1933 Act Registration No. ___
1940 Act Registration No. 811-09903
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. [ ]
MPAM FUNDS TRUST
(Exact Name of Registrant as Specified in Charter)
c/o The Dreyfus Corporation
200 Park Avenue, New York, New York 10166
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 922-6000
Mark N. Jacobs, Esq.
200 Park Avenue
New York, New York 10166
(Name and Address of Agent for Service)
Copies to:
Thomas M. Leahey, Esq.
Donald W. Smith, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W., Second Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9000
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
MPAM Large Cap Stock Fund
MPAM Income Stock Fund
MPAM Mid Cap Stock Fund
MPAM Small Cap Stock Fund
MPAM International Fund
MPAM Emerging Markets Fund
MPAM Bond Fund
MPAM Intermediate Bond Fund
MPAM Short-Term U.S. Government Securities Fund
MPAM National Intermediate Municipal Bond Fund
MPAM National Short-Term Municipal Bond Fund
MPAM Pennsylvania Intermediate Municipal Bond Fund
MPAM Balanced Fund
PROSPECTUS
____________, 2000
SUBJECT TO COMPLETION. PRELIMINARY PROSPECTUS DATED APRIL 14, 2000. The
information in this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
these securities and is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
THE MPAM FUNDS
MPAM Large Cap Stock Fund
MPAM Income Stock Fund
MPAM Mid Cap Stock Fund
MPAM Small Cap Stock Fund
MPAM International Fund
MPAM Emerging Markets Fund
MPAM Bond Fund
MPAM Intermediate Bond Fund
MPAM Short-Term U.S. Government Securities Fund
MPAM National Intermediate Municipal Bond Fund
MPAM National Short-Term Municipal Bond Fund
MPAM Pennsylvania Intermediate Municipal Bond Fund
MPAM Balanced Fund
CONCEPTS TO UNDERSTAND
MANAGEMENT
ACCOUNT POLICIES
DISTRIBUTIONS AND TAXES
2
<PAGE>
THE MPAM(SERVICEMARK) FUNDS
The funds are designed for Mellon Private Asset Management Clients that maintain
qualified fiduciary, custody or other accounts with Mellon Bank, N.A. or Boston
Safe Deposit and Trust Company, or their bank affiliates. MPAM(SERVICEMARK) is a
service mark of Mellon Private Asset Management ("MPAM").
MPAM LARGE CAP STOCK FUND
GOAL/APPROACH
The fund seeks investment returns (consisting of capital appreciation and
income) that are consistently superior to the Standard & Poor's(REGISTERED) 500
Composite Stock Price Index (S&P 500). This objective may be changed without
shareholder approval. To pursue its goal, the fund invests at least 65% of its
total assets in a blended portfolio of growth and value stocks chosen through a
disciplined investment process that combines computer modeling techniques,
fundamental analysis and risk management. The primary goals of this process are
consistency of returns and stability of the fund's share price compared to the
S&P 500.
In selecting securities, the investment adviser uses a computer model to
identify and rank stocks within an industry or sector, based on:
o VALUE, or how a stock is priced relative to its perceived intrinsic worth
o GROWTH, in this case the sustainability or growth of earnings
o FINANCIAL PROFILE, which measures the financial health of the company
Next, the investment adviser uses fundamental analysis to select the most
attractive of the top-ranked securities, drawing on information technology as
well as Wall Street sources and company management.
The investment adviser manages risk by diversifying across companies and
industries, limiting the potential adverse impact from any one stock or
industry. The fund is structured so that its sector weightings and risk
characteristics, such as growth, size, quality and yield, are similar to those
of the S&P 500.
CONCEPTS TO UNDERSTAND
COMPUTER MODEL: a proprietary computer model that evaluates and ranks a universe
of over 2,000 stocks. The model screens each stock for relative attractiveness
within its economic sector and industry. To ensure that the model remains
effective, the investment adviser reviews each of the screens on a regular
basis. The investment adviser also maintains the flexibility to adapt the
screening criteria to changes in market conditions.
3
<PAGE>
S&P 500: an unmanaged index of 500 common stocks chosen to reflect the
industries of the U.S. economy. The S&P 500 is often considered a proxy for the
stock market in general.
MAIN RISKS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of your investment in the fund will go up
and down, which means that you could lose money.
Although the fund seeks to manage risk by broadly diversifying among industries
and by maintaining a risk profile very similar to the S&P 500, the fund is
expected to hold fewer securities than the index. Owning fewer securities and
the ability to purchase companies not listed in the index can cause the fund to
underperform the index.
Because different types of stocks tend to shift in and out of favor depending on
market and economic conditions, the fund may sometimes outperform other types of
funds (such as those emphasizing only growth stocks or value stocks) and
sometimes underperform them. By investing in growth and value stocks, the fund
could be affected less by the underperformance of either style, although this
may also result in more modest gains during certain periods than those for funds
that utilize only one investment style.
OTHER POTENTIAL RISKS
Growth companies are expected to increase their earnings at a certain rate. When
these expectations are not met, investors can punish the stocks inordinately -
even if earnings showed an absolute increase. In addition, growth stocks
typically lack the dividend yield that can cushion stock prices in market
downturns.
Value companies are subject to the risk that their intrinsic value may never be
realized by the market, or that their prices may go down. While the fund's
investments in value stocks may limit the downside risk of the fund over time,
the fund may produce more modest gains than riskier stock funds as a trade-off
for this potentially lower risk.
PAST PERFORMANCE
The fund has been recently organized and does not yet have a performance record
as an investment company registered under the Investment Company Act of 1940
(1940 Act). The performance presented below is that of a predecessor common
trust fund (CTF) that had substantially the same investment objective, policies
and limitations as the fund, and is for periods prior to the effective date of
this prospectus. Prior to the fund's commencement of operations, substantially
all of the assets of the predecessor CTF (and that of another CTF) will be
transferred to the fund. The performance presented has been adjusted to reflect
the fund's fees and expenses. The predecessor CTF was not registered under the
1940 Act and therefore was not subject to certain investment restrictions that
might have adversely affected performance.
4
<PAGE>
The bar chart below shows you how the predecessor CTF's performance has varied
from year to year. The table compares the predecessor CTF's performance over
time to that of the S&P 500, a widely recognized unmanaged index of stock
performance. All performance figures reflect the reinvestment of dividends and
distributions. Of course, past performance is no guarantee of future results.
Year by year total return as of 12/31 each year (%)
[BAR CHART]
[ ]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Fourth Quarter 1998 [ ]
Worst Quarter: Third Quarter 1990 [ ]
The year-to-date total return as of __/__/00 was ____%.
Average annual total return as of 12/31/99
One Year Five Years Ten Years
MPAM Stock Fund [ ]
S&P 500 Index 21.03 28.54 18.19
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Annual fund operating expenses are paid
out of fund assets, so their effect is included in the share price. The fund has
no sales charge (load) or Rule 12b-1 fees.
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees
Other expenses*
TOTAL
* Other expenses are based on estimated amounts for the current fiscal year.
EXPENSE EXAMPLE
One Year Three Years
$ $
5
<PAGE>
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether you sold your shares at the end of a period or
kept them. Because actual return and expenses will be different, the example is
for comparison only.
CONCEPTS TO UNDERSTAND
MANAGEMENT FEE: the fee paid to the investment adviser for managing the fund's
portfolio and assisting in all aspects of the fund's operations.
6
<PAGE>
MPAM INCOME STOCK FUND
GOAL/APPROACH
The fund's investment objective is to exceed the total return performance of the
Russell 1000(TRADEMARK) Value Index over time. This objective may be changed
without shareholder approval. To pursue its goal, the fund invests at least 65%
of its total assets in dividend-paying stocks and American Depository Receipts
("ADRs"). The investment adviser chooses stocks through a disciplined investment
process that combines computer modeling techniques, fundamental analysis and
risk management. Because the fund invests primarily in dividend-paying stocks,
it will emphasize those stocks with value characteristics although it may also
purchase growth stocks. The remainder of the fund's total assets may be invested
in preferred stocks, fixed-income securities and money market securities.
In selecting securities, the investment adviser uses a computer model to
identify and rank stocks within an industry or sector, based on:
o VALUE, or how a stock is priced relative to its perceived intrinsic worth
o GROWTH, in this case the sustainability or growth of earnings
o FINANCIAL PROFILE, which measures the financial health of the company
Next, the investment adviser uses fundamental analysis to select the most
attractive of the top-ranked securities, drawing on information technology as
well as Wall Street sources and company management.
The investment adviser manages risk by diversifying across companies and
industries, limiting the potential adverse impact from any one stock or
industry. The fund may at times overweight certain sectors in attempting to
achieve higher yields.
CONCEPTS TO UNDERSTAND
DIVIDEND: a distribution of earnings to shareholders, usually paid in the form
of cash or stock.
COMPUTER MODEL: a proprietary computer model that evaluates and ranks a universe
of over 2,000 stocks. The model screens each stock for relative attractiveness
within its economic sector and industry. To ensure that the model remains
effective, the investment adviser reviews each of the screens on a regular
basis. The investment adviser also maintains the flexibility to adapt the
screening criteria to changes in market conditions.
RUSSELL 1000 VALUE INDEX: is a market capitalization-weighted index of
value-oriented stocks among the 1000 largest U.S. companies based on total
market capitalization.
7
<PAGE>
MAIN RISKS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of your investment in the fund will go up
and down, which means that you could lose money.
Although the fund seeks to manage risk by broadly diversifying among industries
and by maintaining a risk profile very similar to the Russell 1000 Value, the
fund is expected to hold fewer securities than the index. Owning fewer
securities and the ability to purchase companies not listed in the index can
cause the fund to underperform the index.
Because different types of stocks tend to shift in and out of favor depending on
market and economic conditions, the fund may sometimes outperform other types of
funds (such as those emphasizing only growth stocks or value stocks) and
sometimes underperform them. By investing in growth and value stocks, the fund
could be affected less by the underperformance of either style, although this
may also result in more modest gains during certain periods than those for funds
that utilize only one investment style.
OTHER POTENTIAL RISKS
The fund, at times, may invest some assets in derivative securities, such as
options and futures. When employed, these practices are used to hedge the fund's
portfolio and also to increase returns. There is the risk that such practices
may reduce returns or increase volatility. Derivatives can be illiquid, and a
small investment in certain derivatives could have a potentially large impact on
the fund's performance.
The fund may invest in ADRs, which represent indirect ownership of securities
issued by foreign companies. The securities of foreign issuers carry additional
risks such as less liquidity, changes in currency exchange rates, a lack of
comprehensive company information and political instability.
Value companies are subject to the risk that their intrinsic value may never be
realized by the market, or that their prices may go down. While the fund's
investments in value stocks may limit the downside risk of the fund over time,
the fund may produce more modest gains than riskier stock funds as a trade-off
for this potentially lower risk.
Growth companies are expected to increase their earnings at a certain rate. When
these expectations are not met, investors can punish the stocks inordinately -
even if earnings showed an absolute increase. In addition, growth stocks
typically lack the dividend yield that can cushion stock prices in market
downturns.
PAST PERFORMANCE
The fund has been recently organized and does not yet have a performance record
as an investment company registered under the 1940 Act. The performance
presented below is that of a predecessor common trust fund (CTF) that had
substantially the same investment objective, policies and limitations as the
8
<PAGE>
fund, and is for periods prior to the effective date of this prospectus. Prior
to the fund's commencement of operations, substantially all of the assets of the
predecessor CTF (and that of another CTF) will be transferred to the fund. The
performance presented has been adjusted to reflect the fund's fees and expenses.
The predecessor CTF was not registered under the 1940 Act and therefore was not
subject to certain investment restrictions that might have adversely affected
performance.
The bar chart below shows you how the predecessor CTF's performance has varied
from year to year. The table compares the predecessor CTF's performance over
time to that of the Russell 1000 Value Index, a widely recognized unmanaged
index of stock performance. All performance figures reflect the reinvestment of
dividends and distributions. Of course, past performance is no guarantee of
future results.
Year by year total return as of 12/31 each year (%)
[BAR CHART]
[ ]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Fourth Quarter of 1998 [ ]
Worst Quarter: Third Quarter of 1990 [ ]
The year-to-date total return as of __/__/00 was ____%.
Average annual total returns as of 12/31/99*
One Year Five Years Ten Years
MPAM Income Stock Fund [ ]
Russell 1000(TRADEMARK) Value Index
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Annual fund operating expenses are paid
out of fund assets, so their effect is included in the share price. The fund has
no sales charge (load) or Rule 12b-1 fees.
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM FUND ASSETS)
9
<PAGE>
% OF AVERAGE DAILY NET ASSETS
Management fees
Other expenses*
TOTAL
*Other expenses are based on estimated amounts for the current fiscal year.
EXPENSE EXAMPLE
One Year Three Years
$ $
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether you sold your shares at the end of a period or
kept them. Because actual return and expenses will be different, the example is
for comparison only.
CONCEPTS TO UNDERSTAND
MANAGEMENT FEE: the fee paid to the investment adviser for managing the fund's
portfolio and assisting in all aspects of the fund's operations.
10
<PAGE>
MPAM MID CAP STOCK FUND
GOAL/APPROACH
The fund seeks investment returns (consisting of capital appreciation and
income) that are consistently superior to the Russell 2500(TRADEMARK) Stock
Index (Russell 2500). This objective may be changed without shareholder
approval. To pursue its goal, the fund normally invests at least 65% of its
total assets in a blended portfolio of growth and value stocks of small and
mid-size domestic companies, whose market values generally range between $500
million and $5 billion. The fund may purchase securities in initial public
offerings or shortly thereafter. Stocks are chosen through a disciplined
investment process that combines computer modeling techniques, fundamental
analysis and risk management. Consistency of returns and stability of the fund's
share price compared to the Russell 2500 are primary goals of the investment
process.
In selecting securities, the investment adviser uses a computer model to
identify and rank stocks within an industry or sector, based on:
o VALUE, or how a stock is priced relative to its perceived intrinsic worth
o GROWTH, in this case the sustainability or growth of earnings
o FINANCIAL PROFILE, which measures the financial health of the company
Next, the investment adviser uses fundamental analysis to select the most
attractive of the top-ranked securities, drawing on information technology as
well as Wall Street sources and company management.
The investment adviser manages risk by diversifying across companies and
industries, limiting the potential adverse impact from any one stock or
industry. The fund is structured so that its sector weightings and risk
characteristics, such as growth, size, quality and yield, are similar to those
of the Russell 2500.
CONCEPTS TO UNDERSTAND
SMALL COMPANIES: new and often entrepreneurial companies. Small-cap companies
tend to grow faster than larger-cap companies and typically use any profits for
expansion rather than for paying dividends. They are also more volatile than
larger companies and have a higher failure rate.
COMPUTER MODEL: a proprietary computer model that evaluates and ranks a universe
of over 2,000 stocks. The model screens each stock for relative attractiveness
within its economic sector and industry. To ensure that the model remains
effective, the investment adviser reviews each of the screens on a regular
basis. The investment adviser also maintains the flexibility to adapt the
screening criteria to changes in market conditions.
11
<PAGE>
MAIN RISKS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of your investment in the fund will go up
and down, which means that you could lose money.
Small and mid-size companies carry additional risks because their operating
histories tend to be more limited, their earnings less predictable, their share
prices more volatile and their securities less liquid than those of larger, more
established companies. The prices of securities purchased in initial public
offerings or shortly thereafter may be very volatile. Some of the fund's
investments will rise and fall based on investor perception rather than
economics.
Although the fund seeks to manage risk by broadly diversifying among industries
and by maintaining a risk profile similar to the Russell 2500, the fund holds
fewer securities than the index. Owning fewer securities and the ability to
purchase companies not listed in the index can cause the fund to underperform
the index.
By investing in a mix of growth and value companies, the fund assumes the risks
of both and may achieve more modest gains than funds that use only one
investment style. Because the stock prices of growth companies are based in part
on future expectations, they may fall sharply if earnings expectations are not
met or investors believe the prospects for a stock, industry or the economy in
general are weak. Growth stocks also typically lack the dividend yield that
could cushion stock prices in market downturns. With value stocks, there is a
risk that they may never reach what the manager believes is their full market
value, or that their intrinsic values may fall. While investments in value
stocks may limit downside risk over time, they may produce smaller gains than
riskier stocks.
OTHER POTENTIAL RISKS
The fund, at times, may invest some assets in derivative securities, such as
options and futures, and in foreign currencies. When employed, these practices
are used to hedge the fund's portfolio and also to increase returns. There is
the risk that such practices may reduce returns or increase volatility.
Derivatives can be illiquid, and a small investment in certain derivatives could
have a potentially large impact on the fund's performance.
The fund may invest in securities of foreign issuers, which carry additional
risks such as less liquidity, changes in currency exchange rates, a lack of
comprehensive company information and political instability.
PAST PERFORMANCE
The fund has been recently organized and does not yet have a performance record
as an investment company registered under the 1940 Act. The performance
presented below is that of a predecessor common trust fund (CTF) that had
substantially the same investment objective, policies and limitations as the
fund, and is for periods prior to the effective date of this prospectus. Prior
to the fund's commencement of operations, substantially all of the assets of the
predecessor CTF will be transferred to the fund. The performance presented has
12
<PAGE>
been adjusted to reflect the fund's fees and expenses. The predecessor CTF was
not registered under the 1940 Act and therefore was not subject to certain
investment restrictions that might have adversely affected performance.
The bar chart below shows you how the predecessor CTF's performance has varied
from year to year. The table compares the predecessor CTF's performance over
time to that of the Russell 2500, a widely recognized unmanaged index of
small-cap stock performance. All performance figures reflect the reinvestment of
dividends and distributions. Of course, past performance is no guarantee of
future results.
Year by year total return as of 12/31 each year (%)
[BAR CHART]
[ ]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: First Quarter 1991 [ ]
Worst Quarter: Third Quarter 1998 [ ]
The year-to-date total return as of __/__/00 was ____%.
Average annual total returns as of 12/31/99*
One Year Five Years Ten Years
MPAM Special Stock Fund [ ]
Russell 2500(TRADEMARK) Stock Index 24.15 19.43 ?
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Annual fund operating expenses are paid
out of fund assets, so their effect is included in the share price. The fund has
no sales charge (load) or Rule 12b-1 fees.
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM FUND ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees
Other expenses*
TOTAL
*Other expenses are based on estimated amounts for the current fiscal year.
13
<PAGE>
EXPENSE EXAMPLE
One Year Three Years
$ $
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether you sold your shares at the end of a period or
kept them. Because actual return and expenses will be different, the example is
for comparison only.
CONCEPTS TO UNDERSTAND
MANAGEMENT FEE: the fee paid to the investment adviser for managing the fund's
portfolio and assisting in all aspects of the fund's operations.
14
<PAGE>
MPAM SMALL CAP STOCK FUND
GOAL/APPRAOCH
The fund seeks total investment returns (consisting of capital appreciation and
income) that surpass the Standard & Poor's SmallCap 600(REGISTERED) Index (S&P
SmallCap 600). This objective may be changed without shareholder approval. To
pursue its goal, the fund invests at least 65% of its total assets in a blended
portfolio of growth and value stocks of small-capitalization companies chosen
through a disciplined investment process that combines computer modeling
techniques, fundamental analysis and risk management.
In selecting securities, the investment adviser uses a computer model to
identify and rank stocks within an industry or sector, based on:
o VALUE, or how a stock is priced relative to its perceived intrinsic worth
o GROWTH, in this case the sustainability or growth of earnings
o FINANCIAL PROFILE, which measures the financial health of the company
Next, the investment adviser uses fundamental analysis to select the most
attractive of the top-ranked securities and to determine those issues that
should be sold. The investment adviser uses information technology as well as
Wall Street sources and company management to stay abreast of current
developments.
The investment adviser manages risk by diversifying across companies and
industries, limiting the potential adverse impact from any one stock or
industry. The fund is structured so that its sector weightings and risk
characteristics are similar to those of the S&P SmallCap 600.
CONCEPTS TO UNDERSTAND
SMALL-CAPITALIZATION COMPANIES: new and often entrepreneurial companies.
Small-cap companies tend to grow faster than larger-cap companies and typically
use any profits for expansion rather than for paying dividends. They are also
more volatile than larger companies and have a higher failure rate. The fund
generally invests in companies having market capitalizations from $100 million
to $2 billion, and may purchase securities of companies in initial public
offerings or shortly thereafter.
