when, in the opinion of the Sub-Advisor, investment
considerations warrant such action. Portfolio turnover rate is calculated by
dividing (1) the lesser of purchases or sales of portfolio securities for the
fiscal year by (2) the monthly average of the value of portfolio securities
owned during the fiscal year. A 100% turnover rate would occur if all the
securities in the Fund's portfolio, with the exception of securities whose
maturities at the time of acquisition were one year or less, were sold and
either repurchased or replaced within one year. A high rate of portfolio
turnover (100% or more) generally leads to transaction costs and may result in a
greater number of taxable transactions. See "Execution of Portfolio
B-21
<PAGE>
Transactions" and Distributions and Tax Information." For the period of June 29,
1998 (commencement of operations of the Fund) through May 31, 1999, the Fund had
a portfolio turnover rate of 630%.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The information provided below supplements the information contained in the
Fund's Prospectus regarding the purchase and redemption of Fund shares.
HOW TO BUY SHARES
You may purchase shares of the Fund from the Fund directly or also through
selected securities brokers, dealers or financial intermediaries. Investors
should contact these agents directly for appropriate instructions, as well as
information pertaining to accounts and any service or transaction fees that may
be charged by those agents. Purchase orders through securities brokers, dealers
and other financial intermediaries are effected at the next-determined public
offering price after receipt of the order in proper form by such agent before
the Fund's daily cutoff time. Orders received after that time will be purchased
at the next-determined public offering price.
PURCHASES AT NET ASSET VALUE
Investor Shares may be purchased at net asset value by:
* investment advisors, 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 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 advisor, 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
* certain current and retired employees of the Advisor, the Sub-Advisor, 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
* accounts of bank trust departments or trust companies
* participant-directed 401(a) and 401(k) plans that have 50 or more eligible
employees
In addition, you may purchase shares of the Fund at net asset value to the
extent that the investment represents the proceeds from a redemption of shares
made within the prior 30 days (the purchase price of which included a front-end
sales charge equal to or greater than that imposed by the Fund) of another
mutual fund. When making a purchase at net asset value pursuant to this
B-22
<PAGE>
provision, you must furnish a broker's confirmation statement (or other
documentation satisfactory to the Fund) showing the payment of the front-end
sales charge.
The reasons the Fund offers Investor Shares to such entities and
individuals at net asset value include, but are not limited to, lower marketing
and sales expenses associated with any such sales (and in the case of sales to
Trustees, officers or other affiliated persons of the Trust, no marketing
expenses) and such purchases are through financial intermediaries that are
otherwise compensated by clients for the provision of services in connection
with the purchasing and selling of Fund shares. Investors who qualify to buy
Fund shares at net asset value may be charged a fee if they effect transactions
in Fund shares through a broker or agent.
REDUCED SALES CHARGES-INVESTOR SHARES
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.
OFFERING PRICE
The public offering price of a Fund share is the net asset value per share
of the relevant class of shares, plus any applicable sales charge. The Fund
receives the net asset value, and the sales charge (the difference between the
offering price and the net asset value), if any, is distributed to the
Distributor. See "How to Buy Shares" in the Prospectus for more information on
the sales charge. Shares are purchased at the public offering price next
determined after the Transfer Agent receives your order in proper form. In most
cases, in order to receive that day's public offering price, the Transfer Agent
must receive your order in proper form before the close of regular trading on
the New York Stock Exchange ("NYSE"), normally 4:00 p.m., Eastern time. If you
buy shares through your investment representative, the representative must
B-23
<PAGE>
receive your order before the close of regular trading on the NYSE to receive
that day's public offering price. Orders are in proper form only after funds are
converted to U.S. funds.
One 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:
Dealer Reallowance
as a % of
Your Investment Offering Price
- --------------- --------------
Up to $100,000 2.70
$100,000 but less than $250,000 2.25
$250,000 but less than $500,000 1.80
$500,000 but less than $1,000,000 0.90
$1,000,000 or more None
The NYSE annually announces the days on which it will not be open for
trading. The most recent announcement indicates that it will not be open on the
following days: New Year's Day, Martin Luther King Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. However, the NYSE may close on days not included in that
announcement.
If you are considering redeeming or transferring shares to another person
shortly after purchase, you should pay for those shares with a certified check
to avoid any delay in redemption, exchange or transfer. Otherwise the Fund may
delay payment until the purchase price of those shares has been collected. The
Fund will not issue certificates for your shares.
The Trust reserves the right in its sole discretion (i) to suspend the
continued offering of the Fund's shares, (ii) to reject purchase orders in whole
or in part when in the judgment of the Advisor or the Distributor such rejection
is in the best interest of the Fund, and (iii) to reduce or waive the minimum
for initial and subsequent investments for certain fiduciary accounts or under
circumstances where certain economies can be achieved in sales of the Fund's
shares.
AUTOMATIC INVESTMENT PLAN
As discussed in the Prospectus, the Fund provides an Automatic Investment
Plan for the convenience of investors who wish to purchase shares of the Fund on
a regular basis. All record keeping and custodial costs of the Automatic
Investment Plan are paid by the Fund. The market value of the Fund's shares is
subject to fluctuation, so before undertaking any plan for systematic
investment, the investor should keep in mind that this plan does not assure a
profit nor protect against depreciation in declining markets.
B-24
<PAGE>
HOW TO SELL SHARES
You can sell your Fund shares any day the NYSE is open for regular trading,
either directly to the Fund or through your investment representative.
SELLING SHARES THROUGH YOUR INVESTMENT REPRESENTATIVE
Your investment representative must receive your request before the close
of regular trading on the NYSE to receive that day's net asset value. Your
investment representative will be responsible for furnishing all necessary
documentation to the Transfer Agent, and may charge you for its services.
DELIVERY OF REDEMPTION PROCEEDS
Payments to shareholders for shares of the Fund redeemed directly from the
Fund will be made as promptly as possible but no later than seven days after
receipt by the Fund's Transfer Agent of the written request in proper form, with
the appropriate documentation as stated in the Prospectus, except that the Fund
may suspend the right of redemption or postpone the date of payment during any
period when (a) trading on the NYSE is restricted as determined by the SEC or
the NYSE is closed for other than weekends and holidays; (b) an emergency exists
as determined by the SEC making disposal of portfolio securities or valuation of
net assets of the Fund not reasonably practicable; or (c) for such other period
as the SEC may permit for the protection of the Fund's shareholders. Under
unusual circumstances, the Fund may suspend redemptions, or postpone payment for
more than seven days, but only as authorized by SEC rules.
The value of shares on redemption or repurchase may be more or less than
the investor's cost, depending upon the market value of the Fund's portfolio
securities at the time of redemption or repurchase.
TELEPHONE REDEMPTIONS
Shareholders must have selected telephone transactions privileges on the
Account Application when opening a Fund account. Upon receipt of any
instructions or inquiries by telephone from a shareholder or, if held in a joint
account, from either party, or from any person claiming to be the shareholder,
the Fund or its agent is authorized, without notifying the shareholder or joint
account parties, to carry out the instructions or to respond to the inquiries,
consistent with the service options chosen by the shareholder or joint
shareholders in his or their latest Account Application or other written request
for services, including purchasing or redeeming shares of the Fund and
depositing and withdrawing monies from the bank account specified in the Bank
Account Registration section of the shareholder's latest Account Application or
as otherwise properly specified to the Fund in writing.
B-25
<PAGE>
The Transfer Agent will employ these and other reasonable procedures to
confirm that instructions communicated by telephone are genuine; if it fails to
employ reasonable procedures, the Fund and the Transfer Agent may be liable for
any losses due to unauthorized or fraudulent instructions. If these procedures
are followed, an investor agrees, however, that to the extent permitted by
applicable law, neither the Fund nor its agents will be liable for any loss,
liability, cost or expense arising out of any redemption request, including any
fraudulent or unauthorized request. For information, consult the Transfer Agent.
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 $9.00) is deducted. Telephonic redemption requests must be received
by the Fund prior to the close of regular trading on the NYSE on a day when the
NYSE is open for business. Requests made after that time or on a day when the
NYSE 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. 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, less any redemption fee, if applicable.
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.