S&P SMALLCAP 600: an unmanaged index consisting of the stocks of 600 publicly
traded U.S. companies chosen for market size, liquidity and industry-group
representation. The stocks comprising the S&P SmallCap 600 have market
capitalizations ranging from $50 million to $2 billion.
15
<PAGE>
MAIN RISKS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of your investment in the fund will go up
and down, which means that you could lose money.
Small companies carry additional risks because their operating histories tend to
be more limited, their earnings less predictable, their share prices more
volatile and their securities less liquid than those of larger, more established
companies. The prices of securities purchased in initial public offerings or
shortly thereafter may be very volatile. Some of the fund's investments will
rise and fall based on investor perception rather than economics.
By investing in a mix of growth and value companies, the fund assumes the risks
of both and may achieve more modest gains than funds that use only one
investment style. Because the stock prices of growth companies are based in part
on future expectations, they may fall sharply if earnings expectations are not
met or investors believe the prospects for a stock, industry or the economy in
general are weak. Growth stocks also typically lack the dividend yield that
could cushion stock prices in market downturns. With value stocks, there is the
risk that they may never reach what the manager believes is their full market
value, or that their intrinsic values may fall. While investments in value
stocks may limit downside risk over time, they may produce smaller gains than
riskier stocks.
At times, the fund may engage in active trading, which can mean higher taxable
distributions and lower performance due to increased transaction costs.
Under adverse market conditions, the fund could invest some or all of its assets
in money market securities. Although the fund would do this to avoid losses, it
could reduce the benefit from any upswing in the market. During such periods,
the fund may not achieve its investment objective.
OTHER POTENTIAL RISKS
The fund may invest in options, futures and foreign currencies to hedge the
fund's portfolio and also to increase returns. There is the risk that such
practices may reduce returns or increase volatility.
The fund may invest in securities of foreign issuers, which carry additional
risks such as less liquidity, changes in currency exchange rates, a lack of
comprehensive company information and political instability.
The fund is not an index fund. The fund may hold securities not listed in the
S&P SmallCap 600 and may hold fewer securities than the index, either of which
could cause the fund to underperform the index.
16
<PAGE>
PAST PERFORMANCE
The fund has been recently organized and does not yet have a performance record
as an investment company registered under the 1940 Act. The performance
presented below is that of a predecessor common trust fund (CTF) that had
substantially the same investment objective, policies and limitations as the
fund, and is for periods prior to the effective date of this prospectus. Prior
to the fund's commencement of operations, substantially all of the assets of the
predecessor CTF will be transferred to the fund. The performance presented has
been adjusted to reflect the fund's fees and expenses. The predecessor CTF was
not registered under the 1940 Act and therefore was not subject to certain
investment restrictions that might have adversely affected performance.
The bar chart below shows you how the predecessor CTF's performance has varied
from year to year. The table compares the predecessor CTF's performance over
time to that of the S&P SmallCap 600. All performance figures reflect the
reinvestment of dividends and distributions. Of course, past performance is no
guarantee of future results.
Year by year total return as of 12/31 each year (%)
[BAR CHART]
[ ]
1998 1999
Best Quarter: Fourth Quarter 1999 [ ]
Worst Quarter: Third Quarter 1998 [ ]
The year-to-date total return as of __/__/00 was ____%.
Average annual total returns as of 12/31/99*
One Year Since Inception [ ]
MPAM Small Cap Stock Fund [ ] --- ---
S&P SmallCap 600 12.41 --- ---
EXPENSES
- --------
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Annual fund operating expenses are paid
out of fund assets, so their effect is included in the share price. The fund has
no sales charge (load) or Rule 12b-1 fees.
17
<PAGE>
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees
Other expenses*
TOTAL
*Other expenses are based on estimated amounts for the current fiscal year.
EXPENSE EXAMPLE
One Year Three Years
$ $
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether you sold your shares at the end of a period or
kept them. Because actual return and expenses will be different, the example is
for comparison only.
CONCEPTS TO UNDERSTAND
MANAGEMENT FEE: the fee paid to the investment adviser for managing the fund's
portfolio and assisting in all aspects of the fund's operations.
18
<PAGE>
MPAM INTERNATIONAL FUND
GOAL/APPROACH
The fund seeks long-term capital growth. This objective may be changed without
shareholder approval. To pursue its goal, the fund ordinarily invests most of
its assets in equity securities of foreign issuers which the investment adviser
considers to be "value" companies. To a limited extent, the fund may invest in
debt securities of foreign issuers. Though not specifically limited, the fund
ordinarily invests in companies in at least ten foreign countries, and limits
its investments in any single company to no more than 5% of its assets at the
time of purchase.
The fund's investment approach is value oriented, research driven, and risk
averse. In selecting stocks, the fund manager identifies potential investments
through extensive quantitative and fundamental research. Emphasizing individual
stock selection rather than economic and industry trends, the fund focuses on
three key factors:
o VALUE, or how a stock is valued relative to its intrinsic worth based
on traditional value measures
o BUSINESS HEALTH, or overall efficiency and profitability as measured by
return on assets and return on equity
o BUSINESS MOMENTUM, or the presence of a catalyst (such as corporate
restructuring or change in management) that potentially will trigger a price
increase near term to midterm
The fund typically sells a stock when it is no longer considered a value
company, appears less likely to benefit from the current market and economic
environment, shows deteriorating fundamentals or declining momentum, or falls
short of the fund manager's expectations.
CONCEPTS TO UNDERSTAND
VALUE COMPANIES: companies that appear underpriced according to certain
financial measurements of their intrinsic worth or business prospects (such as
price-to-earnings or price-to-book ratios). For international investing, "value"
is determined relative to a company's home market. Because a stock can remain
undervalued for years, value investors often look for factors that could trigger
a rise in price.
MAIN RISKS
The value of your investment in the fund will go up and down, which means that
you could lose money. The fund's performance will be influenced by political,
social and economic factors affecting investments in companies in foreign
countries. Special risks include exposure to currency fluctuations, less
liquidity, less developed or efficient trading markets, a lack of comprehensive
company information, political instability and differing auditing and legal
standards. Each of those risks could result in more volatility for the fund.
19
<PAGE>
The fund's investments in value stocks are subject to the risk that their
intrinsic values may never be realized by the market, or their prices may go
down. Further, while the fund's investment in value stocks may limit the overall
downside risk of the fund over time, the fund may produce more modest gains than
riskier stock funds as a trade-off for its potentially lower risk.
The fund may invest in companies of any size. Investments in small and mid-sized
companies carry additional risks because their operating histories tend to be
more limited, their earnings less predictable, their share prices more volatile
and their securities less liquid than those of larger, more established
companies.
Under the adverse market conditions, the fund could invest some or all of its
assets in the securities of U.S. issuers or money market securities. Although
the fund would do this to avoid losses, it could have the effect of reducing the
benefit from any upswing in the market. During such periods, the fund may not
achieve its investment objective.
OTHER POTENTIAL RISKS
The fund, at times, may invest some assets in derivative securities, such as
options and futures, and in foreign currencies. When employed, these practices
are used primarily to hedge the fund's portfolio, but may be used to increase
returns; however, such practices may lower returns or increase volatility.
Derivatives can be illiquid, and a small investment in certain derivatives could
have a potentially large impact on the fund's performance.
PAST PERFORMANCE
The fund has been recently organized and does not yet have a performance record
as an investment company registered under the 1940 Act. The performance
presented below is that of a predecessor common trust fund (CTF) that had
substantially the same investment objective, policies and limitations as the
fund, and is for periods prior to the effective date of this prospectus. Prior
to the fund's commencement of operations, substantially all of the assets of the
predecessor CTF (and that of another CTF) will be transferred to the fund. The
performance presented has been adjusted to reflect the fund's fees and expenses.
The predecessor CTF was not registered under the 1940 Act and therefore was not
subject to certain investment restrictions that might have adversely affected
performance.
The bar chart below shows you how the predecessor CTF's performance has varied
from year to year. The table compares the predecessor CTF's performance over
time to that of the Morgan Stanley Capital International (MSCI) Europe,
Australasia, Far East (EAFE(REGISTERED)) Index, an unmanaged index of foreign
stock performance. All performance figures reflect the reinvestment of dividends
and distributions. Of course, past performance is no guarantee of future
results.
20
<PAGE>
Year by year total return as of 12/31 each year (%)
[BAR CHART]
[ ]
1999
Best Quarter: Fourth Quarter of 1999 [ ]
Worst Quarter: First Quarter of 1999 [ ]
The year-to-date total return as of __/__/00 was ____%.
Average annual total returns as of 12/31/99*
One Year Life
MPAM International Fund [ ]
MSCI EAFE(REGISTERED) Index 26.96 20.41
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Annual fund operating expenses are paid
out of fund assets, so their effect is included in the share price. The fund has
no sales charge (load) or Rule 12b-1 fees.
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees
Other expenses*
TOTAL
*Other expenses are based on estimated amounts for the current fiscal year.
EXPENSE EXAMPLE
One Year Three Years
$ $
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether you sold your shares at the end of a period or
kept them. Because actual return and expenses will be different, the example is
for comparison only.
21
<PAGE>
CONCEPTS TO UNDERSTAND
MANAGEMENT FEE: the fee paid to the investment adviser for managing the fund's
portfolio and assisting in all aspects of the fund's operations.
22
<PAGE>
MPAM EMERGING MARKETS FUND
GOAL/APPROACH
The fund seeks long-term capital growth. This objective may be changed without
shareholder approval. To pursue its goal, the fund invests primarily in equity
securities of foreign countries having emerging markets. "Emerging market"
countries consist of all countries represented by the Morgan Stanley Capital
International Emerging Markets Free Index or any other country the investment
adviser believes has an emerging economy or market. Normally, the fund will not
invest more than 25% of its total assets in the securities of companies in any
one emerging market country.
In choosing stocks, the fund uses a value-oriented, research-driven approach. In
selecting stocks, the portfolio manager identifies potential investments through
extensive quantitative and fundamental research. Emphasizing individual stock
selection rather than economic and industry trends, the fund focuses on three
key factors:
o VALUE, or how a stock is valued relative to its intrinsic worth based
on traditional value measures
o BUSINESS HEALTH, or overall efficiency and profitability as measured by
return on assets and return on equity
o BUSINESS MOMENTUM, or the presence of a catalyst (such as corporate
restructuring, change in management or spin-off) that potentially will
trigger a price increase near term or midterm
The fund typically sells a stock when it is no longer considered a value
company, appears less likely to benefit from the current market and economic
environment, shows deteriorating fundamentals or declining momentum, or falls
short of the manager's expectations.
VALUE COMPANIES: companies that appear underpriced according to certain
financial measurements of their intrinsic worth or business prospects (such as
price-to-earnings or price-to-book ratios). For international investing, "value"
is determined relative to a company's home market. Because a stock can remain
undervalued for years, value investors often look for factors that could trigger
a rise in price.
MAIN RISKS
The stock markets of emerging market countries can be extremely volatile. The
value of your investment in the fund will go up and down, sometimes
dramatically, which means that you could lose money.
The fund's performance will be influenced by political, social and economic
factors affecting companies in emerging markets countries. These risks include
changes in currency exchange rates, a lack of comprehensive company information,
political instability, differing auditing and legal standards, less diverse and
less mature economic structures, and less liquidity.
23
<PAGE>
Value stocks involve the risk that they may never reach what the manager
believes is their full market value, either because the market fails to
recognize the stock's intrinsic worth or the manager misgauged that worth. They
also may decline in price, even though in theory they are already underpriced.
Because different types of stocks tend to shift in and out of favor depending on
market and economic conditions, the fund's performance may sometimes be lower or
higher than that of other types of funds (such as those emphasizing growth
stocks).
The fund may invest in companies of any size. Investments in smaller companies
carry additional risks because their earnings tend to be less predictable, their
share prices more volatile and their securities less liquid than larger, more
established companies.
Under adverse market conditions, the fund could invest some or all of its assets
in money market securities. Although the fund would do this to avoid losses, it
could reduce the benefit from any upswing in the market. During such periods,
the fund may not achieve its investment objective.
OTHER POTENTIAL RISKS
The fund, at times, may invest some of its assets in derivative securities, such
as options and futures, and in foreign currencies. When employed, these
practices are used primarily to hedge the fund's portfolio, but may be used to
increase returns; however, such practices may lower returns or increase
volatility. Derivatives can be illiquid, and a small investment in certain
derivatives could have a potentially large impact on the fund's performance.
At times, the fund may engage in active trading, which can mean higher taxable
distributions and lower performance due to increased transaction costs.
PAST PERFORMANCE
Because the fund is newly organized, it does not have any performance to report.
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Annual fund operating expenses are paid
out of fund assets, so their effect is included in the share price. The fund has
no sales charge (load) or Rule 12b-1 fees.
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees
Other expenses*
TOTAL
*Other expenses are based on estimated amounts for the current fiscal year.
24
<PAGE>
EXPENSE EXAMPLE
One Year Three Years
$ $
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether you sold your shares at the end of a period or
kept them. Because actual return and expenses will be different, the example is
for comparison only.
CONCEPTS TO UNDERSTAND
MANAGEMENT FEE: the fee paid to the investment adviser for managing the fund's
portfolio and assisting in all aspects of the fund's operations.
25
<PAGE>
MPAM BOND FUND
GOAL/APPROACH
The fund seeks to outperform the Lehman Brothers Aggregate Bond Index while
maintaining a similar risk level. This objective may be changed without
shareholder approval. To pursue its goal, the fund actively manages bond market
and maturity exposure and invests at least 65% of its total assets in debt
securities, such as:
o U.S. government and agency bonds
o corporate bonds
o mortgage-related securities
o foreign corporate and government bonds (up to 20% of total assets)
o commercial mortgage-backed securities
The fund's purchase of debt securities must be investment grade (or deemed of
comparable quality by the investment adviser). The fund may invest in individual
debt securities with any duration.
The manager uses a disciplined process to select securities and manage risk. The
manager chooses securities based on yield, credit quality, the level of interest
rates and inflation, general economic and financial trends, and its outlook for
the securities markets. Securities selected must fit within management's
predetermined targeted positions for quality, duration, coupon, maturity and
sector. The process includes computer modeling and scenario testing of possible
changes in market conditions. The manager will use other techniques in an
attempt to manage market risk and duration.
CONCEPTS TO UNDERSTAND
DURATION: a way of measuring a security's maturity in terms of the average time
required to receive the present value of all interest and principal payments,
which incorporates the security's yield, coupon interest payments, final
maturity and option features into one measure.
MATURITY: length of time between the date on which a bond is issued and the date
the principal amount must be paid. Bonds with a longer maturity tend to offer
higher yields, but generally fluctuate more in price than shorter-term
counterparts.
INVESTMENT GRADE BONDS: independent rating organizations analyze and evaluate a
bond issuer's credit history and ability to repay debts. Based on their
assessment, they assign letter grades that reflect the issuer's
creditworthiness. AAA or Aaa represents the highest credit rating. AA/Aa the
second highest, and so on down to D, for defaulted debt. Bonds BBB or Baa and
above are considered investment grade.
26
<PAGE>
COMMERCIAL MORTGAGE-BACKED SECURITIES: represent direct or indirect
participations in, or are secured by and payable from, pools of loans or leases
secured by commercial properties, including retail, office or industrial
properties, health-care facilities and multifamily residential properties.
MAIN RISKS
Prices of bonds tend to move inversely with changes in interest rates. While a
rise in rates may allow the fund to invest for higher yields, the most immediate
effect is usually a drop in bond prices, and, therefore, in the fund's share
price as well. As a result, the value of your investment in the fund could go up
and down, which means that you could lose money. To the extent that the fund
maintains a longer maturity than other bond funds, its share price will react
more strongly to interest rate movements. Other risk factors that could have an
effect on the fund's performance include:
o if an issuer fails to make timely interest or principal payments or there is
a decline in the bond's credit quality, or perception of a decline, the
bond's value could fall, potentially lowering the fund's share price
o if the loans underlying the fund's mortgage-related securities are paid off
earlier or later than expected, which could occur because of movements in
market interest rates, the fund's share price or yield could be hurt
o the price and yield of foreign debt securities could be affected by such
factors as political and economic instability, changes in currency exchange
rates and less liquid markets for such securities
While some of the fund's securities may carry guarantees of the U.S. government
or its agencies, these guarantees do not apply to shares of the fund itself.
Under adverse market conditions, the fund could invest some or all of its assets
in money market instruments. Although the fund would do this to avoid losses, it
could reduce the benefit from any upswing in the market. During such periods,
the fund may not achieve its investment objective.
OTHER POTENTIAL RISKS
The fund, at times, may invest in certain derivatives, including futures,
options, and some mortgage-related securities. Derivatives can be illiquid and
highly sensitive to changes in their underlying security, interest rate or
index, and as a result can be highly volatile. The value and interest rates of
some derivatives, such as inverse floaters, may be inversely related to their
underlying instrument. A small investment in certain derivatives could have a
potentially large impact on the fund.
Although debt securities must be of investment grade when purchased by the fund,
they may subsequently be downgraded.
At times, the fund may engage in active trading, which can mean higher taxable
distributions and lower performance due to increased transaction costs.
27
<PAGE>
PAST PERFORMANCE
The fund has been recently organized and does not yet have a performance record
as an investment company registered under the 1940 Act. The performance
presented below is that of a predecessor common trust fund (CTF) that had
substantially the same investment objective, policies and limitations as the
fund, and is for periods prior to the effective date of this prospectus. Prior
to the fund's commencement of operations, substantially all of the assets of the
predecessor CTF (and that of two other CTFs) will be transferred to the fund.
The performance presented has been adjusted to reflect the fund's fees and
expenses. The predecessor CTF was not registered under the 1940 Act and
therefore was not subject to certain investment restrictions that might have
adversely affected performance.
The bar chart and table below show some of the risks of investing in the fund's
predecessor CTF. The bar chart below shows you how the predecessor CTF's
performance has varied from year to year. The table compares the predecessor
CTF's performance over time to that of the Lehman Brothers Aggregate Bond Index,
a broad-based, unmanaged, market-weighted index covering the U.S. investment
grade fixed-rate bond market that must have a maturity of one year or more. All
performance figures reflect the reinvestment of dividends and distributions. Of
course, past performance is no guarantee of future results.
Year by year total return as of 12/31 each year (%)
[BAR CHART]
[ ]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Third Quarter of 1991 [ ]
Worst Quarter: First Quarter of 1994 [ ]
The year-to-date total return as of __/__/00 was ____%.
Average annual total returns as of 12/31/99*
One Year Five Years Ten Years
MPAM Bond Fund [ ]
Lehman Brothers Aggregate (0.82) 7.73 7.70
Bond Index
28
<PAGE>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Annual fund operating expenses are paid
out of fund assets, so their effect is included in the share price. The fund has
no sales charge (load) or Rule 12b-1 fees.
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees
Other expenses*
TOTAL
*Other expenses are based on estimated amounts for the current fiscal year.
EXPENSE EXAMPLE
One Year Three Years
$ $
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether you sold your shares at the end of a period or
kept them. Because actual return and expenses will be different, the example is
for comparison only.
CONCEPTS TO UNDERSTAND
MANAGEMENT FEE: the fee paid to the investment adviser for managing the fund's
portfolio and assisting in all aspects of the fund's operations.
29
<PAGE>
MPAM INTERMEDIATE BOND FUND
GOAL/APPROACH
The fund seeks to outperform the Lehman Brothers Intermediate
Government/Corporate Bond Index while maintaining a similar risk level. This
objective may be changed without shareholder approval. To pursue its goal, the
fund actively manages bond market and maturity exposure and invests at least 65%
of its total assets in debt securities, such as:
o U.S. government and agency bonds
o corporate bonds
o mortgage-related securities (between 0-25%)
o foreign corporate and government bonds (up to 20% of total assets)
o commercial mortgage-backed securities
The fund's purchase of debt securities must be investment grade (or deemed of
comparable quality by the investment adviser). Generally, the maximum duration
of the fund will be between 2.75 and 5.5 years. Duration is an indication of how
sensitive a bond or mutual fund portfolio may be to changes in interest rates.
Generally, the longer the duration, the more price volatility an investor should
expect.
The manager uses a disciplined process to select securities and manage risk. The
manager chooses securities based on yield, credit quality, the level of interest
rates and inflation, general economic and financial trends, and its outlook for
the securities markets. Securities selected must fit within management's
predetermined targeted positions for quality, duration, coupon, maturity and
sector. The process includes computer modeling and scenario testing of possible
changes in market conditions. The manager will use other techniques in an
attempt to manage market risk and maturity.
CONCEPTS TO UNDERSTAND
INVESTMENT GRADE BONDS: independent rating organizations analyze and evaluate a
bond issuer's credit history and ability to repay debts. Based on their
assessment, they assign letter grades that reflect the issuer's
creditworthiness. AAA or Aaa represents the highest credit rating. AA/Aa the
second highest, and so on down to D, for defaulted debt. Bonds BBB or Baa and
above are considered investment grade.
DURATION: a way of measuring a security's maturity in terms of the average time
required to receive the present value of all interest and principal payments,
which incorporates the security's yield, coupon interest payments, final
maturity and option features into one measure.
COMMERCIAL MORTGAGE-BACKED SECURITIES: represent direct or indirect
participations in, or are secured by and payable from, pools of loans or leases
secured by commercial properties, including retail, office or industrial
properties, health-care facilities and multifamily residential properties.
30
<PAGE>
MAIN RISKS
Prices of bonds tend to move inversely with changes in interest rates. While a
rise in rates may allow the fund to invest for higher yields, the most immediate
effect is usually a drop in bond prices, and, therefore, in the fund's share
price as well. As a result, the value of your investment in the fund could go up
and down, which means that you could lose money. To the extent that the fund
maintains a longer maturity than short-term funds, its share price will react
more strongly to interest rate movements. Other risk factors that could have an
effect on the fund's performance include:
o if an issuer fails to make timely interest or principal payments or there is
a decline in the bond's credit quality, or perception of a decline, the
bond's value could fall, potentially lowering the fund's share price
o if the loans underlying the fund's mortgage-related securities are paid off
earlier or later than expected, which could occur because of movements in
market interest rates, the fund's share price or yield could be hurt
o the price and yield of foreign debt securities could be affected by such
factors as political and economic instability, changes in currency exchange
rates and less liquid markets for such securities
While some of the fund's securities may carry guarantees of the U.S. government
or its agencies, these guarantees do not apply to shares of the fund itself.
Although debt securities must be of investment grade when purchased by the fund,
they may subsequently be downgraded.
Under adverse market conditions, the fund could invest some or all of its assets
in money market instruments. Although the fund would do this to avoid losses, it
could reduce the benefit from any upswing in the market. During such periods,
the fund may not achieve its investment objective.
OTHER POTENTIAL RISKS
The fund, at times, may invest in certain derivatives, including futures,
options, and some mortgage-related securities. Derivatives can be illiquid and
highly sensitive to changes in their underlying security, interest rate or
index, and as a result can be highly volatile. The value and interest rates of
some derivatives, such as inverse floaters, may be inversely related to their
underlying instrument. A small investment in certain derivatives could have a
potentially large impact on the fund.
At times, the fund may engage in active trading, which can mean higher taxable
distributions and lower performance due to increased transaction costs.
PAST PERFORMANCE
The fund has been recently organized and does not yet have a performance record
as an investment company registered under the 1940 Act. The performance
presented below is that of a predecessor common trust fund (CTF) that had
substantially the same investment objective, policies and limitations as the
31
<PAGE>
fund, and is for periods prior to the effective date of this prospectus. Prior
to the fund's commencement of operations, substantially all of the assets of the
predecessor CTF will be transferred to the fund. The performance presented has
been adjusted to reflect the fund's fees and expenses. The predecessor CTF was
not registered under the 1940 Act and therefore was not subject to certain
investment restrictions that might have adversely affected performance.
The bar chart below shows you how the predecessor CTF's performance has varied
from year to year. The table compares the predecessor CTF's performance over
time to that of the Lehman Brothers Intermediate Government/Corporate Bond
Index, a broad-based, unmanaged, market-weighted index covering the U.S.
government and corporate investment grade bond market that must have a maturity
from one up to (but not including) 10 years. All performance figures reflect the
reinvestment of dividends and distributions. Of course, past performance is no
guarantee of future results.
Year by year total return as of 12/31 each year (%)
[BAR CHART]
[ ]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Third Quarter 1991 [ ]
Worst Quarter: First Quarter 1994 [ ]
The year-to-date total return as of __/__/00 was ____%.
Average annual total returns as of 12/31/99*
One Year Five Years Ten Years
MPAM Intermediate Bond Fund [ ]
Lehman Brothers Intermediate 0.39 7.10 7.26
Government/Corporate Bond Index
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Annual fund operating expenses are paid
out of fund assets, so their effect is included in the share price. The fund has
no sales charge (load) or Rule 12b-1 fees.
32
<PAGE>
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees
Other expenses*
TOTAL
*Other expenses are based on estimated amounts for the current fiscal year.
EXPENSE EXAMPLE
One Year Three Years
$ $
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether you sold your shares at the end of a period or
kept them. Because actual return and expenses will be different, the example is
for comparison only.
CONCEPTS TO UNDERSTAND
MANAGEMENT FEE: the fee paid to the investment adviser for managing the fund's
portfolio and assisting in all aspects of the fund's operations.
33
<PAGE>
MPAM SHORT-TERM U.S. GOVERNMENT SECURITIES FUND
GOAL/APPROACH
The fund seeks to provide as high a level of current income as is consistent
with the preservation of capital. This objective may be changed without
shareholder approval. To pursue its goal, the fund invests in securities issued
or guaranteed by the U.S. government or its agencies or instrumentalities, and
in repurchase agreements. The fund may invest up to 35% of its net assets in
mortgage-related securities issued by U.S. government agencies or
instrumentalities, such as mortgage pass-through securities issued by the
Government National Mortgage Association, the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation, and collateralized
mortgage obligations ("CMOs"), including stripped mortgage-backed securities.
Typically in choosing securities, the portfolio manager first examines U.S. and
global economic conditions and other market factors in order to estimate long-
and short-term interest rates. Using a research-driven investment process,
generally, the portfolio manager then seeks to identify potentially profitable
sectors before they are widely perceived by the market, and seeks underpriced or
mispriced securities that appear likely to perform well over time.
The fund has a maximum effective duration requirement of less than three years.
Duration is an indication of how sensitive a bond or mutual fund portfolio may
be to changes in interest rates. Generally, the longer the duration, the more
price volatility an investor should expect.
CONCEPTS TO UNDERSTAND
DURATION: a way of measuring a security's maturity in terms of the average time
required to receive the present value of all interest and principal payments,
which incorporates the security's yield, coupon interest payments, final
maturity and option features into one measure.
MORTGAGE PASS-THROUGH SECURITIES: pools of residential or commercial mortgages
whose cash flows are "passed through" to the holders of the securities via
monthly payments of interest and principal.
CMOS: multi-class bonds backed by pools of mortgage pass-through securities or
mortgage loans. CMOs may be issued by government agencies or by private issuers.
STRIPPED MORTGAGE-BACKED SECURITIES: the separate income or principal components
of a mortgage-backed security. CMOs may be partially stripped so that each
investor receives some interest and some principal, or fully stripped into
interest-only and principal-only components.
MAIN RISKS
Prices of bonds tend to move inversely with changes in interest rates. While a
rise in rates may allow the fund to invest for higher yields, the most immediate
effect is usually a drop in bond prices, and therefore in the fund's share price
34
<PAGE>
as well. To the extent that the fund maintains a higher duration than short-term
funds, its share price typically will react more strongly to interest rate
movements. As a result, the value of your investment in the fund could go up and
down, which means that you could lose money.
Other risk factors that could have an effect on the fund's performance include:
o if the fund's mortgage-related securities are paid off substantially earlier
or later than expected, the fund's share price or yield could be hurt
o the value of certain types of stripped mortgage-backed securities may
move in the same direction as interest rates
o because many types of U.S. government securities trade actively among
investors outside the U.S., their prices may rise and fall as changes in
global economic conditions affect the demand for these securities
While some of the fund's securities may carry guarantees by the U.S. government
or its agencies or instrumentalities, these guarantees do not apply to the
market value of those securities or to shares of the fund itself.
OTHER POTENTIAL RISKS
Some mortgage-backed securities are a form of derivative. Derivatives can be
illiquid and highly sensitive to changes in their underlying securities,
interest rate or index, and can be highly volatile as a result.
At times, the fund may engage in active trading, which can mean higher taxable
distributions and lower performance due to increased transaction costs.
PAST PERFORMANCE
The fund has been recently organized and does not yet have a performance record
as an investment company registered under the 1940 Act. The performance
presented below is that of a predecessor common trust fund (CTF) that had
substantially the same investment objective, policies and limitations as the
fund, and is for periods prior to the effective date of this prospectus. Prior
to the fund's commencement of operations, substantially all of the assets of the
predecessor CTF will be transferred to the fund. The performance presented has
been adjusted to reflect the fund's fees and expenses. The predecessor CTF was
not registered under the 1940 Act and therefore was not subject to certain
investment restrictions that might have adversely affected performance.
The bar chart below shows you how the predecessor CTF's performance has varied
from year to year. The table compares the predecessor CTF's performance over
time to that of the Lehman 1-3 Year U.S. Government Index, a widely recognized
unmanaged performance benchmark for Treasury securities with maturities between
one and three years. All performance figures reflect the reinvestment of
35
<PAGE>
dividends and distributions. Of course, past performance is no guarantee of
future results.
Year by year total return as of 12/31 each year (%)
[BAR CHART]
[ ]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Third Quarter 1991 [ ]
Worst Quarter: First Quarter 1994 [ ]
The year-to-date total return as of __/__/00 was ____%.
Average annual total returns as of 12/31/99*
One Year Five Years Ten Years
MPAM Short-Term U.S. Government
Securities Fund [ ]
Lehman 1-3 Year U.S. Government Index 2.97 6.47 6.56
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Annual fund operating expenses are paid
out of fund assets, so their effect is included in the share price. The fund has
no sales charge (load) or Rule 12b-1 fees.
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees
Other expenses*
TOTAL
*Other expenses are based on estimated amounts for the current fiscal year.
EXPENSE EXAMPLE
One Year Three Years
$ $
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
36
<PAGE>
shown would be the same whether you sold your shares at the end of a period or
kept them. Because actual return and expenses will be different, the example is
for comparison only.
CONCEPTS TO UNDERSTAND
MANAGEMENT FEE: the fee paid to the investment adviser for managing the fund's
portfolio and assisting in all aspects of the fund's operations.
37
<PAGE>
MPAM NATIONAL INTERMEDIATE MUNICIPAL BOND FUND
GOAL/APPROACH
The fund seeks to maximize current income exempt from federal income tax
consistent with the prudent risk of capital. This objective may be changed
without shareholder approval. To pursue its goal, the fund normally invests
substantially all of its assets in municipal bonds that provide income exempt
from federal income tax. The fund occasionally, including for temporary
defensive purposes, may invest in taxable bonds. Generally, the maximum
effective duration of the fund will not exceed 8 years. The fund's investments
in municipal bonds must be of investment grade quality at the time of purchase
or, if unrated, the equivalent as determined by the investment adviser.
Municipal bonds are typically divided into two types
o GENERAL OBLIGATION BONDS, which are secured by the full faith and credit of
the issuer and its taxing power
o REVENUE BONDS, which are payable from the revenues derived from a specific
revenue source, such as charges for water and sewer service or highway tolls.
CONCEPTS TO UNDERSTAND
DURATION: a way of measuring a security's maturity in terms of the average time
required to receive the present value of all interest and principal payments,
which incorporates the security's yield, coupon interest payments, final
maturity and option features into one measure.
INVESTMENT GRADE BONDS: independent rating organizations analyze and evaluate a
bond issuer's credit history and ability to repay debts. Based on their
assessment, they assign letter grades that reflect the issuer's
creditworthiness. AAA or Aaa represents the highest credit rating, AA/Aa the
second highest, and so on down to D, for defaulted debt. Bonds rated BBB or Baa
and above are considered investment grade.
MAIN RISKS
Prices of bonds tend to move inversely with changes in interest rates. While a
rise in rates may allow the fund to invest for higher yields, the most immediate
effect is usually a drop in bond prices and, therefore, in the fund's share
price as well. As a result, the value of your investment in the fund could go up
and down, which means that you could lose money. To the extent that the fund
maintains a longer maturity than short-term funds, its share price will react
more strongly to interest rate movements.
Other risk factors that could have an effect on the fund's performance include:
38
<PAGE>
o if an issuer fails to make timely interest or principal payments, or there is
a decline in the credit quality of a bond, or perception of a decline, the
bond's value could fall, potentially lowering the fund's share price
o changes in economic, business or political conditions relating to a
particular municipal project or state in which the fund invests may have an
impact on the fund's share price
The fund is non-diversified, which means that a relatively high percentage of
the fund's assets may be invested in a limited number of issuers. Therefore, its
performance may be more vulnerable to changes in the market value of single
issuer or a group of issuers. Although debt securities must be of investment
grade when purchased by the fund, they may subsequently be downgraded.
Although the fund's objective is to generate income exempt from federal income
tax, interest from some of its holdings may be subject to federal income tax
including the alternative minimum tax. In addition, for temporary defensive
purposes, the fund may invest up to all of its assets in taxable bonds.
OTHER POTENTIAL RISKS
The fund, at times, may invest in certain derivatives, such as futures and
options. Derivatives can be illiquid and highly sensitive to changes in their
underlying security, interest rate or index and, as a result, can be highly
volatile. A small investment in certain derivatives could have a potentially
large impact on the fund's performance.
PAST PERFORMANCE
The fund has been recently organized and does not yet have a performance record
as an investment company registered under the 1940 Act. The performance
presented below is that of a predecessor common trust fund (CTF) that had
substantially the same investment objective, policies and limitations as the
fund, and is for periods prior to the effective date of this prospectus. Prior
to the fund's commencement of operations, substantially all of the assets of the
predecessor CTF will be transferred to the fund. The performance presented has
been adjusted to reflect the fund's fees and expenses. The predecessor CTF was
not registered under the 1940 Act and therefore was not subject to certain
investment restrictions that might have adversely affected performance.
The bar chart below shows you how the predecessor CTF's performance has varied
from year to year. The table compares the predecessor CTF's performance over
time to that of the Lehman Brothers 7-Year Municipal Bond Index, a unmanaged
total-return performance benchmark. All performance figures reflect the
reinvestment of dividends and distributions. Of course, past performance is no
guarantee of future results.
Year by year total return as of 12/31 each year (%)
39
<PAGE>
[BAR CHART]
[ ]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: First Quarter 1995 [ ]
Worst Quarter: First Quarter 1994 [ ]
The year-to-date total return as of __/__/00 was ____%.
Average annual total returns as of 12/31/99*
One Year Five Years Ten Years
MPAM Intermediate Municipal [ ]
Bond Fund
Lehman Brothers 7-year (.014) 6.35 6.56
Municipal Bond Index
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Annual fund operating expenses are paid
out of fund assets, so their effect is included in the share price. The fund has
no sales charge (load) or Rule 12b-1 fees.
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees
Other expenses*
TOTAL
*Other expenses are based on estimated amounts for the current fiscal year.
EXPENSE EXAMPLE
One Year Three Years
$ $
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether you sold your shares at the end of a period or
kept them. Because actual return and expenses will be different, the example is
for comparison only.
40
<PAGE>
CONCEPTS TO UNDERSTAND
MANAGEMENT FEE: the fee paid to the investment adviser for managing the fund's
portfolio and assisting in all aspects of the fund's operations.
41
<PAGE>
MPAM NATIONAL SHORT-TERM MUNICIPAL BOND FUND
GOAL/APPROACH
The fund seeks to maximize current income exempt from federal income tax
consistent with the prudent risk of capital. This objective may be changed
without shareholder approval. To pursue its goal, the fund normally invests
primarily in municipal bonds that provide income exempt from federal income tax.
The fund occasionally, including for temporary defensive purposes, may invest in
taxable bonds. The fund has an effective duration requirement of less than three
years. The fund's investments in municipal bonds must be of investment grade
quality at the time of purchase or, if unrated, the equivalent as determined by
the investment adviser.
Municipal bonds are typically divided into two types:
o GENERAL OBLIGATION BONDS, which are secured by the full faith and
credit of the issuer and its taxing power
o REVENUE BONDS, which are payable from the revenues derived from a specific
revenue source, such as charges for water and sewer service or highway tolls.
CONCEPTS TO UNDERSTAND
DURATION: a way of measuring a security's maturity in terms of the average time
required to receive the present value of all interest and principal payments,
which incorporates the security's yield, coupon interest payments, final
maturity and option features into one measure.
INVESTMENT GRADE BONDS: independent rating organizations analyze and evaluate a
bond issuer's credit history and ability to repay debts. Based on their
assessment, they assign letter grades that reflect the issuer's
creditworthiness. AAA or Aaa represents the highest credit rating, AA/Aa the
second highest, and so on down to D, for defaulted debt. Bonds rated BBB or Baa
and above are considered investment grade.
MAIN RISKS
Prices of bonds tend to move inversely with changes in interest rates. While a
rise in rates may allow the fund to invest for higher yields, the most immediate
effect is usually a drop in bond prices and, therefore, in the fund's share
price as well. As a result, the value of your investment in the fund could go up
and down, which means that you could lose money.
Other risk factors that could have an effect on the fund's performance include:
o if an issuer fails to make timely interest or principal payments, or
there is a decline in the credit quality of a bond, or perception of a
decline, the bond's value could fall, potentially lowering the fund's share
price
o changes in economic, business or political conditions relating to a
particular municipal project or state in which the fund invests may have an
impact on the fund's share price
42
<PAGE>
The fund is non-diversified, which means that a relatively high percentage of
the fund's assets may be invested in a limited number of issuers. Therefore, its
performance may be more vulnerable to changes in the market value of a single
issuer or a group of issuers.
Although the fund's objective is to generate income exempt from federal income
tax, interest from some of its holdings may be subject to federal income tax
including the alternative minimum tax. In addition, for temporary defensive
purposes, the fund may invest up to all of its assets in taxable bonds.
OTHER POTENTIAL RISKS
The fund, at times, may invest in certain derivatives, such as futures and
options. Derivatives can be illiquid and highly sensitive to changes in their
underlying security, interest rate or index and, as a result, can be highly
volatile. A small investment in certain derivatives could have a potentially
large impact on the fund's performance.
Although debt securities must be of investment grade when purchased by the fund,
they may subsequently be downgraded.
PAST PERFORMANCE
Because the fund is newly organized, it does not have any performance to report.
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Annual fund operating expenses are paid
out of fund assets, so their effect is included in the share price. The fund has
no sales charge (load) or Rule 12b-1 fees.
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees
Other expenses*
TOTAL
*Other expenses are based on estimated amounts for the current fiscal year.
EXPENSE EXAMPLE
One Year Three Years
$ $
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether you sold your shares at the end of a period or
kept them. Because actual return and expenses will be different, the example is
for comparison only.
43
<PAGE>
CONCEPTS TO UNDERSTAND
MANAGEMENT FEE: the fee paid to the investment adviser for managing the fund's
portfolio and assisting in all aspects of the fund's operations.
44
<PAGE>
MPAM PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND
GOAL/APPROACH
The fund seeks as high a level of income exempt from federal and Pennsylvania
state income taxes as is consistent with the preservation of capital. This
objective may be changed without shareholder approval. To pursue its goal, the
fund normally invests 65% of its assets in municipal bonds, the interest from
which is exempt from federal and Pennsylvania state personal income taxes.
Generally, the maximum effective duration of the fund will not exceed 8 years.
The fund intends to invest only in investment grade securities (at the time of
purchase), and those deemed by the investment manager to be of comparable
quality to securities rated investment grade.
Municipal bonds are typically divided into two types:
o GENERAL OBLIGATION BONDS, which are secured by the full faith and credit of
the issuer and its taxing power
o REVENUE BONDS, which are payable from the revenues derived from a specific
revenue source, such as charges for water and sewer service or highway tolls
The fund is non-diversified, which means that a relatively high percentage of
the fund's assets may be invested in a limited number of issuers. Therefore, its
performance may be more vulnerable to changes in the market value of a single
issuer or a group of issuers.
CONCEPTS TO UNDERSTAND
DURATION: a way of measuring a security's maturity in terms of the average time
required to receive the present value of all interest and principal payments,
which incorporates the security's yield, coupon interest payments, final
maturity and option features into one measure.