During periods of unusual market changes and shareholder activity, you
may experience delays in contacting the Transfer Agent by telephone. In this
event, you may wish to submit a written redemption request, as described in the
Prospectus, or contact your investment representative. The Telephone Redemption
Privilege may be modified or terminated without notice.
B-26
<PAGE>
REDEMPTIONS-IN-KIND
The Fund has reserved the right to pay the redemption price of its shares,
either totally or partially, by a distribution in kind of portfolio securities
(instead of cash). The securities so distributed would be valued at the same
amount as that assigned to them in calculating the net asset value for the
shares being sold. If a shareholder receives a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash. The Trust has filed an election under SEC Rule 18f-1 committing to pay
in cash all redemptions by a shareholder of record up to amounts specified by
the rule (approximately $250,000).
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of
shares of the Fund will be determined once daily as of the close of public
trading on the NYSE (normally 4:00 p.m., Eastern time) on each day that the NYSE
is open for trading. The Fund does not expect to determine the net asset value
of its shares on any day when the NYSE is not open for trading even if there is
sufficient trading in its portfolio securities on such days to materially affect
the net asset value per share. However, the net asset value of the Fund's shares
may be determined on days the NYSE is closed or at times other than 4:00 p.m. if
the Board of Trustees decides it is necessary.
In valuing the Fund's assets for calculating net asset value, readily
marketable portfolio securities listed on a national securities exchange or on
NASDAQ are valued at the last sale price on the business day as of which such
value is being determined. If there has been no sale on such exchange or on
NASDAQ on such day, the security is valued at the closing bid price on such day.
Readily marketable securities traded only in the over-the-counter market and not
on NASDAQ are valued at the current or last bid price. If no bid is quoted on
such day, the security is valued by such method as the Board of Trustees shall
determine in good faith to reflect the security's fair value. All other assets
of the Fund are valued in such manner as the Board of Trustees in good faith
deems appropriate to reflect their fair value.
For each class of the Fund, the net asset value per share is calculated as
follows: all liabilities incurred or accrued by such class are deducted from the
valuation of total assets attributable to such class, which includes accrued but
undistributed income; the resulting net assets are divided by the number of
shares of the class outstanding at the time of the valuation and the result
(adjusted to the nearest cent) is the class's net asset value per share.
B-27
<PAGE>
PERFORMANCE INFORMATION
From time to time, the Fund may state its total return in advertisements
and investor communications. Total return may be stated for any relevant period
as specified in the advertisement or communication. Any statements of total
return will be accompanied by information on the Fund's average annual
compounded rate of return for the most recent one, five and ten year periods, or
shorter periods from inception, through the most recent calendar quarter. The
Fund may also advertise aggregate and average total return information over
different periods of time.
The Fund's total return may be compared to relevant indices, including
Standard & Poor's 500 Composite Stock Index and indices published by Lipper,
Inc. From time to time, evaluations of the Fund's performance by independent
sources may also be used in advertisements and in information furnished to
present or prospective investors in the Fund.
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's total return for any
period should not be considered as a representation of what an investment may
earn or what an investor's total return may be in any future period.
The Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial purchase order of $1,000 from which the
maximum sales load is deducted
T = average annual total return n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at
the end of the period
Aggregate total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period.
B-28
<PAGE>
The Fund's average annual total return for the period of June 29, 1998
(commencement of operations) through May 31, 1999 are as follows:
Institutional Shares -5.76%
Investor Shares -8.99%
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 B. 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-advisor(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 C.
GENERAL INFORMATION
Investors in the Fund will be informed of the Fund's progress through
periodic reports. Financial statements certified by independent public
accountants will be submitted to shareholders at least annually.
Custodial Trust Company, located at 101 Carnegie Center, Princeton, NJ
08540 acts as custodian of the securities and other assets of the Fund.
Custodial Trust Company holds 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, Custodial Trust Company
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. National Financial Data Services, P.O. Box
419284, Kansas City, MO 64141-6284 acts as the Fund's transfer and shareholder
servicing agent. Custodial Trust Company and National Financial Data Services do
not participate in decisions relating to the purchase and sale of securities by
the Fund.