INVESTMENT GRADE BONDS: independent rating organizations analyze and evaluate a
bond issuer's credit history and ability to repay debts. Based on their
assessment, they assign letter grades that reflect the issuer's
creditworthiness. AAA or Aaa represents the highest credit rating, AA/Aa the
second highest, and so on down to D, for defaulted debt. Bonds rated BBB or Baa
and above are considered investment grade.
MAIN RISKS
Prices of bonds tend to move inversely with changes in interest rates. While a
rise in rates may allow the fund to invest for higher yields, the most immediate
effect is usually a drop in bond prices, and therefore in the fund's share price
as well. As a result, the value of your investment in the fund could go up and
down, which means that you could lose money.
Other risk factors that could have an effect on the fund's performance include:
45
<PAGE>
o if an issuer fails to make timely interest or principal payments or there is
a decline in the credit quality of a bond, or perception of a decline, the
bond's value could fall, potentially lowering the fund's share price
o Pennsylvania's economy and revenues underlying municipal bonds may decline,
meaning that the ability of the issuer to make timely interest payments may
be reduced
o investing primarily in a single state may make the fund's portfolio
securities more sensitive to risks specific to the state
Although the fund's objective is to generate income exempt from federal and
Pennsylvania state income taxes, interest from some of its holdings may be
subject to the federal alternative minimum tax. In addition, the fund
occasionally may invest in taxable bonds and/or municipal bonds that are exempt
only from federal personal income taxes.
OTHER POTENTIAL RISKS
The fund may invest in certain derivatives, such as futures, options and inverse
floaters. Derivatives can be illiquid and highly sensitive to changes in their
underlying security, interest rate or index, and as a result can be highly
volatile. Some derivatives, such as inverse floaters, may be inversely related
to their underlying security, interest rate or index. A small investment in
certain derivatives could have a potentially large impact on the fund's
performance.
Although debt securities must be of investment grade when purchased by the fund,
they may subsequently be downgraded.
PAST PERFORMANCE
The fund has been recently organized and does not yet have a performance record
as an investment company registered under the 1940 Act. The performance
presented below is that of a predecessor common trust fund (CTF) that had
substantially the same investment objective, policies and limitations as the
fund, and is for periods prior to the effective date of this prospectus. Prior
to the fund's commencement of operations, substantially all of the assets of the
predecessor CTF will be transferred to the fund. The performance presented has
been adjusted to reflect the fund's fees and expenses. The predecessor CTF was
not registered under the 1940 Act and therefore was not subject to certain
investment restrictions that might have adversely affected performance.
The bar chart below shows you how the predecessor CTF's performance has varied
from year to year. The table compares the predecessor CTF's performance over
time to that of the Lehman Brothers 10-Year Municipal Bond Index, an unmanaged
total return performance benchmark. All performance figures reflect the
reinvestment of dividends and distributions. Of course, past performance is no
guarantee of future results.
Year by year total return as of 12/31 each year (%)
46
<PAGE>
[BAR CHART]
[ ]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: First Quarter 1995 [ ]
Worst Quarter: First Quarter 1994 [ ]
The year-to-date total return as of __/__/00 was ____%.
Average annual total returns as of 12/31/99*
One Year Five Years Ten Years
MPAM Pennsylvania [ ]
Intermediate Municipal Bond
Fund
Lehman Brothers 7-Year (.014) 6.35 6.56
Municipal Bond Index
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Annual fund operating expenses are paid
out of fund assets, so their effect is included in the share price. The fund has
no sales charge (load) or Rule 12b-1 fees.
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Management fees
Other expenses*
TOTAL
*Other expenses are based on estimated amounts for the current fiscal year.
EXPENSE EXAMPLE
One Year Three Years
$ $
This example shows what you could pay in expenses over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses. The figures
shown would be the same whether you sold your shares at the end of a period or
kept them. Because actual return and expenses will be different, the example is
for comparison only.
47
<PAGE>
CONCEPTS TO UNDERSTAND
MANAGEMENT FEE: the fee paid to the investment adviser for managing the fund's
portfolio and assisting in all aspects of the fund's operations.
48
<PAGE>
MPAM BALANCED FUND
GOAL/APPROACH
The fund seeks long-term growth of principal, with a secondary emphasis on
current income. This objective may be changed without shareholder approval.
The fund is designed for investors who seek capital appreciation in conjunction
with income. As a "fund of funds," the fund invests primarily in a diversified
group of other MPAM mutual funds, rather than in individual securities. To
pursue its investment objective, the fund invests in a combination of long-term,
growth-oriented equity mutual funds and an income-producing bond mutual fund.
These underlying funds, in turn, invest in a wide range of securities, including
those of foreign issuers. The fund may also invest a portion of its assets in
money market instruments. The fund's board of trustees has established target
allocations for the fund's assets of 55% to the equity funds and 45% to the bond
fund. In addition, the fund may invest [some] or all of its assets in money
market instruments. The fund may deviate from these target allocations within
ranges of 10% above or below the target amount. The board also has established
the following maximum and minimum percentages for investment of the fund's
assets in specific underlying funds:
UNDERLYING FUND RANGE (% of total portfolio)
EQUITY FUNDS
MPAM Emerging Markets Fund 0-20%
MPAM International Fund 0-20%
MPAM Mid Cap Stock Fund 0-20%
MPAM Large Cap Stock Fund 25-45%
BOND FUND
MPAM Bond Fund 35-55%
Money Market Instruments: 0-20%
Subject to these percentage requirements, the fund's investment adviser
allocates the fund's investments among the underlying funds using fundamental
and quantitative analysis, its outlook for the economy and financial markets,
and the relative performance of the underlying funds. The fund's investment
adviser normally considers reallocating the fund's investments at least
quarterly, but may change allocations more frequently if it believes that market
conditions warrant such a change.
The target allocations and the investment percentage ranges for the fund are
based on the investment adviser's expectation that the selected underlying
funds, in combination, will be appropriate to achieve the fund's investment
objective. If appreciation or depreciation in the value of an underlying fund's
shares causes the percentage of MPAM Balanced Fund's assets invested in that
underlying fund or the allocation among different types of underlying funds to
49
<PAGE>
fall outside the applicable investment range, the investment adviser will
consider whether to reallocate the assets of the fund, but is not required to do
so. The underlying funds, the target allocations among fund types and the
investment percentage ranges for each underlying fund may be changed by the
fund's board at any time.
MAIN RISKS
The value of your investment in the fund will go up and down, which means that
you could lose money. A fund of funds' performance directly reflects the
investment performance of the underlying funds it holds and your investment in
the fund is subject to all the risks of an investment directly in the underlying
funds. The fund's performance therefore depends not only on the allocation of
its assets among the various underlying funds, but also on their ability to meet
their investment objectives. The investment adviser may not accurately assess
the attractiveness or risk potential of particular underlying funds.
In addition, the fund will bear both its own operating expenses and its pro rata
share of the operating expenses of the underlying funds. One underlying fund may
purchase the same securities that another underlying fund sells. By investing in
both underlying funds, the fund would indirectly bear a portion of the costs of
these trades without accomplishing any investment purpose.
Any taxable gains that the fund distributes to its shareholders will be
generated by both its transactions in shares of the underlying funds and from
the underlying funds' own portfolio transactions.
Because the underlying funds invest in both common stocks and bonds, MPAM
Balanced Fund is subject to both equity risk and interest rate risk. Investing
in the underlying funds, and therefore an investment in the fund, includes the
principal risks summarized below, although not all of those risks apply to each
underlying fund. For more information on investment objectives of, and the main
risks associated with investment in, the underlying funds, please read the
underlying funds' descriptions described above in this prospectus.
EQUITY FUNDS
While STOCKS have historically been a leading choice of long-term investors,
they do fluctuate in price.
SMALL AND MID-SIZE COMPANIES carry additional risks because their operating
histories tend to be more limited, their earnings less predictable, their share
prices more volatile and their securities less liquid than those of larger, more
established companies.
Because the underlying funds invest in a mix of GROWTH AND VALUE COMPANIES
(although not all of the underlying funds invest in both types of companies),
the fund assumes the risk of both and may achieve more modest gains than funds
that use only one investment style. Because the stock prices of growth companies
are based in part on future expectations, they may fall sharply if earnings
50
<PAGE>
expectations are not met or investors believe the prospects for a stock,
industry or the economy generally are weak. With value stocks, there is a risk
that they may never reach what the manager believes is their full market value,
or that their intrinsic values may fall. While investment in value stocks may
limit downside risk over time, they may produce smaller gains than riskier
stocks.
Because all of the underlying funds may invest in FOREIGN SECURITIES, and MPAM
International Fund and MPAM Emerging Markets Fund normally invest most of their
assets in such securities, the fund's performance will be influenced by
political, social and economic factors affecting investments in foreign
countries. Special risks include exposure to currency fluctuations, less
liquidity, less developed or efficient trading markets, a lack of comprehensive
company information, political instability and differing auditing and legal
standards. These risks are intensified with respect to EMERGING MARKETS
SECURITIES, and the stock markets of emerging markets countries can be extremely
volatile.
BOND FUND
Prices of bonds tend to move inversely with changes in INTEREST RATES. While a
rise in rates may allow investing for higher yields, the most immediate effect
is usually a drop in bond prices, which could cause the fund's share price to
drop as well. To the extent that MPAM Bond Fund maintains a longer maturity than
other bond funds, its share price will react more strongly to interest rates. An
investment in bonds could be subject to additional risk factors, including:
o failure of an issuer to make timely interest or principal payments, or a
decline in the bond's credit quality, or a perception of a decline
o Pre-payment of the loans underlying an investment in mortgage-related
securities (that is, the loans are paid off earlier than expected, causing
the value of the security to drop)
o factors that affect foreign debt securities, such as political and economic
instability, changes in currency exchange rates, and less liquid markets for
such securities
OTHER POTENTIAL RISKS
Certain of the underlying funds may invest in initial public offerings, options,
futures and foreign currencies to hedge the fund's portfolio or to increase
returns. There is the risk that such practices may reduce returns or increase
volatility.
Although the fund does not expect to engage in active trading, certain of the
underlying funds may do so, which can mean higher taxable distributions and
lower performance due to increased transaction costs.
Under adverse market conditions, the fund and certain of the underlying funds in
which it invests could invest some or all of their assets in money market
instruments. Although the funds would do this to avoid losses, it could reduce
51
<PAGE>
the benefit from any upswing in the market. During such periods, the fund may
not achieve its investment objective.
PAST PERFORMANCE
Because the fund is new, it does not have any past performance to report.
EXPENSES
Annual fund operating expenses are paid out of fund assets, so their effect is
included in the share price. While the fund itself pays no management fees or
charges, it will indirectly bear its pro-rata share of the management expenses
of the underlying funds. Each of the underlying funds pays a management fee to
the investment adviser and also pays other operating expenses. An investor in
the fund will indirectly pay the management fees and other expenses of the
underlying funds it holds.
The following table shows the estimated total expense ratios for each underlying
fund. Note that the fund's pro rata share of expenses fluctuates along with
changes in the average assets in each of the underlying funds.
UNDERLYING FUND ESTIMATED TOTAL EXPENSE RATIO
- --------------- -----------------------------
MPAM Large Cap Stock Fund
MPAM Mid Cap Stock Fund
MPAM International Fund
MPAM Emerging Markets Fund
MPAM Bond Fund
In addition, the fund will pay certain expenses for fund administration; custody
and other items.
ANNUAL FUND OPERATING EXPENSES (EXPENSES PAID FROM FUND ASSETS)
% OF AVERAGE DAILY NET ASSETS
Management fees
Other expenses*
TOTAL
*Other expenses are based on estimated amounts for the current fiscal year.
52
<PAGE>
EXPENSE EXAMPLE
This Example is intended to help you compare the cost 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 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:
One Year: Three Years:
53
<PAGE>
CONCEPTS TO UNDERSTAND
WHAT EACH FUND IS - AND ISN'T
Each fund is a mutual fund: a pooled investment that is professionally managed
and gives you the opportunity to participate in financial markets. It strives to
reach its stated goal, although as with all mutual funds, it cannot offer
guaranteed results.
An investment in each fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency. It is not a complete
investment program. You could lose money in each fund, but you also have the
potential to make money.
54
<PAGE>
MANAGEMENT
The investment adviser for the funds is MPAM Advisers, a division of The Dreyfus
Corporation, 200 Park Avenue, New York, New York 10166. Founded in 1947, Dreyfus
manages more than $127 billion in over 160 mutual fund portfolios and is the
primary mutual fund business of Mellon Financial Corporation, a global financial
services company with approximately $2.5 trillion of assets under management,
administration or custody, including approximately $485 billion under
management. Mellon provides wealth management, global investment services and a
comprehensive array of banking services for individuals, businesses and
institutions. Mellon is headquartered in Pittsburgh, Pennsylvania.
PORTFOLIO MANAGERS
NAME OF FUND PRIMARY PORTFOLIO MANAGER
MPAM Large Cap Stock Fund MPAM's Equity Management Team
MPAM Income Stock Fund Bert Mullins
MPAM Mid Cap Stock Fund Anthony J. Galise
MPAM Small Cap Stock Fund Gene F. Cervi
MPAM International Fund Sandor Cseh
MPAM Emerging Markets Fund D. Kirk Henry
MPAM Bond Fund Daniel J. Fasciano and Stephen
P. Fiorella
MPAM Intermediate Bond Fund Stephen P. Fiorella and
Lawrence R. Dunn
MPAM Short-Term U.S. Government Securities Fund Carol D. Miltenberger and
Lawrence R. Dunn
MPAM National Municipal Intermediate Municipal John F. Flahive and Kristin D.
Bond Fund Lindquist
MPAM National Short-Term Municipal Bond Fund Mary Collette O'Brien and
Timothy J. Sanville
MPAM Pennsylvania Intermediate Municipal Bond John F. Flahive and Mary
Fund Collette O'Brien
MPAM Balanced Fund Bert Mullins and Lawrence R.
Dunn
BIOGRAPHICAL INFORMATION
GENE F. CERVI, CFA, has been a portfolio manager at Dreyfus since 199_. Mr.
Cervi is also director of investment research for Laurel Capital Advisors, an
affiliate of Dreyfus, and a vice president of Mellon Bank, N.A., which he joined
in 1982.
SANDOR CSEH has been a portfolio manager for The Boston Company Asset
Management, an affiliate of Dreyfus, since 1994. In May 1996, he became a dual
employee of Dreyfus and The Boston Company.
55
<PAGE>
LAWRENCE R. DUNN has been employed by Dreyfus as a portfolio manager since
November 1995. He started with Mellon Bank, N.A. in April of 1990. He is also an
assistant vice president of Mellon Bank, N.A.
DANIEL J. FASCIANO, senior portfolio manger of Boston Safe Deposit and Trust
Company, an affiliate of Dreyfus, has been a portfolio manager of Dreyfus since
October 1995. Mr. Fasciano joined Boston Safe Deposit and Trust Company in 1990.
He is also a vice president of Mellon Bank, N.A.
STEPHEN P. FIORELLA has been employed by Dreyfus as a portfolio manager since
July 1998. He joined The Boston Company and Boston Safe Deposit and Trust
Company in July 1989. He is also an assistant vice president of Boston Safe
Deposit and Trust Company and Mellon Bank, N.A.
JOHN FLAHIVE has been employed by Dreyfus as a portfolio manager since November
1994. Mr. Flahive is also vice president of Boston Safe Deposit and Trust
Company, an affiliate of Dreyfus.
ANTHONY J. GALISE has been employed by Dreyfus as a portfolio manager since
April 1996. He is also a portfolio manager at Laurel Capital Advisors and a vice
president and portfolio manager at Mellon Bank, N.A. He joined Mellon in 1993
with over 20 years of equity investment experience.
D. KIRK HENRY has been employed by Dreyfus since May 1996 as a portfolio
manager. He is also vice president and international equity portfolio manager of
The Boston Company Asset Management, an affiliate of Dreyfus. He has held that
position since May 1994.
KRISTIN D. LINDQUIST has been employed by Dreyfus as a portfolio manager since
October 1994. She is also a vice president of Mellon Bank, N.A. and Boston Safe
Deposit and Trust Company.
CAROL D. MILTENBERGER is an assistant vice president of Mellon Bank, N.A., with
which she has been affiliated since October 1994.
BERT MULLINS has been employed by Dreyfus as portfolio manager since October
1994. Mr. Mullins has been employed as a portfolio manager by Laurel Capital
Advisors, an affiliate of Dreyfus, since October 1990. He is also a vice
president, portfolio manager and senior securities analyst for Mellon Bank, N.A.
MARY COLLETTE O'BRIEN has been employed by Dreyfus as a portfolio manager since
199_. She is a vice president of Mellon Bank, N.A. and Boston Safe Deposit and
Trust Company.
TIMOTHY J. SANVILLE is an assistant vice president of Boston Safe Deposit and
Trust Company and Mellon Bank, N.A. He has been with Boston Safe Deposit and
Trust Company since 1992, and is a Chartered Financial Analyst.
The funds, the investment adviser and Dreyfus Service Corporation (each fund's
distributor) each have adopted a code of ethics that permits its personnel,
subject to such code, to invest in securities, including securities that may be
purchased or held by a fund. The investment adviser's code of ethics restricts
the personal securities transactions of its employees, and requires portfolio
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managers and other investment personnel to comply with the code's preclearance
and disclosure procedures. Its primary purpose is to ensure that personal
trading by the investment adviser's employees does not disadvantage any fund
managed by the investment adviser.
MANAGEMENT FEE
Each of the funds (other than MPAM Balanced Fund) pays a management fee to the
investment adviser at the annual rates set forth in the table below:
NAME OF FUND MANAGEMENT FEE (AS PERCENTAGE
OF AVERAGE DAILY NET ASSETS)
MPAM Large Cap Stock Fund
MPAM Income Stock Fund
MPAM Mid Cap Stock Fund
MPAM Small Cap Stock Fund
MPAM International Fund
MPAM Emerging Markets Fund
MPAM Bond Fund
MPAM Intermediate Bond Fund
MPAM Short-Term U.S. Government Securities Fund
MPAM National Intermediate Municipal Bond Fund
MPAM National Short-Term Municipal Bond Fund
MPAM Pennsylvania Intermediate Municipal Bond Fund
MPAM Balanced Fund
ACCOUNT POLICIES
BUYING SHARES
The funds are designed for Mellon Private Asset Management Clients that maintain
qualified fiduciary, custody or other accounts with Mellon Bank, N.A. or Boston
Safe Deposit and Trust Company, or their bank affiliates ("MPAM Clients").
Shares owned by MPAM Clients will be held in omnibus accounts, or individual,
institutional accounts, with the funds' transfer agent ("MPAM Accounts"). MPAM
Clients may also transfer fund shares from a MPAM Account to individuals and
corporations that do not have MPAM Accounts. Those MPAM fund shares will be held
in separate accounts ("Individual Accounts"). MPAM Clients who terminate their
relationships with MPAM but who wish to continue to hold MPAM Fund shares may do
so only by establishing Individual Accounts.
The funds may, at some future time, establish a separate class of shares for
shareholders who are not MPAM Clients and whose shares are therefore not held in
MPAM Accounts. That separate class, into which Individual Accounts may be
required to convert, may carry additional fees.
You pay no sales charges to invest in any fund. Your price for fund shares is
the fund's net asset value per share (NAV), which is generally calculated as of
the close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern
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time), every day the exchange is open. Your order will be priced at the next NAV
calculated after your order is accepted by the fund's transfer agent or other
authorized entity. Investments in equity securities are generally valued based
on market value or, where market quotations are not readily available, based on
fair value as determined in good faith by the fund's board. Investments in debt
securities are generally valued by one or more independent pricing services
approved by the fund's board.
SELLING SHARES
You may sell (redeem) shares at any time. Your shares will be sold at the next
NAV calculated after your order is accepted by the fund's transfer agent or
other authorized entity. Your order will be processed promptly and you will
generally receive the proceeds within a week.
With regard to selling recently purchased shares, please note that if the fund
has not yet collected payment for the shares you are selling, it may delay
sending the proceeds for up to eight business days or until it has collected
payment.
PURCHASES AND REDEMPTIONS THROUGH MELLON ACCOUNTS
MPAM Clients should contact their account officer for information concerning
purchasing and selling (redeeming) fund shares. Mellon Private Asset Management
may set policies and fees that are different than those described in this
prospectus. Mellon Private Asset Management may also set different minimum
investments or limitations on buying and selling shares.
PURCHASES AND REDEMPTIONS THROUGH INDIVIDUAL ACCOUNTS
PURCHASING SHARES
Individual Accounts may be opened only by the transfer of fund shares from a
MPAM Account, by MPAM Clients who terminate their relationships with MPAM but
who wish to continue to hold MPAM Fund shares, or by exchange from Individual
Accounts holding other MPAM Funds as described under "Individual Account
Services and Polices - Exchange privilege". The minimum initial investment in a
fund through an Individual Account is $10,000, and the minimum for additions is
$1,000. You may purchase additional shares for an Individual Account by mail,
wire, electronic check or TeleTransfer.
MAIL. To purchase additional shares by mail, fill out an investment slip and
send the slip and a check with your account number written on it to:
Name of Fund
MPAM Family of Funds
P.O. Box 105, Newark, NJ 07101-0105
Make checks payable to: MPAM Family of Funds.
WIRE. To purchase additional shares by wire, have your bank send your investment
to Boston Safe Deposit & Trust Co., with these instructions:
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o ABA# 011001234 [?]
o DDA# [?]
o the fund name
o your account number
o name(s) of investor(s)
ELECTRONIC CHECK. To purchase additional shares by electronic check, which will
transfer money out of your bank account, follow the instructions for purchases
by wire, but before your account number insert "__." Your transaction is entered
automatically, but may take up to eight business days to clear. Electronic
checks usually are available without a fee at all Automated Clearing House (ACH)
banks.
TELETRANSFER. To purchase additional shares through TeleTransfer call
[1-800-645-6561 (outside the U.S. 516-794-5452)] to request your transaction.
SELLING (REDEEMING) SHARES
You may sell (redeem) shares by mail, telephone, wire or TeleTransfer.
WRITTEN SELL ORDERS
Some circumstances require written sell orders along with signature guarantees.
These include:
o amounts of $10,000 or more on accounts whose address has been changed within
the last 30 days
o requests to send the proceeds to a different payee or address
Written sell orders of $100,000 or more must also be signature guaranteed.
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one from most
banks or securities dealers, but not from a notary public. For joint accounts,
each signature must be guaranteed. Please call us to ensure that your signature
guarantee will be processed correctly.
MAIL. To sell (redeem) shares by mail, write a letter of instruction that
includes:
o your name(s) and signatures(s)
o your account number
o the fund name
o the dollar amount you want to sell
o how and where to send the proceeds
Obtain a signature guarantee or other documentation, if required. Mail your
request to:
MPAM Family of Funds
P.O. Box 6587, Providence, RI 92940-6587
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Unless you have declined telephone privileges on your account application, you
may also redeem your shares by telephone (maximum $250,000 per day) by calling
[1-800-645-6561 (outside the U.S. 516-794-5452)], and requesting that a check be
mailed to your address of record.
WIRE OR TELETRANSFER. To sell (redeem) shares by wire or TeleTransfer (minimum
$1,000; maximum $500,000 for joint accounts every 30 days), call [1-800-645-6561
(outside the U.S. 516-794-5452)] to request your transaction. Be sure the fund
has your bank account information on file. Proceeds will be sent to your bank by
wire for wire redemptions and by electronic check for TeleTransfer redemptions.
INDIVIDUAL ACCOUNT SERVICES AND POLICIES
EXCHANGE PRIVILEGE: You CAN EXCHANGE SHARES WORTH $1000 OR MORE from one MPAM
fund into another. However, each fund account, including those established
through exchanges, must continue to meet the minimum balance requirement of
$10,000. You can request your exchange in writing or by phone. Be sure to read
the current prospectus for any fund into which you are exchanging before
investing. Any new account established through an exchange will generally have
the same privileges as your original account (as long as they are available).
There is currently no fee for exchanges.
TELETRANSFER PRIVILEGE: TO MOVE MONEY BETWEEN YOUR BANK ACCOUNT and your MPAM
fund account with a phone call, use the TeleTransfer privilege. You can set up
TeleTransfer on your account by providing bank account information and following
the instructions on your application.
USE OF TELEPHONE PRIVILEGES: UNLESS YOU DECLINE TELEPHONE PRIVILEGES on your
application, you may be responsible for any fraudulent telephone order as long
as the fund's distributor takes reasonable measures to verify the order.
ACCOUNT BALANCE REQUIREMENT: If your account falls below $10,000, a fund may ask
you to increase your balance. If it is still below $10,000 after 45 days, a fund
may close your account and send you the proceeds.
GENERAL POLICIES FOR MPAM ACCOUNTS AND INDIVIDUAL ACCOUNTS
EACH FUND RESERVES THE RIGHT TO:
o refuse any purchase or exchange request that could adversely affect any
fund or its operations, including those from any individual or group who,
in a fund's view, is likely to engage in excessive trading (usually
defined as more than four exchanges out of a fund within a calendar year)
o refuse any purchase or exchange request in excess of 1% of any fund's
total assets
o change or discontinue its exchange privilege, or temporarily suspend this
privilege during unusual market conditions
o change its minimum investment amounts
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o delay sending out redemption proceeds for up to seven days (generally
applies only in cases of very large redemptions, excessive trading or
during unusual market conditions)
Each fund also reserves the right to make a "redemption in kind" - payment in
portfolio securities rather than cash - if the amount you are redeeming is large
enough to affect fund operations (for example, if it represents more than 1% of
the fund's assets).
DISTRIBUTIONS AND TAXES
EACH FUND USUALLY PAYS ITS SHAREHOLDERS dividends, if any, from its net
investment income as follows:
FUND DIVIDEND FREQUENCY
MPAM Large Cap Stock Fund Monthly
MPAM Income Stock Fund Monthly
MPAM Mid Cap Stock Fund Annually
MPAM Small Cap Stock Fund Annually
MPAM International Fund Annually
MPAM Emerging Markets Fund Annually
MPAM Bond Fund Monthly
MPAM Intermediate Bond Fund Monthly
MPAM Short-Term U.S. Government Securities Fund Monthly
MPAM National Intermediate Municipal Bond Fund Monthly
MPAM National Short-Term Municipal Bond Fund Monthly
MPAM Pennsylvania Intermediate Municipal Bond Fund Monthly
MPAM Balanced Fund Monthly
Each fund distributes any net capital gains it has realized once a year. For
Individual Accounts, dividends and other distributions will be reinvested in
fund shares unless you instruct the fund otherwise. For information on
reinvestment of dividends and other distributions on MPAM Accounts, contact your
account officer. There are no fees or sales charges on reinvestments.
FUND DIVIDENDS (EXCEPT TO THE EXTENT ATTRIBUTABLE TO TAX-EXEMPT INCOME) AND
DISTRIBUTIONS ARE TAXABLE to most investors (unless your investment is in a
tax-advantaged account). The tax status of any distribution is the same
regardless of how long you have been in the fund and whether you reinvest your
distributions or take them in cash. In general, distributions are federally
taxable as follows:
TAXABILITY OF DISTRIBUTIONS
TYPE OF DISTRIBUTION TAX RATE FOR 15% TAX RATE FOR 25% BRACKET OR
- -------------------- ----------------- ---------------------------
BRACKET ABOVE
------- -----
Income Dividends Ordinary income rate Ordinary income rate
Short-Term Capital Gains Ordinary income rate Ordinary income rate
Long-Term Capital Gains 10% 20%
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The tax status of your dividends and distributions will be detailed in your
annual tax statement, which may be issued by a fund.
MPAM National Intermediate Municipal Bond Fund, MPAM National Short-Term,
Municipal Bond Fund, and MPAM Pennsylvania Intermediate Municipal Bond Fund
anticipate that virtually all income dividends will be exempt from federal
income tax (and, in the case of MPAM Pennsylvania Intermediate Municipal Bond
Fund, a substantial portion of those dividends will normally be exempt from
Pennsylvania state personal income tax). However, any dividends paid from
interest on taxable investments or short-term capital gains will be taxable as
ordinary income, and any distributions of long-term capital gains will be
taxable as such.
Because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
TAXES ON TRANSACTIONS
Except for tax-advantaged accounts, any sale or exchange of fund shares may
generate a tax liability. Of course, withdrawals or distributions from
tax-deferred accounts are taxable when received.
The table above also can provide a guide for potential tax liability when
selling or exchanging fund shares. "Short-term capital gains" applies to fund
shares sold or exchanged up to 12 months after buying them. "Long-term capital
gains" applies to shares sold or exchanged after 12 months.
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MPAM Large Cap Stock Fund
MPAM Income Stock Fund
MPAM Mid Cap Stock Fund
MPAM Small Cap Stock Fund
MPAM International Fund
MPAM Emerging Markets Fund
MPAM Bond Fund
MPAM Intermediate Bond Fund
MPAM Short-Term U.S. Government Securities Fund
MPAM National Intermediate Municipal Bond Fund
MPAM National Short-Term Municipal Bond Fund
MPAM Pennsylvania Intermediate Municipal Bond Fund
MPAM Balanced Fund
Series of MPAM Trust
SEC file number: 811-
More information on any fund is available free upon request, including the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about each fund and its policies. A current SAI is on file
with the Securities and Exchange Commission (SEC) and is incorporated by
reference (is legally considered part of this prospectus).
MPAM Clients, please contact your Mellon Private Asset Management (MPAM) Account
Officer or call 1-800-234-MELLON. Individual Account holders, please call
Dreyfus at 1-800-645-6561.
INSTRUCTIONS BY MAIL:
Mellon clients, write to your Mellon Private Asset Management Account Officer
C/O Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
Individual account holders, write to
MPAM Family of Funds
P.O. Box 105
Newark, NJ 07101-0105
ON THE INTERNET Text-only versions of certain fund documents can be viewed
online or downloaded from:
http://www.sec.gov
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<PAGE>
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (for information, call 1-202-942-8090), or, after paying a
duplicating fee, by e-mail request to [email protected], or by writing to the
SEC's Public Reference Section, Washington DC 20549-0102.
(COPYRIGHT)2000, Dreyfus Service Corporation
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<PAGE>
SUBJECT TO COMPLETION. PRELIMINARY STATEMENT OF ADDITIONAL
INFORMATION DATED APRIL 14, 2000.
---------------------------------------------------------------------------
MPAM LARGE CAP STOCK FUND
MPAM INCOME STOCK FUND
MPAM MID CAP STOCK FUND
MPAM SMALL CAP STOCK FUND
MPAM INTERNATIONAL FUND
MPAM EMERGING MARKETS FUND
MPAM BOND FUND
MPAM INTERMEDIATE BOND FUND
MPAM SHORT-TERM U.S. GOVERNMENT SECURITIES FUND
MPAM INTERMEDIATE MUNICIPAL BOND FUND
MPAM NATIONAL SHORT-TERM MUNICIPAL BOND FUND
MPAM PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND
MPAM BALANCED FUND
STATEMENT OF ADDITIONAL INFORMATION
[MONTH] [DAY], 2000
---------------------------------------------------------------------------
This Statement of Additional Information, which is not a prospectus, supplements
and should be read in conjunction with the Funds' current Prospectus dated
[DATE], as may be revised from time to time. The Funds are separate portfolios
of MPAM Fund's Trust, a management investment company ("Trust") that is
registered with the Securities and Exchange Commission. To obtain a copy of the
Funds' Prospectus, please write to the Funds at P.O Box 105, Newark, New Jersey
07101-0105, or call the following numbers:
Call Toll Free -- 1-888-281-7350
Outside the U.S. Call Collect - 1-412-236-7977
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
<PAGE>
2
TABLE OF CONTENTS
PAGE
THE FUNDS AND THEIR INVESTMENTS...............................................3
THE FUNDS'INVESTMENTS, RELATED RISKS AND LIMITATIONS.........................7
MANAGEMENT OF THE FUNDS......................................................51
MANAGEMENT ARRANGEMENTS......................................................53
HOW TO BUY SHARES............................................................55
HOW TO REDEEM SHARES.........................................................56
SHAREHOLDER SERVICES.........................................................58
ADDITIONAL INFORMATION ABOUT PURCHASES, EXCHANGES AND REDEMPTIONS............59
DETERMINATION OF NET ASSET VALUE.............................................60
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES.....................................61
PORTFOLIO TRANSACTIONS.......................................................67
PERFORMANCE INFORMATION......................................................69
INFORMATION ABOUT THE FUNDS..................................................70
COUNSEL AND INDEPENDENT AUDITORS.............................................72
APPENDIX A..................................................................A-1
APPENDIX B..................................................................B-1
2
<PAGE>
The Trust is an open-end management investment company organized as an
unincorporated business trust under the laws of the Commonwealth of
Massachusetts by a Declaration of Trust dated April 12, 2000. The Trust is
authorized to issue an unlimited number of shares of beneficial interest, each
without par value.
The investment objectives, policies, restrictions, practices and
procedures of the Funds, unless otherwise specified, may be changed without
shareholder approval. As with other mutual funds, there is no assurance that a
Fund will achieve its investment objective.
MPAM Advisers, a division of The Dreyfus Corporation ("Dreyfus"), serves
as each Fund's investment manager.
Dreyfus Service Corporation ("Distributor"), a subsidiary of Dreyfus, is
the distributor of each Fund's shares.
THE FUNDS AND THEIR INVESTMENTS
The following information supplements and should be read in conjunction
with the Funds' Prospectus. The following summaries briefly describe the
portfolio securities in which the Funds invest and the investment techniques
they employ. Additional information about these portfolio securities and
investment techniques is provided under "The Funds' Investments, Related Risks
and Limitations."
EQUITY FUNDS
------------
MPAM LARGE CAP STOCK FUND seeks investment returns (consisting of capital
appreciation and income) that are consistently superior to the Standard & Poor's
500 Composite Stock Price Index(REGISTERED) ("S&P 500").
The Fund may invest in the following portfolio securities: common stock,
government obligations, foreign securities, illiquid securities, other
investment companies, and money market instruments.
The Fund may utilize the following investment techniques: borrowing,
when-issued securities and delayed delivery transactions, securities lending,
reverse repurchase agreements, futures, options and other derivative
instruments.
MPAM INCOME STOCK FUND investment objective is to exceed the total return
performance of the Russell 1000(TM) Value Index over time.
The Fund may invest in the following portfolio securities: common
stock, government obligations, and money market instruments.
The Fund may utilize the following investment techniques: American
Depository Receipts ("ADRs"), borrowing, when-issued securities and
delayed delivery transactions, reverse repurchase agreements, securities
3
<PAGE>
lending, derivative instruments, options, futures contacts and options on
futures contracts.
MPAM MID CAP STOCK FUND seeks investment returns that exceed those of the
Russell 2500(TM) Stock Index. The Russell 2500(TM) Stock Index, published By
Frank Russell Company, is comprised of the bottom 500 companies in the Russell
1000(TM) Index as ranked by total market capitalization, and all 2,000 stocks in
the Russell 2000(TM) Index. The Russell 2000(TM) Index consists of the smallest
2,000 companies in the Russell Index 3000(TM), representing approximately 10% of
the Russell 3,000(TM) Index total market capitalization. The Russell 3000(TM)
Index is composed of 3,000 large U.S. companies, as determined by market
capitalization. The Russell 1000(TM) Index consists of the 1,000 largest
companies in the Russell 3000(TM) Index. The Fund's managers do not attempt to
time the financial market, or use sector or industry rotation techniques.
The Fund may invest in the following portfolio securities: common stock,
ADRs, government obligations, foreign securities, illiquid securities, initial
public offerings, other investment companies, and money market instruments.
The Fund may utilize the following investment techniques: borrowing,
when-issued securities and delayed delivery transactions, securities lending,
reverse repurchase agreements, options and other derivative instruments, futures
contracts and options on futures contracts, foreign currency transactions,
forward contracts, swaps, caps, collars, and floors.
MPAM SMALL CAP STOCK FUND seeks total investment returns (consisting of
capital appreciation and income) that surpass the Standard & Poor's SmallCap
600(R) Index.
The Fund may invest in the following portfolio securities: common stock,
government obligations, foreign securities, ADRs and New York Shares, illiquid
securities, initial public offerings, other investment companies, and money
market instruments.
The Fund may utilize the following investment techniques: borrowing,
when-issued securities and delayed delivery transactions, securities lending,
reverse repurchase agreements, options and other derivative instruments, futures
contracts and options on futures contracts, foreign currency strategies, forward
contracts, swaps, caps, collars, and floors.
INTERNATIONAL FUNDS
-------------------
MPAM INTERNATIONAL FUND seeks long-term capital growth.
The Fund may invest in the following portfolio securities: common stock,
preferred stock, convertible securities, ADRs and New York Shares, warrants,
other investment companies, illiquid securities, foreign bank deposit
obligations and money market instruments.
The Fund may utilize the following investment techniques: foreign currency
transactions, short-selling, borrowing money, derivatives, futures transactions,
options, securities lending, and forward commitments.
4
<PAGE>
MPAM EMERGING MARKETS FUND seeks long-term capital growth.
The Fund may invest in the following portfolio securities: common stock,
preferred stock, ADRs and New York Shares, foreign government obligations,
securities of supranational entities, closed-end investment companies,
convertible securities, illiquid securities, foreign bank deposit obligations,
and money market instruments.
The Fund may utilize the following investment techniques: foreign currency
transactions, short-selling, borrowing money, securities lending, derivatives,
futures transactions, options, and forward commitments.
TAXABLE BOND FUNDS
------------------
MPAM BOND FUND seeks to outperform the Lehman Brothers Aggregate Bond
Index while maintaining a similar risk level. MPAM INTERMEDIATE BOND FUND seeks
to outperform the Lehman Intermediate Government/Corporate Bond Index while
maintaining a similar risk level.
Each Fund may invest in the following portfolio securities: corporate
obligations, government obligations, variable and floating rate securities,
repurchase agreements, mortgage-related securities (including commercial
mortgage backed securities), asset-backed securities, convertible securities,
zero coupon securities, preferred stock, illiquid securities, commercial paper,
bank obligations, foreign securities, and other investment companies. MPAM
Intermediate Bond Fund may also invest in municipal bonds, municipal notes, and
municipal commercial paper.
Each Fund may invest up to 65% of its net assets in mortgage-related
securities issued or guaranteed by U.S. government agencies or
instrumentalities, including those with fixed, floating or variable interest
rates, those with interest rates that change based on multiples of changes in
specified index of interest rates and those with interest rates that change
inversely to change in interest rates, as well as stripped mortgage-backed
securities which do not bear interest.
Each Fund may utilize the following investment techniques: borrowing,
when-issued securities and delayed delivery transactions, securities lending,
options and other derivative instruments, futures contracts and options on
futures contracts, foreign currency strategies, forward contracts, swaps, caps,
collars, floors, and mortgage dollar rolls.
MPAM SHORT-TERM U.S. GOVERNMENT SECURITIES FUND seeks to provide as high a
level of current income as is consistent with the preservation of capital.
The Fund may invest in the following portfolio securities: U.S. government
securities, mortgage-related securities (including collateralized mortgage
obligations, multi-class pass-through securities, stripped mortgage-backed
securities, and adjustable-rate mortgage loans), repurchase agreements, and
illiquid securities.
The Fund may utilize the following investment techniques: borrowing,
securities lending, forward commitments, and forward roll transactions.
5
<PAGE>
MUNICIPAL BOND FUNDS
--------------------
MPAM NATIONAL INTERMEDIATE MUNICIPAL BOND FUND and MPAM NATIONAL
SHORT-TERM MUNICIPAL BOND FUND each seeks to maximize current income exempt from
Federal income taxes consistent with the prudent risk of capital. Each Fund
seeks to achieve its objective by investing in debt obligations issued by
states, cities, counties, municipalities, municipal agencies and regional
districts which are of "investment-grade" quality at the time of purchase and
generally of short to intermediate maturities the interest from which is, in the
opinion of counsel to the respective issuers, exempt from Federal income taxes
("Municipal Obligations").
Under normal market conditions, each fund attempts to invest 100%, and
will invest a minimum of 80%, of its total assets in Municipal Obligations.