Deloitte & Touche LLP, 50 Fremont Street, San Francisco, CA 94105 are the
independent auditors for the Fund. 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.
B-29
<PAGE>
Ropes & Gray, One International Place, Boston, MA 02110, are legal counsel
to the Fund.
As of September 21, 1999, the following persons owned of record more that
5% of a class of the Fund's outstanding voting securities:
CLASS % OWNED
- ----- -------
INSTITUTIONAL SHARES:
Charles Schwab & Co., Inc. 88%
101 Montgomery Street
San Francisco, CA 94107
INVESTOR SHARES:
Charles Schwab & Co., Inc. 57%
101 Montgomery Street
San Francisco, CA 94107
Resources Trust Company 19%
P.O. Box 3865
Englewood, CO 80155
The Trust was organized as a Massachusetts business trust on April 14,
1998. The Declaration of Trust permits the Board of Trustees to issue an
unlimited number of full and fractional shares of beneficial interest, without
par value, which may be issued in any number of series. The Board of Trustees
may from time to time issue other series, the assets and liabilities of which
will be separate and distinct from any other series.
B-30
<PAGE>
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 - Institutional Shares
and 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 a
specific series 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 series of
the Trust, certain expenses may be legally chargeable against the assets of all
series of the Trust.
Shares issued by the Fund have no preemptive, conversion, or subscription
rights. Shareholders have equal and exclusive rights as to dividends and
distributions as declared by the Fund and to the net assets of the Fund upon
liquidation or dissolution. 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 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. Voting rights are not cumulative, so that the holders
of more than 50% of the shares voting in any election of Trustees can, if they
so choose, elect all of the Trustees. While the Trust is not required and does
not intend to hold annual meetings of shareholders, such meetings may be called
by the Trustees in their discretion, or upon demand by the holders of 10% or
more of the outstanding shares of the Trust if such demand is for the purpose of
electing or removing Trustees.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Trust and requires that notice of such
B-31
<PAGE>
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Trust or the Trustees. The Declaration of Trust also provides
for indemnification and reimbursement of expenses out of the Fund's assets for
any shareholder held personally liable for obligations of the Fund or Trust. The
Declaration of Trust provides that the Trust shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the Fund or Trust and satisfy any judgment thereon. All such rights are limited
to the assets of the Fund. The Declaration of Trust further provides that the
Trust may maintain appropriate insurance (for example, fidelity bonding and
errors and omissions insurance) for the protection of the Trust, its
shareholders, trustees, officers, employees and agents to cover possible tort
and other liabilities. Furthermore, the activities of the Trust as an investment
company would not likely give rise to liabilities in excess of the Trust's total
assets. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance exists and the Fund itself is 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.
B-32
<PAGE>
FINANCIAL STATEMENTS
The Fund's annual report to shareholders for its fiscal year ended May 31,
1999 is a separate document supplied with this SAI. The financial statements,
accompanying notes and report of Deloitte & Touche LLP, independent auditors,
appearing in such annual report are incorporated by reference in this SAI and
are so incorporated by reference in reliance upon such report of Deloitte &
Touche LLP given upon the authority of such firm as experts in accounting and
auditing.
B-33
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.
Prime-1--Issuers (or related supporting institutions) rated "Prime-1"
have a superior ability for repayment of senior short-term debt obligations.
"Prime-1" repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2--Issuers (or related supporting institutions) rated "Prime-2"
have a strong ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.