However, each Fund has the ability under certain conditions to invest 20% of its
total assets in taxable obligations (including obligations the interest on which
is included in the calculation of the alternative minimum tax for individuals)
and may, for defensive purposes under abnormal market conditions, temporarily
invest more than 20% of its total assets in taxable obligations. In managing
each Fund, the investment adviser seeks to take advantage of market
developments, yield disparities and variations in the creditworthiness of
issuers.
Each Fund may invest in the following portfolio securities: municipal
obligations, municipal bonds, municipal notes, municipal commercial paper,
municipal lease obligations and other instruments, tender option bonds (up to
10% of the value of its assets), floating rate and variable rate obligations,
taxable investments, stand-by commitments, repurchase agreements, and other
investment companies.
Each Fund may utilize the following investment techniques: borrowing,
securities lending; when-issued securities, investments in municipal bond index
and interest rate futures contracts, and options on municipal bond index and
interest rate futures contracts.
MPAM PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND seeks as high a level
of income exempt from federal and Pennsylvania state income taxes as is
consistent with the preservation of capital.
Under normal market conditions, the fund attempts to invest 100%, and will
invest a minimum of 80%, of its total assets in Municipal Obligations, and 65%
of its assets in Municipal Obligations the interest from which is exempt from
The Pennsylvania personal income tax. However, the Fund has the ability under
certain conditions to invest 20% of its total assets in taxable obligations
(including obligations the interest on which is included in the calculation of
the alternative minimum tax for individuals) and may, for defensive purposes
under abnormal market conditions, temporarily invest more than 20% of its total
assets in taxable obligations. In managing the Fund, the investment adviser
seeks to take advantage of market developments, yield disparities and variations
in the creditworthiness of issuers.
The Fund may invest in the following portfolio securities: municipal
obligations, certain tax exempt obligations, tax exempt participation interests,
tender option bonds (up to 10% of the value of its assets), custodial receipts,
6
<PAGE>
stand-by commitments, taxable investments, zero coupon securities, and illiquid
securities.
The Fund may utilize the following investment techniques: borrowing,
securities lending; when-issued securities, investments in municipal bond index
and interest rate futures contracts, and options on municipal bond index and
interest rate futures contracts.
BALANCED FUND
-------------
MPAM BALANCED FUND seeks long-term growth of principal, with a secondary
emphasis on current income. The Fund may invest in MPAM Large Cap Stock Fund,
MPAM Mid Cap Stock Fund, MPAM International Fund, MPAM Emerging Markets Fund,
and MPAM Bond Fund, as well as in money market instruments.
CLASSIFICATION OF THE FUNDS
---------------------------
The MPAM Large Cap Stock Fund, MPAM Income Stock Fund, MPAM Mid Cap Stock
Fund, MPAM Small Cap Stock Fund, MPAM International Fund, MPAM Emerging Markets
Fund, MPAM Bond Fund, MPAM Intermediate Bond Fund, MPAM Short-Term U.S.
Government Securities Fund, and MPAM Balanced Fund are "diversified", as defined
in the Investment Company Act of 1940, as amended ("1940 Act"), which means
that, with respect to 75% of its total assets, each Fund will not invest more
than 5% of its assets in the securities of any single issuer (other than
securities of other investment companies, and securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities).
The MPAM Intermediate Municipal Bond Fund, MPAM National Short-Term
Municipal Bond Fund, and MPAM Pennsylvania Intermediate Municipal Bond Fund are
classified as "non-diversified," as defined under the 1940 Act, and therefore,
each Fund could invest all of its assets in the obligations of a single issuer
or relatively few issuers. Due to these Funds' non-diversified status, changes
in the financial condition or in the market's assessment of an individual issuer
may cause a Fund's share price to fluctuate to a greater degree than if the Fund
were diversified. However, the Funds intend to conduct their operations so that
each Fund will qualify under the Internal Revenue Code of 1986, as amended (the
"Code"), as a "regulated investment company." To continue to qualify, among
other requirements, each Fund will be required to limit its investments so that
at the close of each quarter of the taxable year, with respect to at least 50%
of its total assets, not more than 5% of such assets will be invested in the
securities of a single issuer. In addition, not more than 25% of the value of
each Fund's total assets may be invested in the securities of a single issuer at
the close of each quarter of the taxable year.
THE FUNDS' INVESTMENTS, RELATED RISKS AND LIMITATIONS
The following information supplements and should be read in conjunction
with the Funds' Prospectus and the section entitled "The Funds and Their
Investments" above, concerning the Funds' investments, related risks and
limitations. Except as otherwise indicated in the Prospectus or this Statement
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of Additional Information, the funds have established no policy limitations on
their ability to use the investments or techniques discussed in these documents.
CERTAIN PORTFOLIO SECURITIES
AMERICAN DEPOSITORY RECEIPTS ("ADRS") AND NEW YORK SHARES. ADRs typically
are issued by an American bank or trust company and evidence ownership of
underlying securities issued by foreign companies. New York Shares are
securities of foreign companies that are issued for trading in the United
States. ADRs and New York Shares are traded in the United States on national
securities exchanges or in the over-the-counter market. Investment in securities
of foreign issuers presents certain risks, including those resulting from
adverse political and economic developments and the imposition of foreign
governmental laws or restrictions. See "Foreign Securities."
ASSET-BACKED SECURITIES. Asset-backed securities are securities that
represent direct or indirect participations in, or are secured by and payable
from, assets such as motor vehicle installment sales contracts, installment loan
contracts, leases of various types of real and personal property, and
receivables from revolving credit (credit card) agreements. Such assets are
securitized through the use of trusts and special purpose corporations. The
value of such securities partly depends on loan repayments by individuals, which
may be adversely affected during general downturns in the economy. Payments or
distributions of principal and interest on asset-backed securities may be
supported by credit enhancements, such as various forms of cash collateral
accounts or letters of credit. Like mortgage-related securities, asset-backed
securities are subject to the risk of prepayment. The risk that recovery or
repossessed collateral might be unavailable or inadequate to support payments on
asset-backed securities, however, is greater than is the case for
mortgage-backed securities.
BANK OBLIGATIONS. Certificates of deposit ("CDs") are short-term
negotiable obligations of commercial banks; time deposits ("TDs") are
non-negotiable deposits maintained in banking institutions for specified periods
of time at stated interest rates; and bankers' acceptances are time drafts drawn
on commercial banks by borrowers, usually in connection with international
transactions. Domestic commercial banks organized under Federal law are
supervised and examined by the Comptroller of the Currency and are required to
be members of the Federal Reserve System and to be insured by the Federal
Deposit Insurance Corporation ("FDIC"). Domestic banks organized under state law
are supervised and examined by state banking authorities but are members of the
Federal Reserve System only if they elect to join. As a result of governmental
regulations, domestic branches of foreign banks are, among other things,
generally required to maintain specified levels of reserves, and are subject to
other supervision and regulations designed to promote financial soundness.
Obligations of foreign branches of domestic banks, such as CDs and TDs,
may be general obligations of the parent bank in addition to the issuing branch,
or may be limited by the terms of a specific obligation and by governmental
regulations. Payment of interest and principal upon obligations of foreign banks
and foreign branches of domestic banks may be affected by governmental action in
the country of domicile of the branch (generally referred to as sovereign risk).
Examples of such action would be the imposition of currency controls, interest
limitations, seizure of assets, or the declaration of a moratorium. Evidence of
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ownership of portfolio securities may be held outside of the United States, and
a Fund may be subject to the risks associated with the holdings of such property
overseas.
Obligations of branches of foreign banks may be general obligations of the
parent bank in addition to the issuing branch, or may be limited by the terms of
a specific obligation and by governmental action in the countries in which the
foreign bank has its head office. In addition, there may be less publicly
available information about a branch of a foreign bank than about a domestic
bank.
CLOSED-END INVESTMENT COMPANIES. The relevant Funds may invest in
securities issued by closed-end investment companies which principally invest in
securities in which a Fund may invest. Under the 1940 Act, a Fund's investment
in such securities, subject to certain exceptions, currently is limited to (i)
3% of the total voting stock of any one investment company, (ii) 5% of the
Fund's total assets with respect to any one investment company and (iii) 10% of
the Fund's total assets in the aggregate. Investments in the securities of other
investment companies may involve duplication of advisory fees and certain other
expenses.
COMMERCIAL PAPER. Commercial paper instruments are short-term obligations
issued by banks and corporations that have maturities ranging from two to 270
days. Each instrument may be backed only by the credit of the issuer or may be
backed by some form of credit enhancement, typically in the form of a guarantee
by a commercial bank. Commercial paper backed by guarantees of foreign banks may
involve additional risk due to the difficulty of obtaining and enforcing
judgments against such banks and the generally less restrictive regulations to
which such banks are subject. A Fund will only invest in commercial paper of
U.S. and foreign companies rated at the time of purchase at least A-1 by S&P,
Prime-1 by Moody's, F-1 by Fitch or, Duff-1 by Duff & Phelps Credit Rating Co.
("Duff & Phelps").
COMMON STOCK. Common stock represents an equity or ownership interest in
the issuer of the stock. If the issuer is liquidated or declares bankruptcy, the
claims of owners of bonds and preferred stock have priority over the claims of
holders of common stock against assets of the issuer.
CONVERTIBLE SECURITIES. Convertible securities may be converted at either
a stated price or stated rate into underlying shares of common stock.
Convertible securities have characteristics similar to both fixed-income and
equity securities. Convertible securities generally are subordinated to other
similar but non-convertible securities of the same issuer, although convertible
bonds, as corporate debt obligations, enjoy seniority in right of payment to all
equity securities, and convertible preferred stock is senior to common stock of
the same issuer. Because of the subordination feature, however, convertible
securities typically have lower ratings than similar non-convertible securities.
Although to a lesser extent than with fixed-income securities, the market
value of convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition, because of
the conversion feature, the market value of convertible securities tends to vary
with fluctuations in the market value of the underlying common stock. A unique
feature of convertible securities is that as the market price of the underlying
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common stock declines, convertible securities tend to trade increasingly on a
yield basis, and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
Convertible securities provide for a stable stream of income with
generally higher yields than common stocks, but there can be no assurance of
current income because the issuers of the convertible securities may default on
their obligations. A convertible security, in addition to providing fixed
income, offers the potential for capital appreciation through the conversion
feature, which enables the holder to benefit from increases in the market price
of the underlying common stock. There can be no assurance of capital
appreciation, however, because securities prices fluctuate. Convertible
securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality because of the potential for
capital appreciation.
CORPORATE OBLIGATIONS. The relevant Funds may purchase corporate
obligations rated at least Baa by Moody's or BBB by S&P, or if unrated, of
comparable quality as determined by the investment adviser. Securities rated BBB
by S&P or Baa by Moody's are considered by those rating agencies to be
"investment grade" securities, although Moody's considers securities rated Baa
to have speculative characteristics. Further, while bonds rated BBB by S& P's
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
principal for debt in this category than debt in higher rated categories.
CUSTODIAL RECEIPTS. The relevant Funds may purchase securities, frequently
referred to as "custodial receipts," representing the right to receive future
principal and interest payments on municipal obligations underlying such
receipts. A number of different arrangements are possible. In a typical
custodial receipt arrangement, an issuer or a third party owner of a municipal
obligation deposits such obligation with a custodian in exchange for two or more
classes of receipts. The class of receipts that a Fund may purchase has the
characteristics of a typical tender option security backed by a conditional
"put," which provides the holder with the equivalent of a short-term variable
rate note. At specified intervals, the interest rate for such securities is
reset by the remarketing agent in order to cause the securities to be sold at
par through a remarketing mechanism. If the remarketing mechanism does not
result in a sale, the conditional put can be exercised. In either event, the
holder is entitled to full principal and accrued interest to the date of the
tender or exercise of the "put." The "put" may be terminable in the event of a
default in payment of principal or interest on the underlying municipal
obligation and for other reasons. Before purchasing such security, the adviser
is required to make certain determinations with respect to the likelihood of,
and the ability to monitor, the occurrence of the conditions that would result
in the put not being exercisable. The interest rate for these receipts generally
is expected to be below the coupon rate of the underlying municipal obligations
and generally is at a level comparable to that of a municipal obligation of
similar quality and having a maturity equal to the period between interest rate
readjustments. These custodial receipts are sold in private placements. A Fund
also may purchase directly from issuers, and not in a private placement,
municipal obligations having the characteristics similar to the custodial
receipts in which a Fund may invest.
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Other types of tax-exempt instruments that may become available in the
future may be purchased by a Fund as long as the investment adviser believes the
quality of these instruments meets the Fund's quality standards.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding Derivative Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of a Fund's assets to cover or segregated accounts could impede
portfolio management or a Fund's ability to meet redemption requests or other
current obligations.
FOREIGN SECURITIES. The relevant Funds may purchase securities of foreign
issuers and may invest in foreign currencies and obligations of foreign branches
of domestic banks and domestic branches of foreign banks. Investment in such
foreign currencies securities and obligations presents certain risks, including
those resulting from fluctuations in currency exchange rates, revaluation of
currencies, adverse political and economic developments, the possible imposition
of currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning issuers, and
the fact that foreign issuers are not generally subject to uniform accounting,
auditing and financial reporting standards or to other regulatory practices and
requirements comparable to those applicable to domestic issuers. Moreover,
securities of many foreign issuers may be less liquid and their prices more
volatile than those of comparable domestic issuers. In addition, with respect to
certain foreign countries, there is the possibility of expropriation,
confiscatory taxation and limitations on the use or removal of funds or other
assets of the Fund, including withholding of dividends. Foreign securities may
be subject to foreign government taxes that would reduce the yield on such
securities.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES. The
relevant Funds may invest in obligations issued or guaranteed by one or more
foreign governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the investment adviser to be of
comparable quality to the other obligations in which the Fund may invest. Such
securities also include debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank.
GOVERNMENT OBLIGATIONS. U.S. Treasury obligations can differ in their
interest rates, maturities and times of issuance: (a) U.S. Treasury bills
have a maturity of one year or less, (b) U.S. Treasury notes have maturities
of one to ten years, and (c) U.S. Treasury bonds generally have maturities of
greater than ten years.
Government obligations also include obligations issued or guaranteed by
U.S. government agencies and instrumentalities that are supported by any of the
following: (a) the full faith and credit of the U.S. Treasury, (b) the right of
the issuer to borrow an amount limited to a specific line of credit from the
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U.S. Treasury, (c) the discretionary authority of the U.S. Treasury to lend to
such government agency or instrumentality, or (d) the credit of the
instrumentality. (Examples of agencies and instrumentalities are: Federal Land
Banks, Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks, General Services
Administration, Maritime Administration, Tennessee Valley Authority, District of
Columbia Armory Board, Inter-American Development Bank, Asian-American
Development Bank, Student Loan Marketing Association, International Bank for
Reconstruction and Development, and Fannie Mae). No assurance can be given that
the U.S. government will provide financial support to the agencies or
instrumentalities described in (b), (c), and (d) in the future, other than as
set forth above, since it is not obligated to do so by law.
ILLIQUID SECURITIES. Securities that have readily available market
quotations are not deemed illiquid (irrespective of any legal or contractual
restrictions on resale). A Fund may invest in commercial obligations issued in
reliance on the so-called "private placement" exemption from registration
afforded by Section 4(2) of the Securities Act of 1933, as amended ("Section
4(2) paper"). A Fund may also purchase securities that are not registered under
the Securities Act of 1933, as amended, but that can be sold to qualified
institutional buyers in accordance with Rule 144A under that Act ("Rule 144A
securities"). Liquidity determinations with respect to Section 4(2) paper and
Rule 144A securities will be made by the Board of Trustees or by the investment
adviser pursuant to guidelines established by the Board of Trustees. The Board
or the investment adviser will consider availability of reliable price
information and other relevant information in making such determinations.
Section 4(2) paper is restricted as to disposition under the federal securities
laws, and generally is sold to institutional investors, such as the Funds, that
agree that they are purchasing the paper for investment and not with a view to
public distribution. Any resale by the purchaser must be pursuant to
registration or an exemption therefrom. Section 4(2) paper normally is resold to
other institutional investors like the Funds through or with the assistance of
the issuer or investment dealers who make a market in the Section 4(2) paper,
thus providing liquidity. Rule 144A securities generally must be sold to other
qualified institutional buyers. If a particular investment in Section 4(2) paper
or Rule 144A securities is not determined to be liquid, that investment will be
included within the percentage limitation on investment in illiquid securities.
The ability to sell Rule 144A securities to qualified institutional buyers is a
recent development and it is not possible to predict how this market will
mature. Investing in Rule 144A securities could have the effect of increasing
the level of a Fund's illiquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities from the
Funds or other holder.
INITIAL PUBLIC OFFERINGS ("IPOS"). An IPO is a corporation's first
offering of stock to the public. Shares are given a market value reflecting
expectations for the corporation's future growth. Special rules of the National
Association of Securities Dealers apply to the distribution of IPOs.
Corporations offering IPOs generally have a limited operating history and may
involve greater risk.
MONEY MARKET INSTRUMENTS. Money market instruments consist of high
quality, short-term debt obligations, including U.S. government securities,
repurchase agreements, bank obligations and commercial paper. When the
investment adviser determines that adverse market conditions exist, a Fund may
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adopt a temporary defensive position and invest some or all of its assets in
money market instruments. A Fund also may purchase money market instruments when
it has cash reserves.
MORTGAGE-RELATED SECURITIES.
ADJUSTABLE-RATE MORTGAGE LOANS ("ARMS"). ARMs eligible for inclusion in a
mortgage pool will generally provide for a fixed initial mortgage interest rate
for a specified period of time, generally for either the first three, six,
twelve, thirteen, thirty-six, or sixty scheduled monthly payments. Thereafter,
the interest rates are subject to periodic adjustments based on changes in an
index. ARMs typically have minimum and maximum rates beyond which the mortgage
interest rate may not vary over the lifetime of the loans. Certain ARMs provide
for additional limitations on the maximum amount by which the mortgage interest
rate may adjust for any single adjustment period. Limitations on monthly
payments can result in monthly payments that are greater or less than the amount
necessary to amortize a negatively amortizing ARM by its maturity at the
interest rate in effect during any particular month.
COLLATERALIZED MORTGAGE POOLS. Collateralized mortgage pool securities are
a form of derivative composed of interests in pools of commercial or residential
mortgages. Pools of mortgage loans are assembled as securities for sale to
investors by various governmental, government-related and private organizations.
Theses securities may include complex instruments such as collateralized
mortgage obligations, stripped mortgage-backed securities, mortgage pass-through
securities, interest in real estate mortgage investment conduits ("REMICs"), and
adjustable rate mortgages.
RESIDENTIAL MORTGAGE-RELATED SECURITIES. Residential mortgage-related
securities represent participation interests in pools of one-to four-family
residential mortgage loans issued or guaranteed by governmental agencies or
instrumentalities, such as the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA"), and the Federal
Home Loan Mortgage Corporation ("FHLMC"), or issued by private entities. Similar
to commercial mortgage-related securities, residential mortgage-related
securities have been issued using a variety of structures, including multi-class
structures featuring senior and subordinated classes.
MORTGAGE PASS-THROUGH CERTIFICATES. Mortgage pass-through certificates are
issued by governmental, government-related and private entities and are backed
by pools of mortgages (including those on residential properties and commercial
real estate). The mortgage loans are made by savings and loan institutions,
mortgage bankers, commercial banks and other lenders. The securities are
"pass-through" securities because they provide investors with monthly payments
of principal and interest which, in effect, are a "pass-through" of the monthly
payments made by the individual borrowers on the underlying mortgages, net of
any fees paid to the issuer or guarantor of the pass-through certificates. The
principal governmental issuer of such securities is GNMA, which is a
wholly-owned U.S. government corporation within the Department of Housing and
Urban Development. Government-related issuers include FHLMC and FNMA, both
government sponsored corporations owned entirely by private stockholders.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issues also create
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pass-through pools of conventional residential and commercial mortgage loans.
Such issuers may be the originators of the underlying mortgage loans as well as
the guarantors of the mortgage-related securities.