STANDARD & POOR'S RATINGS GROUP
A-1--This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
B-34
<PAGE>
APPENDIX B
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates Fund Action
Adam Smith's Money World Fund Decoder
America On Line Global Finance
Anchorage Daily News (the) Guarantor
Atlanta Constitution Hartford Courant
Atlanta Journal Houston Chronicle
Arizona Republic INC
Austin American Statesman Indianapolis Star
Baltimore Sun Individual Investor
Bank Investment Marketing Institutional Investor
Barron's International Herald Tribune
Bergen County Record (NJ) Internet
Bloomberg Business News Investment Advisor
Bond Buyer Investment Company Institute
Boston Business Journal Investment Dealers Digest
Boston Globe Investment Profiles
Boston Herald Investment Vision
Broker World Investor's Daily
Business Radio Network IRA Reporter
Business Week Journal of Commerce
CBS and affiliates Kansas City Star
CDA Investment Technologies KCMO (Kansas City)
CFO KOA-AM (Denver)
Changing Times LA Times
Chicago Sun Times Leckey, Andrew (syndicated column)
Chicago Tribune Lear's
Christian Science Monitor Life Association News
Christian Science Monitor News Service Lifetime Channel
Cincinnati Enquirer Miami Herald
Cincinnati Post Milwaukee Sentinel
CNBC Money Magazine
CNN Money Maker
Columbus Dispatch Money Management Letter
CompuServe Morningstar
Dallas Morning News Mutual Fund Market News
Dallas Times-Herald Mutual Funds Magazine
Denver Post National Underwriter
Des Moines Register NBC and affiliates
Detroit Free Press New England Business
Donoghues Money Fund Report New England Cable News
Dorman, Dan (syndicated column) New Orleans Times-Picayune
Dow Jones News Service New York Daily News
Economist New York Times
FACS of the Week Newark Star Ledger
Fee Adviser Newsday
Financial News Network Newsweek
Financial Planning Nightly Business Report
Financial Planning on Wall Street Orange County Register
Financial Research Corp. Orlando Sentinel
Financial Services Week Palm Beach Post
Financial World Pension World
Fitch Insights Pensions and Investments
Forbes Personal Investor
Fort Worth Star-Telegram Philadelphia Inquirer
Fortune Porter, Sylvia (syndicated column)
Fox Network and affiliates
B-35
<PAGE>
Portland Oregonian Tampa Tribune
Prodigy Time
Public Broadcasting Service Tobias, Andrew (syndicated column)
Quinn, Jane Bryant (syndicated column) Toledo Blade
Registered Representative UPI
Research Magazine US News and World Report
Resource USA Today
Reuters USA TV Network
Rocky Mountain News Value Line
Rukeyser's Business (syndicated column) Wall Street Journal
Sacramento Bee Wall Street Letter
San Diego Tribune Wall Street Week
San Francisco Chronicle Washington Post
San Francisco Examiner WBZ
San Jose Mercury WBZ-TV
Seattle Post-Intelligencer WCVB-TV
Seattle Times WEEI
Securities Industry Management WHDH
Smart Money Worcester Telegram
St. Louis Post Dispatch World Wide Web
St. Petersburg Times Worth Magazine
Standard & Poor's Outlook WRKO
Standard & Poor's Stock Guide
Stanger's Investment Advisor
Stockbroker's Register
Strategic Insight
B-36
<PAGE>
APPENDIX C
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:
[X] Puget Sound Alternative Investment Series Trust's participation in wrap fee
and no transaction fee programs
[X] Characteristics of the adviser and sub-adviser(s), including the locations
of offices, investment practices and clients
[X] Specific and general investment philosophies, strategies, processes and
techniques
[X] 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
[X] Industry conferences at which the adviser and sub-adviser(s) participate
[X] Current capitalization, levels of profitability and other financial
information
[X] Identification of portfolio managers, researchers, economists, principals
and other staff members and employees
[X] 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
[X] Specific identification of, and general reference to, current individual,
corporate and institutional clients, including pension and profit sharing
plans
[X] Current and historical statistics relating to:
[X] total dollar amount of assets managed
[X] Puget Sound Alternative Investment Series Trust's assets managed in
total and by series
[X] the growth of assets
[X] 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:
[X] 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.
[X] 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.
<PAGE>
As filed with the Securities and Exchange
Commission on September 28, 1999
Registration No. . 333-50315
File No. 811-8751
Part C
of
Form N-1A
REGISTRATION STATEMENT
PUGET SOUND ALTERNATIVE INVESTMENT SERIES TRUST
================================================================================
<PAGE>
PUGET SOUND ALTERNATIVE INVESTMENT SERIES TRUST
PART C
ITEM 23. EXHIBITS.
(1) Agreement and Declaration of Trust of Puget Sound Alternative
Investment Series Trust (the "Trust") - on file (File No. 811-8751
under the Trust's Registration Statement filed on April 16, 1998).
(2) By-Laws of the Trust - on file (File No. 811-8751 under the Trust's
Registration Statement filed on April 16, 1998).
(3) See Articles III, V, VI and IX in the Trust's Declaration of Trust
(Exhibit 1 hereto) and Article XI in the Trusts By-Laws (Exhibit 2
hereto).
(4) 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") on file (File
No. 811-8751 under the Trust's Registration Statement filed on April
16, 1998).
b. Form of Sub-Advisory Agreement between PSAM and Fiduciary Asset
Management Co. ("FAMCO") relating to the Fund - on file (File No.
811-8751 under the Trust's Registration Statement filed on April 16,
1998).
(5) Distribution Agreement between the Trust and First Fund Distributors,
Inc. - on file (File No. 811-8751 under Post-Effective Amendment No. 1
to the Trust's Registration Statement filed on July 26, 1999).
(6) None.
(7) a. Form of Custodian Agreement between the Trust and Custodial Trust
Company ("CTC") - on file (File No. 811-8751 under Pre-Effective
Amendment No. 1 to the Trust's Registration Statement filed on June 2,
1998).
b. Form of Special Custody Account Agreement by and among the Trust,
CTC and Bear, Stearns Securities Corp. - on file (File No. 811-8751
under Pre-Effective Amendment No. 1 to the Trust's Registration
Statement filed on June 2, 1998).
(8) a. Form of Organizational Expense Reimbursement Agreement between the
Trust and PSAM - on file (File No. 811-8751 under Pre-Effective
Amendment No. 1 to the Trust's Registration Statement filed on June 2,
1998).
b. Investment Accounting Agreement between the Trust and State
Street Bank and Trust Company - on file (File No. 811-8751 under
Post-Effective Amendment No. 1 to the Trust's Registration Statement
filed on July 26, 1999).
c. Administration Agreement between the Trust and Investment Company
Administration, L.L.C. - on file (File No. 811-8751 under
Post-Effective Amendment No. 1 to the Trust's Registration Statement
filed on July 26, 1999).
d. Form of Transfer Agency and Service Agreement between the Trust
and National Financial Data Services, Inc. - (File No. 811-8751 under
Post-Effective Amendment No. 1 to the Trust's Registration Statement
filed on July 26, 1999).
e. Form of Shareholder Servicing Plan for Investor Shares - on file
(File No. -811-8751 under Pre-Effective Amendment No. 1 to the Trust's
Registration Statement filed on June 2, 1998).
(9) Opinion and Consent of Counsel - on file (File No. 811-8751 under
Pre-Effective Amendment No. 2 to the Trust's Registration Statement
filed on June 11, 1998).
(10) Independent Auditors' Consent - Filed herewith.
(11) Omitted Financial Statements -None.
(12) Initial Capital Agreements - - on file (File No. 811-8751 under
Pre-Effective Amendment No. 2 to the Trust's Registration Statement
filed on June 11, 1998).
(13) Form of Distribution Plan for Investor Shares - - on file (File No.
811-8751 under Pre-Effective Amendment No. 1 to the Trust's
Registration Statement filed on June 2, 1998).
(14) Financial Data Schedule - [No longer required].
(15) 18f-3 Plan - Form of Multi-Class Plan - on file (File No. 811-8751
under Pre-Effective Amendment No. 1 to the Trust's Registration
Statement filed on June 2, 1998).
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE TRUST.
As of the date of this Amendment to the Registration Statement, there are no
persons controlled by or under common control with the Trust.
<PAGE>
ITEM 25. 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 against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 26. 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):
<PAGE>
<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
Chief Executive Officer, sole proprietor Consultant
Chief Investment Officer, P.O. Box 11371
Portfolio Manager and Bainbridge Island,
member Washington 98110
*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):
Name and Office Name and Address of Nature of
with PSAM Other Affiliations Connection
--------- ------------------ ----------
Charles D. Walbrandt None None
President
John L. Dorian None None
Chief Investment Officer -
Equity
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
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) First Fund Distributors, Inc. is the principal underwriter for the
following investment companies or series thereof:
Advisors Series Trust
Guinness Flight Investment Funds, Inc.