(1) GNMA Mortgage Pass-Through Certificates ("Ginnie Maes"). Ginnie Maes
represent an undivided interest in a pool of mortgages that are insured by the
Federal Housing Administration or the Farmers Home Administration or guaranteed
by the Veterans Administration. Ginnie Maes entitle the holder to receive all
payments (including prepayments) of principal and interest owed by the
individual mortgagors, net of fees paid to GNMA and to the issuer which
assembles the mortgage pool and passes through the monthly payments to the
certificate holders (typically, a mortgage banking firm), regardless of whether
the individual mortgagor actually makes the payment. Because payments are made
to certificate holders regardless of whether payments are actually received on
the underlying mortgages, Ginnie Maes are of the "modified pass-through"
mortgage certificate type. The GNMA is authorized to guarantee the timely
payment of principal and interest on the Ginnie Maes as securities backed by an
eligible pool of mortgages. The GNMA guarantee is backed by the full faith and
credit of the United States, and the GNMA has unlimited authority to borrow
funds from the U.S. Treasury to make payments under the guarantee. This is not a
guarantee against market decline of the value of these securities or the shares
of a Fund. It is possible that the availability (i.e., liquidity) of these
securities could be adversely affected by actions of the U.S. government to
tighten the availability of its credit. The market for Ginnie Maes is highly
liquid because of the size of the market and the active participation in the
secondary market of securities dealers and a variety of investors.
(2) FHLMC Mortgage Participation Certificates ("Freddie Macs"). Freddie
Macs represent interests in groups of specified first lien residential
conventional mortgages underwritten and owned by FHLMC. Freddie Macs entitle the
holder to timely payments of interest, which is guaranteed by FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. In cases where FHLMC has not
guaranteed timely payment of principal, FHLMC may remit the amount due on
account of its guarantee of ultimate payment of principal at anytime after
default on an underlying mortgage, but in no event later than one year after it
becomes payable. Freddie Macs are not guaranteed by the United States or by any
of the Federal Home Loan Banks and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. The secondary market for Freddie
Macs is highly liquid because of the size of the market and the active
participation in the secondary market of FHLMC, securities dealers and a variety
of investors.
(3) FNMA Guaranteed Mortgage Pass-Through Certificates ("Fannie Maes").
Fannie Maes represent an undivided interest in a pool of conventional mortgage
loans secured by first mortgages or deeds of trust, on one family, or two to
four family, residential properties. FNMA is obligated to distribute scheduled
monthly installments of principal and interest on the mortgages in the pool,
whether or not received, plus full principal of any foreclosed or otherwise
liquidated mortgages. The obligation of FNMA under its guaranty is solely the
obligation of FNMA and is not backed by, nor entitled to, the full faith and
credit of the United States.
(4) Private issue mortgage certificates are pass-through securities
structured in a similar fashion to Ginnie Maes, Fannie Maes, and Freddie Macs.
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Private issuer mortgage certificates are generally backed by conventional single
family, multi-family and commercial mortgages. Private issuer mortgage
certificates typically are not guaranteed by the U.S. government, its agencies
or instrumentalities, but generally have some form of credit support in the form
of over-collateralization, pool insurance or other form of credit enhancement.
The market value of mortgage-related securities depends on, among other
things, the level of interest rates, the certificates coupon rates and the
payment history of the mortgagors of the underlying mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS PASS-THROUGH
SECURITIES. Collateralized mortgage obligations or "CMOs" are multi-class bonds
backed by pools or mortgage pass-through certificates or mortgage loans. CMOs in
which a Fund may invest may be collateralized by (a) pass-through certificates
issued or guaranteed by GNMA, FNMA or FHLMC, (b) unsecuritized mortgage loans
insured by the Federal Housing Administration or guaranteed by the Department of
Veterans' Affairs or (c) any combination thereof.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific coupon rate and has a stated maturity of final distribution date.
Principal prepayments on collateral underlying a CMO may cause it to be retired
substantially earlier than the stated maturities or final distribution dates.
The principal and interest on the underlying mortgages may be allocated among
the several classes of a series of a CMO in many ways. One or more tranches of a
CMO may have coupon rates which reset periodically at a specified increment over
an index, such as the London Interbank Offered Rate ("LIBOR") (or sometimes more
than one index). These floating rate CMOs typically are issued with lifetime
caps on the coupon rate thereon. A Fund also may invest in inverse floating rate
CMOs. Inverse floating rate CMOs constitute a tranche of a CMO with a coupon
rate that moves in the reverse direction of an applicable index such as the
LIBOR. Accordingly, the coupon rate thereon will increase as interest rates
decrease. Inverse floating rate CMOs are typically more volatile than fixed or
floating rate tranches of CMOs. Many inverse floating rate CMOs have coupons
that move inversely to a multiple of an applicable index such as LIBOR. The
effect of the coupon varying inversely to a multiple of an applicable index
creates a leverage factor. The markets for inverse floating rate CMOs with
highly leveraged characteristics may at times be very thin. A Fund's ability to
dispose of its positions in such securities will depend on the degree of
liquidity in the markets for such securities. It is impossible to predict the
amount of trading interest that may exist in such securities, and therefore the
future degree of liquidity. It should be noted that inverse floaters based on
multiples of a stated index are designed to be highly sensitive to changes in
interest rates and can subject the holders thereof to extreme reductions of
yield and loss of principal.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed securities
are created by segregating the cash flows from underlying mortgage loans or
mortgage securities to create two or more new securities, each with a specified
percentage of the underlying security's principal or interest payments. Mortgage
securities may be partially stripped so that each investor class receives some
interest and some principal. When securities are completely stripped, however,
all of the interest is distributed to holders of one type of security, known as
an interest-only security, or IO, and all of the principal is distributed to
holders of another type of security known as a principal-only security, or PO.
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Strips can be created in a pass-through structure or as tranches of a CMO. The
yields to maturity on IOs and POs are very sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage assets. If
the underlying mortgage assets experience greater than anticipated prepayments
of principal, a Fund may not fully recoup its initial investment in IOs.
Conversely, if the underlying mortgage assets experience less than anticipated
prepayments of principal, the yield on POs could be materially and adversely
affected.
COMMERCIAL MORTGAGE-BACKED SECURITIES. Commercial mortgage-backed
securities are securities that represent direct or indirect participation in, or
are secured by and payable from, pools of loans or leases secured by commercial
properties, including but not limited to retail, office or industrial
properties, hotels, health-care facilities and multifamily residential
properties. Such assets are securitized through the use of trusts and special
purpose corporations. The value of such securities partly depends on loan
repayments by individual commercial borrowers, which can depend in turn on rent
payments from tenants in secured properties, either of which may be adversely
affected during general downturns in the economy. Payments or distributions of
principal and interest on commercial mortgage-backed securities may be supported
by credit enhancements, such as various forms of cash collateral accounts or
letters of credit. Like mortgage-backed securities, commercial mortgage-backed
securities are subject to the risks of prepayment. The risks that recovery or
repossessed collateral might be unavailable or inadequate to support payments on
commercial mortgage-backed securities, however, is greater than is the case for
non-multifamily residential mortgage-backed securities.
MUNICIPAL OBLIGATIONS.
---------------------
GENERAL. Municipal Obligations are debt obligations issued by states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, or multistate
agencies or authorities, the interest from which, in the opinion of bond counsel
to the issuer, is exempt from Federal income tax. Municipal Obligations
generally include debt obligations issued to obtain funds for various public
purposes as well as certain industrial development bonds issued by or on behalf
of public authorities. Municipal Obligations are classified as general
obligation bonds, revenue bonds and notes. General obligation bonds are secured
by the issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable from the revenue derived from
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source, but not from the
general taxing power. Tax exempt industrial development bonds, in most cases,
are revenue bonds that do not carry the pledge of the credit of the issuing
municipality, but generally are guaranteed by the corporate entity on whose
behalf they are issued. Notes are short-term instruments which are obligations
of the issuing municipalities or agencies and are sold in anticipation of a bond
sale, collection of taxes or receipt of other revenues. Municipal Obligations
include municipal lease/purchase agreements which are similar to installment
purchase contracts for property or equipment issued by municipalities. Municipal
Obligations bear fixed, floating or variable rates of interest, which are
determined in some instances by formulas under which the Municipal Obligation's
interest rate will change directly or inversely to changes in interest rates or
an index, or multiples thereof, in many cases subject to a maximum and minimum.
Certain Municipal Obligations are subject to redemption at a date earlier than
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their stated maturity pursuant to call options, which may be separated from the
related Municipal Obligation and purchased and sold separately.
The yields on Municipal Obligations are dependent on a variety of factors,
including general economic and monetary conditions, money market factors,
conditions in the Municipal Obligations market, size of a particular offering,
maturity of the obligation and rating of the issue. The imposition of a Fund's
management fee, as well as other operating expenses, will have the effect of
reducing the yield to investors.
Municipal Obligations may be repayable out of revenue streams generated
from economically related projects or facilities or whose issuers are located in
the same state. Sizable investments in these obligations could increase risk to
the Funds should any of the related projects or facilities experience financial
difficulties.
Other types of tax-exempt instruments that may become available in the
future may be purchased by a Fund as long as the investment adviser believes the
quality of these instruments meets the Fund's quality standards.
MUNICIPAL BONDS. Municipal bonds, which generally have a maturity of more
than one year when issued, have two principal classifications: general
obligation bonds and revenue bonds. A private activity bond is a particular kind
of revenue bond. The classifications of general obligation bonds, revenue bonds
and private activity bonds are discussed below.
1. General Obligation Bonds. The proceeds of these obligations are used to
finance a wide range of public projects, including construction or improvement
of schools, highways and roads, and water and sewer systems. General Obligation
Bonds are secured by the issuer's pledge of its faith, credit, and taxing power
for the payment of principal and interest.
2. Revenue Bonds. Revenue Bonds are issued to finance a wide variety of
capital projects including: electric, gas, water and sewer systems; highways,
bridges and tunnels; port and airport facilities; colleges and universities; and
hospitals. The principal security for a Revenue Bond is generally the net
revenues derived from a particular facility, group of facilities or, in some
cases, the proceeds of a special excise or other specific revenue source.
Although the principal security behind these bonds may vary, many provide
additional security in the form of a debt service reserve fund whose money may
be used to make principal and interest payments on the issuer's obligations.
Some authorities provide further security in the form of a state's ability
(without obligation) to make up deficiencies in the debt service reserve fund.
3. Private Activity Bonds. Private Activity Bonds, which are considered
Municipal Obligations or Bonds if the interest paid thereon is exempt from
Federal income tax, are issued by or on behalf of public authorities to raise
money to finance various privately operated facilities for business and
manufacturing, housing, sports and pollution control. These bonds are also used
to finance public facilities such as airports, mass transit systems, ports and
parking. The payment of the principal and interest on such bonds is dependent
solely on the ability of the facility's user to meet its financial obligations
and the pledge, if any, of real and personal property so financed as security
for such payment. As discussed below under "Dividends, Other Distributions and
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Taxes," interest income on these bonds may be an item of tax preference subject
to the Federal alternative minimum tax for individuals and corporations.
MUNICIPAL NOTES. Municipal notes generally are used to provide for
short-term capital needs and generally have maturities of thirteen months or
less. Municipal Notes include:
1. Tax Anticipation Notes. Tax Anticipation Notes are issued to finance
working capital needs of municipalities. Generally, they are issued in
anticipation of various seasonal tax revenue, such as income, sales, use and
business taxes, and are payable from these specific future taxes.
2. Revenue Anticipation Notes. Revenue Anticipation Notes are issued in
expectation of receipt of other kinds of revenue, such as Federal revenues
available under Federal Revenue Sharing programs.
3. Bond Anticipation Notes. Bond Anticipation Notes are issued to provide
interim financing until long-term financing can be arranged. In most cases, the
long-term bonds then provide the money for the repayment of the notes.
MUNICIPAL COMMERCIAL PAPER. Issues of Municipal Commercial Paper typically
represent short-term, unsecured, negotiable promissory notes. These obligations
are issued by agencies of state and local governments to finance seasonal
working capital needs of municipalities or to provide interim construction
financing and are paid from general revenues of municipalities or are refinanced
with long-term debt. In most cases, Municipal Commercial Paper is backed by
letters of credit, lending agreements, note repurchase agreements, or other
credit facility agreements offered by banks or other institutions.
MUNICIPAL LEASE OBLIGATIONS. Municipal leases may take the form of a lease
or a certificate of participation in a purchase contract issued by state and
local government authorities to obtain funds to acquire a wide variety of
equipment and facilities such as fire and sanitation vehicles, computer
equipment and other capital assets. A lease obligation does not constitute a
general obligation of the municipality for which the municipality's taxing power
is pledged, although the lease obligation is ordinarily backed by the
municipality's covenant to budget for, appropriate and make payments due under
the lease obligation. Municipal leases have special risks not normally
associated with municipal bonds. These obligations frequently contain
"non-appropriation" clauses that provide that the governmental issuer of the
obligation has no obligation to make future payments under the lease or contract
unless money is appropriated for such purposes by the legislative body on a
yearly or other periodic basis. In addition to the non-appropriation risk,
municipal leases represent a type of financing that has not yet developed the
depth of marketability associated with municipal bonds; moreover, although the
obligations will be secured by the leased equipment, the disposition of the
equipment in the event of foreclosure might prove difficult. For purposes of the
15% limitation on the purchase of illiquid securities, a Fund will not consider
the municipal lease obligations or certificates of participation in municipal
lease obligations in which it invests as liquid, unless the investment adviser
shall determine, based upon such factors as the frequency of trades and quotes
for the obligation, the number of dealers willing to purchase or sell the
security and the number of other potential buyers, the willingness of dealers to
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undertake to make a market in the security and the nature of marketplace trades,
that a security shall be treated as liquid for purposes of such limitation.
Lease obligations are a relatively new type of financing that has not yet
developed the depth of marketability associated with more conventional municipal
obligations. For these reasons, before investing in a lease obligation the
investment adviser will consider, among other things, whether (1) the leased
property is essential to a governmental function of the municipality, (2) the
municipality is prohibited from substituting or purchasing similar equipment if
lease payments are not appropriated, and (3) the municipality has maintained
good market acceptability for its lease obligations in the past.
Obligations of issuers of Municipal Obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon
municipalities to levy taxes. There is also the possibility that, as a result of
litigation or other conditions, the power or ability of any issuer to pay, when
due, the principal of and interest on its Municipal Obligations may be
materially affected.
PRICE AND PORTFOLIO MATURITY. The relevant Funds generally invest in
Municipal Obligations having intermediate-term maturities that can be expected
to pay higher yields and experience greater fluctuations in value than bonds
with short-term maturities. The market value of the Municipal Obligations in a
Fund's portfolio and, accordingly, a Fund's net asset value typically will vary
inversely with changes in interest rates, declining when interest rates rise and
rising when interest rates decline. Under normal market conditions, the longer
the average maturity of a Fund's holdings, the greater its expected yield and
price volatility.
TAX EXEMPT PARTICIPATION INTERESTS. The relevant Funds may purchase from
financial institutions tax-exempt participation interests in Municipal
Obligations (such as industrial development bonds and municipal lease/purchase
agreements). A participation interest gives a Fund an undivided interest in the
Municipal Obligation in the proportion that the Fund's participation interest
bears to the total principal amount of the Municipal Obligation. These
instruments may have fixed, floating or variable rates of interest. If the
participation interest is unrated, it will be backed by an irrevocable letter of
credit or guarantee of a bank that the Fund's Board has determined meets
prescribed quality standards for banks, or the payment obligation otherwise will
be collateralized by U.S. government securities. For certain participation
interests, a Fund will have the right to demand payment, on not more than seven
days' notice, for all or any part of the Fund's participation interest in the
Municipal Obligation, plus accrued interest. As to these instruments, a Fund
intends to exercise its right to demand payment only upon a default under the
terms of the Municipal Obligation, as needed to provide liquidity to meet
redemptions, or to maintain or improve the quality of its investment portfolio.
Municipal lease obligations or installment purchase contract obligations
(collectively, "lease obligations") have special risks not ordinarily associated
with Municipal Obligations. Although lease obligations do not constitute general
obligations of the municipality for which the municipality's taxing power is
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pledged, a lease obligation ordinarily is backed by the municipality's covenant
to budget for, appropriate and make the payments due under the lease obligation.
However, certain lease obligations contain "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Although "non-appropriation" lease obligations are secured by
the leased property, disposition of the property in the event of foreclosure
might prove difficult. The staff of the Securities and Exchange Commission
("SEC") currently considers certain lease obligations to be illiquid.
Determination as to the liquidity of such securities is made in accordance with
guidelines established by the Fund's Board. Pursuant to such guidelines, the
Board has directed the investment adviser to monitor carefully the Fund's
investment in such securities with particular regard to (1) the frequency of
trades and quotes for the lease obligation; (2) the number of dealers willing to
purchase or sell the lease obligation and the number of other potential buyers;
(3) the willingness of dealers to undertake to make a market in the lease
obligation; (4) the nature of the marketplace trades including the time needed
to dispose of the lease obligation, the method of soliciting offers and the
mechanics of transfer; and (5) such other factors concerning the trading market
for the lease obligation as adviser may deem relevant. In addition, in
evaluating the liquidity and credit quality of a lease obligation that is
unrated, the Fund's Board has directed the investment adviser to consider (a)
whether the lease can be canceled; (b) what assurance there is that the assets
represented by the lease can be sold; (c) the strength of the lessee's general
credit (e.g., its debt, administrative, economic, and financial
characteristics); (d) the likelihood that the municipality will discontinue
appropriating funding for the leased property because the property is no longer
deemed essential to the operations of the municipality (e.g., the potential for
an "event of nonappropriation"); (e) the legal recourse in the event of failure
to appropriate; and (f) such other factors concerning credit quality as the
investment adviser may deem relevant.
TENDER OPTION BONDS. A tender option bond is a Municipal Obligation
(generally held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially higher than
prevailing short-term tax-exempt rates, that has been coupled with the agreement
of a third party, such as a bank, broker-dealer or other financial institution,
pursuant to which such institution grants the security holders the option, at
periodic intervals, to tender their securities to the institution and receive
the face value thereof. As consideration for providing the option, the financial
institution receives periodic fees equal to the difference between the Municipal
Obligation's fixed coupon rate and the rate, as determined by a remarketing or
similar agent at or near the commencement of such period, that would cause the
securities, coupled with the tender option, to trade at par on the date of such
determination. Thus, after payment of this fee, the security holder effectively
holds a demand obligation that bears interest at the prevailing short-term
tax-exempt rate. The investment adviser, on behalf of each Fund, will consider
on an ongoing basis the creditworthiness of the issuer of the underlying
Municipal Obligation, of any custodian and the third-party provider of the
tender option. In certain instances and for certain tender option bonds, the
option may be terminable in the event of a default in payment of principal or
interest on the underlying Municipal Obligations and for other reasons. No Fund
will invest more than 15% of the value of its net assets in illiquid securities,
which would include tender option bonds for which the required notice to
exercise the tender feature is more than seven days if there is no secondary
market available for these obligations.
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VARIABLE AND FLOATING RATE DEMAND NOTES. Variable and floating rate demand
notes and bonds are tax exempt obligations which ordinarily have stated
maturities in excess of one year, but which permit the holder to demand payment
of principal at any time or at specified intervals. Variable rate demand notes
include master demand notes which are obligations that permit the Funds to
invest fluctuating amounts, at varying rates of interest, pursuant to direct
arrangements between the Funds, as lender, and the borrower. These obligations
permit daily changes in the amount borrowed. Because these obligations are
direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and generally there
is no established secondary market for these obligations, although they are
redeemable at face value, plus accrued interest. Accordingly, where these
obligations are not secured by letters of credit or other credit support
arrangements, a Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. Each obligation purchased by
the Funds will meet the quality criteria established for the purchase of
Municipal Obligations.
OTHER INVESTMENT COMPANIES. The relevant Funds may invest in securities
issued by other investment companies to the extent that such investments are
consistent with the Fund's investment objective and policies and permissible
under the 1940 Act. As a shareholder of another investment company, a Fund would
bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the advisory and other expenses that the Fund bears directly in
connection with its own operations.
PREFERRED STOCK. Preferred stock is a class of capital stock that
typically pays dividends at a specified rate. Preferred stock is generally
senior to common stock, but subordinate to debt securities, with respect to the
payment of dividends and on liquidation of the issuer. In general, the market
value of preferred stock is its "investment value," or its value as a
fixed-income security. Accordingly, the market value of preferred stock
generally increases when interest rates decline and decreases when interest
rates rise, but, as with debt securities, is also affected by the issuer's
ability to make payments on the preferred stock.