Fleming Capital Mutual Fund Group
Fremont Mutual Funds
Jurika & Voyles Mutual Funds
Kayne Anderson Mutual Funds
Masters' Select Funds Trust
O'Shaughnessy Funds, Inc.
PIC Investment Trust
The Purisima Funds
Professionally Managed Portfolios
Rainier Investment Management Mutual Funds
Brandes Investment Funds
Puget Sound Alternative Investment Series Trust
RNC Mutual Fund Group, Inc.
(b) The following information is furnished with respect to the officers of
First Fund Distributors, Inc.:
Name and Principal Position and Offices with First Positions and Offices
Business Address* Fund Distributors, Inc. with Registrant
- ----------------- ----------------------- ---------------
Robert H. Wadsworth President and Treasurer None
Steven J. Paggioli Vice President and Secretary Assistant Secretary
Eric M. Banhazl Vice President None
* The principal business address of persons and entities listed is 4455
E. Camelback Road, Suite 261E, Phoenix, AZ 85018.
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books and other documents required to be maintained by the Trust
pursuant to Section 31(a) of the Investment Company Act of 1940 and the rules
promulgated thereunder are in the possession the Trust's custodian, CTC, at 101
Carnegie Center, Princeton, New Jersey 08540 and the Trust's transfer agent,
National Financial Data Services, Inc., at 330 West 9th Street, Kansas City,
Missouri 64105, except those records relating to portfolio transactions and the
basic organizational and Trust documents of the Trust (see Subsections (2)
(iii), (4), (5), (6), (7), (9), (10) and (11) of Rule 31a-1(b)), which, with
respect to portfolio transactions are kept by the Fund's Sub-Advisor at 8112
Maryland Avenue, Suite 310, Clayton, MO and with respect to trust documents are
kept by its administrator at 479 West 22nd Street, New York, NY 10011 and 2020
E. Financial Way, Ste. 100, Glendora, CA 91741.
ITEM 29. MANAGEMENT SERVICES.
There are no management-related service contracts not discussed in Parts A and
B.
ITEM 30. 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.
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Trust certifies that it meets all of the requirements
for effectiveness of this Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and 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 27th day of September, 1999.
PUGET SOUND ALTERNATIVE
INVESTMENT SERIES TRUST
By: /s/ MARGARET M. TOWLE
---------------------------------
Margaret M. Towle
Title: President
Pursuant to the requirements of 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 Chairman of the Board of September 27, 1999
- --------------------- Trustees, President, and
Margaret M. Towle Trustee
*Mary Bechmann Trustee September 27, 1999
- ---------------------
Mary Bechmann
*John W. Peavy III Trustee September 27, 1999
- ---------------------
John W. Peavy III
*Joseph C. Pellegrino Trustee September 27, 1999
- ---------------------
Joseph C. Pellegrino
*By: /s/ MARGARET M. TOWLE
---------------------------
Margaret M. Towle, Pursuant to Power of Attorney -- on file
(File No. 811-8751 under Pre-Effective
Amendment No. 2 file June 11, 1998)
<PAGE>
As filed with the Securities and Exchange
Commission on September 28, 1999
Registration No. . 333-50315
File No. 811-8751
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS TO
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 3 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 5 [X]
PUGET SOUND ALTERNATIVE INVESTMENT SERIES TRUST
(Exact name of registrant as specified in charter)
PUGET SOUND ASSET MANAGEMENT CO., LLC
One Yesler Building, Suite 200
Seattle, WA 98104
(Address of principal executive offices)
Registrant's telephone number, including area code:
(206) 405-4100
Exhibit 10
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 3 to Registration
Statement under the Securities Act of 1933, filed under Registration Statement
No. 333-50315 of our report dated June 30, 1999, relating to Puget Sound Market
Neutral Portfolio, which comprises the Puget Sound Alternative Investment Series
Trust, incorporated by reference in the Statement of Additional Information and
to the references to us under the captions "Financial Highlights" and "Financial
Statements" in such Registration Statement.
DELOITTE & TOUCHE LLP
San Francisco, California
September 23, 1999