REPURCHASE AGREEMENTS. The relevant Funds may enter into repurchase
agreements with member banks of the Federal Reserve System or certain non-bank
dealers. Under each repurchase agreement the selling institution will be
required to maintain the value of the securities subject to the agreement at not
less than their repurchase price. If a particular bank or non-bank dealer
defaults on its obligation to repurchase the underlying debt instrument as
required by the terms of a repurchase agreement, a Fund will incur a loss to the
extent that the proceeds it realizes on the sale of the collateral are less than
the repurchase price of the instrument. In addition, should the defaulting bank
or non-bank dealer file for bankruptcy, a Fund could incur certain costs in
establishing that it is entitled to dispose of the collateral and its
realization on the collateral may be delayed or limited.
STAND-BY COMMITMENTS. The relevant Funds may purchase stand-by
commitments. Under a stand-by commitment, a broker-dealer, dealer or bank would
agree to purchase, at the Fund's option, a specified Municipal Obligation at a
specified price. Stand-by commitments acquired by a Fund may also be referred to
as "put options." The amount payable to the Fund upon its exercise of a stand-by
commitment normally would be (a) the acquisition cost of the Municipal
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Obligation, less any amortized market premium or plus any amortized market or
original issue discount during the period the Fund owned the security, plus (b)
all interest accrued on the security since the last interest payment date during
the period. Absent unusual circumstances, in determining net asset value the
Fund would value the underlying Municipal Obligation at amortized cost.
Accordingly, the amount payable by the broker-dealer, dealer or bank upon
exercise of a stand-by commitment will normally be substantially the same as the
portfolio value of the underlying Municipal Obligation.
The Fund's right to exercise a stand-by commitment is unconditional and
unqualified. Although the Fund could not transfer a stand-by commitment, the
Fund could sell the underlying Municipal Obligation to a third party at any
time. It is expected that stand-by commitments generally will be available to
the Fund without the payment of any direct or indirect consideration. The Fund
may, however, pay for stand-by commitments either separately in cash or by
paying a higher price for portfolio securities which are acquired subject to the
commitment (thus reducing the yield to maturity otherwise available for the same
securities). The total amount paid in either manner for outstanding stand-by
commitments held in the Fund's portfolio will not exceed 0.5 of 1% of the value
of the Fund's total assets calculated immediately after such stand-by commitment
was acquired.
A Fund intends to enter into stand-by commitments only with
broker-dealers, dealers or banks that the investment adviser believes present
minimum credit risks. The Fund's ability to exercise a stand-by commitment will
depend on the ability of the issuing institution to pay for the underlying
securities at the time the commitment is exercised. The credit of each
institution issuing a stand-by commitment to the Fund will be evaluated on an
ongoing basis by the investment adviser in accordance with procedures
established by the Trustees.
A Fund intends to acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment would not affect the
valuation or maturity of the underlying Municipal Obligation, which will
continue to be valued in accordance with the amortized cost method. Each
stand-by commitment will be valued at zero in determining net asset value.
Should the Fund pay directly or indirectly for a stand-by commitment, its costs
will be reflected as an unrealized loss for the period during which the
commitment is held by the Fund and will be reflected in realized gain or loss
when the commitment is exercised or expires. Stand-by commitments will not
affect the dollar-weighted average maturity of the Fund's portfolio. The Fund
understands that the Internal Revenue Service has issued a revenue ruling to the
effect that a registered investment company will be treated for Federal income
tax purposes as the owner of Municipal Obligations acquired subject to stand-by
commitments and the interest on the Municipal Obligations will be tax-exempt to
the Fund.
TAXABLE INVESTMENTS. (MPAM Intermediate Municipal Bond Fund and MPAM
National Short-Term Municipal Bond Fund Only) Each Fund anticipates being as
fully invested as practicable in Municipal Obligations. Because each Fund's
purpose is to provide income exempt from Federal income taxes, a Fund will
invest in taxable obligations only if and when the investment adviser believes
it would be in the best interests of its shareholders to do so. Situations in
which a Fund may invest up to 20% of its total assets in taxable securities
include: (a) pending investment of proceeds of sales of shares of the Funds or
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of portfolio securities, (b) pending settlement of purchases of portfolio
securities, and (c) when the Fund is attempting to maintain liquidity for the
purpose of meeting anticipated redemptions. A Fund may temporarily invest more
than 20% of its total assets in taxable securities to maintain a "defensive"
posture when, in the opinion of the investment adviser, it is advisable to do so
because of adverse market conditions affecting the market for Municipal
Obligations. Under such circumstances, a Fund may invest in the following kinds
of taxable securities maturing in one year or less from the date of purchase:
(1) obligations of the United States government, its agencies or
instrumentalities; (2) commercial paper rated Prime-1 by Moody's or A-1+ or A-1
by S&P; (3) certificates of deposit of domestic banks with total assets of $1
billion or more; and (4) repurchase agreements (instruments under which the
seller of a security agrees to repurchase the security at a specific time and
price) with respect to any securities that the Funds are permitted to hold.
(MPAM Pennsylvania Intermediate Bond Fund Only) The Fund anticipates being
as fully invested as practicable in Municipal Obligations. Although the Fund's
purpose is to provide income exempt from Federal and state personal income
taxes, it is anticipated that the Fund may invest in state taxable obligations
up to 20% of its total assets. From time to time, on a temporary basis other
than for temporary defensive purposes (but not to exceed 20% of the value of the
Fund's net assets) or for temporary defensive purposes, the Fund may invest in
taxable short-term investments ("Taxable Investments") consisting of: notes of
issuers having, at the time of purchase, a quality rating within the two highest
grades of Rating Agencies; obligations of the U.S. Government, its agencies or
instrumentalities; commercial paper rated not lower than P-2 by Moody's, A-2 by
S&P or F-2 by Fitch; certificates of deposit of U.S. domestic banks, including
foreign branches of domestic banks, with assets of one billion dollars or more;
time deposits; bankers' acceptances and other short-term bank obligations; and
repurchase agreements in respect of any of the foregoing. Dividends paid by the
Fund that are attributable to income earned by the Fund from Taxable Investments
will be taxable to investors. See "Dividends Distributions and Taxes." Except
for temporary defensive purposes, at no time will more than 20% of the value of
the Fund's net assets be invested in Taxable Investments. When the Fund has
adopted a temporary defensive position including when acceptable Pennsylvania
Municipal Obligations are unavailable for investment by the Fund, in excess of
35% of the Fund's net assets may be invested in securities that are not exempt
from Pennsylvania personal income taxes.
U.S. GOVERNMENT SECURITIES. The relevant Funds may invest in U.S.
government securities that are direct obligations of the U.S. Treasury, or
that are issued by agencies and instrumentalities of the U.S. government and
supported by the full faith and credit of the U.S. government. These include
Treasury notes, bills and bonds and securities issued by the GNMA, the
Federal Housing Administration, the Department of Housing and Urban
Development, the Export-Import Bank, the Farmers Home Administration, the
General Services Administration, the Maritime Administration and the Small
Business Administration.
A Fund may also invest in U.S. government securities that are not
supported by the full faith and credit of the U.S. government. These include
securities issued by FNMA, FHLMC, Federal Home Loan Banks, Tennessee Valley
Authority, Student Loan Marketing Association and District of Columbia Armory
Board. Because the U.S. government is not obligated by law to provide support to
an instrumentality it sponsors, a Fund will invest in obligations issued by such
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an instrumentality only when the investment adviser determines that the credit
risk with respect to the instrumentality does not make its securities unsuitable
for investment by the Fund.
GNMA Certificates are mortgage-backed securities representing part
ownership of a pool of mortgage loans. These loans are made by mortgage bankers,
commercial banks, savings and loan associations, and other lenders and are
either insured by the Federal Housing Administration or guaranteed by the
Veterans Administration. A "pool" or group of such mortgages is assembled and,
after being approved by GNMA, is offered to investors through securities
dealers. Once approved by GNMA, the timely payment of interest and principal on
each mortgage is guaranteed by the full faith and credit of the U.S. government.
Although the mortgage loans in a pool underlying a GNMA Certificate will have
maturities of up to 30 years, the average life of a GNMA Certificate will be
substantially less because the mortgages will be subject to normal principal
amortization and also may be prepaid prior to maturity. Prepayment rates vary
widely and may be affected by changes in mortgage interest rates. In periods of
falling interest rates, the rate of prepayment on higher interest mortgage rates
tends to increase, thereby shortening the actual average life of the GNMA
Certificate. Conversely, when interest rates are rising, the rate of prepayment
tends to decrease, thereby lengthening the average life of the GNMA
Certificates. Reinvestment of prepayments may occur at higher or lower rates
than the original yield of the Certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, GNMA
Certificates, with underlying mortgages bearing higher interest rates can be
less effective than typical non-callable bonds of similar maturities at locking
in yields during periods of declining interest rates, although they may have
comparable risks of decline in value during periods of rising interest rates.
FNMA and FHLMC are government-sponsored corporations owned entirely by
private stockholders. Each is subject to general regulation by an office of the
Department of Housing and Urban Development. FNMA and FHLMC purchase residential
mortgages from a list of approved seller/services which include state and
federally-chartered savings and loan associations, mutual savings banks,
commercial banks and credit unions and mortgage bankers. Pass-through securities
issued by FNMA and FHLMC are guaranteed by those entities as to payment of
principal and interest.
VARIABLE AND FLOATING RATE SECURITIES. The relevant Funds may purchase
floating rate and variable rate obligations, including participation interests
therein. Floating rate or variable rate obligations provide that the rate of
interest is set as a specific percentage of a designated base rate (such as the
prime rate at a major commercial bank) and that a Fund can demand payment of the
obligation at par plus accrued interest. Variable rate obligations provide for a
specified periodic adjustment in the interest rate, while floating rate
obligations have an interest rate which changes whenever there is a change in
the external interest rate. Frequently such obligations are secured by letters
of credit or other credit support arrangements provided by banks. The quality of
the underlying creditor or of the bank, as the case may be, must, as determined
by the investment adviser under the supervision of the Trustees, be equivalent
to the quality standard prescribed for the Fund. In addition, the investment
adviser monitors the earning power, cash flow and other liquidity ratios of the
issuers of such obligations, as well as the creditworthiness of the institution
responsible for paying the principal amount of the obligations under the demand
feature. Changes in the credit quality of banks and other financial institutions
that provide such credit or liquidity enhancements to a Fund's portfolio
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securities could cause losses to the Fund and affect its share price.
A Fund may invest in participation interests purchased from banks in
floating rate or variable rate tax-exempt Municipal Obligations owned by banks.
A participation interest gives the purchaser an undivided interest in the
Municipal Obligation in the proportion that the Fund's participation interest
bears to the total principal amount of the Municipal Obligation, and provides a
demand feature. Each participation is backed by an irrevocable letter of credit
or guarantee of a bank (which may be the bank issuing the participation
interest, a bank issuing a confirming letter of credit to that of the issuing
bank, or a bank serving as agent of the issuing bank with respect to the
possible repurchase of the participation interest) that the investment adviser,
under the supervision of the Trustees, has determined meets the prescribed
quality standards for a Fund. A Fund has the right to sell the instrument back
to the issuing bank or draw on the letter of credit on demand for all or any
part of the Fund's participation interest in the Municipal Obligation, plus
accrued interest. Banks will retain a service and letter of credit fee and a fee
for issuing repurchase commitments in an amount equal to the excess of the
interest paid on the Municipal Obligations over the negotiated yield at which
the instruments were purchased by a Fund.
WARRANTS. A warrant gives the holder the right to subscribe to a
specified amount of the issuing corporation's capital stock at a set price
for a specified period of time.
ZERO COUPON SECURITIES. Zero coupon securities are debt securities issued
or sold at a discount from their face value which do not entitle the holder to
any periodic payment of interest prior to maturity or a specified redemption
date (or cash payment date). The amount of the discount varies depending on the
time remaining until maturity or cash payment date, prevailing interest rates,
liquidity of the security and perceived credit quality of the issuer. Zero
coupon securities also may take the form of debt securities that have been
stripped of their unmatured interest coupons, the coupons themselves and
receipts or certificates representing interest in such stripped debt obligations
and coupons. The market prices of zero coupon securities generally are more
volatile than the market prices of securities that pay interest periodically and
are likely to respond to a greater degree to changes in interest rates than
non-zero coupon securities having similar maturities and credit qualities.
Federal income tax law requires the holder of a zero coupon security to accrue
income with respect to these securities prior to the receipt of cash payments.
To maintain its qualification as a regulated investment company and avoid
liability for Federal income taxes, a Fund may be required to distribute such
income accrued with respect to these securities and may have to dispose of
portfolio securities under disadvantageous circumstances in order to generate
cash to satisfy these distribution requirements.
INVESTMENT TECHNIQUES
In addition to the principal investment strategies discussed in the
Prospectus, a Fund may utilize the investment techniques described below. A Fund
might not use, or may not have the ability to use, any of these strategies and
there can be no assurance that any strategy that is used will succeed.
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BORROWING MONEY. The relevant Funds are permitted to borrow to the extent
permitted under the 1940 Act, which permits an investment company to borrow in
an amount up to 33-1/3% of the value of its total assets. The Funds currently
intend to borrow money only for temporary or emergency (not leveraging)
purposes, in an amount up to 15% of the value of its total assets (including the
amount borrowed) valued at the lesser of cost or market, less liabilities (not
including the amount borrowed) at the time the borrowing is made. While
borrowings exceed 5% of the Fund's total assets, the Fund will not make any
additional investments.
FOREIGN CURRENCY TRANSACTIONS. The relevant Funds may engage in currency
exchange transactions on a spot or forward basis. The Fund may exchange foreign
currency on a spot basis at the spot rate then prevailing for purchasing or
selling foreign currencies in the foreign exchange market.
The Fund may also enter into forward currency contracts for the purchase
or sale of a specified currency at a specified future date either with respect
to specific transactions or portfolio positions in order to minimize the risk to
the Fund from adverse changes in the relationship between the U.S. dollar and
foreign currencies. For example, when the Fund anticipates purchasing or selling
a security denominated in a foreign currency, the Fund may enter into a forward
contract in order to set the exchange rate at which the transaction will be
made. The Fund may also enter into a forward contract to sell an amount of
foreign currency approximating the value of some or all of the Fund's securities
positions denominated in that currency.
Forward currency contracts may substantially change the Fund's investment
exposure to changes in currency exchange rates and could result in losses if
currencies do not perform as the investment adviser anticipates. There is no
assurance that the investment adviser's use of forward currency contracts will
be advantageous to the Fund or that it will hedge at an appropriate time.
FOREIGN CURRENCY STRATEGIES - SPECIAL CONSIDERATIONS. The relevant Funds
may use Derivative Instruments on foreign currencies to hedge against movements
in the values of the foreign currencies in which the Fund's securities are
denominated. Such currency hedges can protect against price movements in a
security that the Fund owns or intends to acquire that are attributable to
changes in the value of the currency in which it is denominated. Such hedges do
not, however, protect against price movements in the securities that are
attributable to other causes.
A Fund may seek to hedge against changes in the value of particular
currency when no Derivative Instruments on that currency are available or such
Derivative Instruments are more expensive than certain other Derivative
Instruments. In such cases, the Fund may hedge against price movements in that
currency by entering into transactions using Derivative Instruments on another
currency or a basket of currencies, the values of which the investment adviser
believes will have a high degree of positive correlation to the value of the
currency being hedged. The risk that movements in the price of the Derivative
Instrument will not correlate perfectly with movements in the price of the
currency being hedged is magnified when this strategy is used.
The value of Derivative Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
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substantially larger amounts than those involved in the use of foreign currency
Derivative Instruments, the Fund could be disadvantaged by having to deal in the
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market.
Settlement of transactions involving foreign currencies might be required to
take place within the country issuing the underlying currency. Thus, the Fund
might be required to accept or make delivery of the underlying foreign currency
in accordance with any U.S. or foreign regulations regarding the maintenance of
foreign banking arrangements by U.S. residents and might be required to pay any
fees, taxes and charges associated with such delivery assessed in the issuing
country.
FORWARD CONTRACTS. A forward foreign currency exchange contract ("forward
contract") is a contract to purchase or sell a currency at a future date. The
two parties to the contract set the number of days and the price. Forward
contracts are used as a hedge against future movements in foreign exchange
rates. The Fund may enter into forward contracts to purchase or sell foreign
currencies for a fixed amount of U.S. dollars or other foreign currency.
Forward contracts may serve as long hedges - for example, the Fund may
purchase a forward contract to lock in the U.S. dollar price of a security
denominated in a foreign currency that the Fund intends to acquire. Forward
contracts may also serve as short hedges -- for example, the Fund may sell a
forward contract to lock in the U.S. dollar equivalent of the proceeds from the
anticipated sale of a security denominated in a foreign currency or from
anticipated dividend or interest payments denominated in a foreign currency. The
investment adviser may seek to hedge against changes in the value of a
particular currency by using forward contracts on another foreign currency or
basket of currencies, the value of which the investment adviser believes will
bear a positive correlation to the value of the currency being hedged.
The cost to the Fund of engaging in forward contracts varies with factors
such as the currency involved, the length of the contract period and the market
conditions then prevailing. Because forward contracts are usually entered into
on a principal basis, no fees or commissions are involved. When a Fund enters
into a forward contract, it relies on the counterparty to make or take delivery
of the underlying currency at the maturity of the contract. Failure by the
counterparty to do so would result in the loss of any expected benefit of the
transaction.
Buyers and sellers of forward contracts can enter into offsetting closing
transactions by selling or purchasing, respectively, an instrument identical to
the instrument purchased or sold. Secondary markets generally do not exist for
forward contracts, with the result that closing transactions generally can be
made for forward contracts only by negotiating directly with the counterparty.
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Thus, there can be no assurance that the Fund will in fact be able to close out
a forward contract at a favorable price prior to maturity. In addition, in the
event of insolvency of the counterparty, the Fund might be unable to close out a
forward contract at any time prior to maturity. In either event, the Fund would
continue to be subject to market risk with respect to the position, and would
continue to be required to maintain a position in the securities or currencies
that are the subject of the hedge or to maintain cash or securities in a
segregated account.
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of such
securities measured in the foreign currency will change after the forward
contract has been established. Thus, the Fund might need to purchase or sell
foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain.
FORWARD ROLL TRANSACTIONS. To enhance current income, the Taxable Bond
Funds may enter into forward roll transactions with respect to mortgage-related
securities. In a forward roll transactions, a Fund sells mortgage-related
securities to a financial institution, such as a bank or broker-dealer, and
simultaneously agrees to repurchase a similar security from the institution at a
later date at an agreed upon price. The securities that are repurchased will
bear the same interest rate as those sold, but generally will be collateralized
by different pools or mortgages with different pre-payment histories than those
sold. During the period between the sale and repurchase, the Fund will not be
entitled to receive interest and principal payments on the securities sold.
Proceeds of the sale will be invested in short-term instruments, particularly
repurchase agreements, and the income from these investments, together with any
additional fee income received on the sale will generate income for the Fund
exceeding the yield on the securities sold. Forward roll transactions involve
the risk that the market value of the securities sold by the Fund may decline
below the purchase price of those securities. The Fund will segregate
permissible liquid assets at least equal to the amount of the repurchase price
(including) accrued interest.
The relevant Funds may enter into mortgage "dollar rolls" in which a Fund
sells mortgage-related securities for delivery in the current month and
simultaneously contracts to purchase substantially similar securities on a
specified future date. The mortgage-related securities that are purchased will
be of the same type and will have the same interest rate as those securities
sold, but generally will be supported by different pools of mortgages with
different prepayment histories than those sold. The Fund forgoes principal and
interest paid during the roll period on the securities sold in a dollar roll,
but the Fund is compensated by the difference between the current sales price
and the lower prices of the future purchase, as well as by any interest earned
on the proceeds of the securities sold. The Fund could be compensated also
through the receipt of fee income equivalent to a lower forward price. The
dollar rolls entered into by the Fund normally will be "covered." A covered roll
is a specific type of dollar roll for which there is an offsetting cash position
or a cash equivalent security position that matures on or before the forward
settlement date of the related dollar roll transaction. Covered rolls are not
treated as a borrowings or other senior security and will excluded from the
calculation of a Fund's borrowings and other senior securities.
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FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS.
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GENERAL. The relevant Funds may purchase and sell various financial
instruments ("Derivative Instruments"), including financial futures contracts
(such as index futures contracts) and options (such as options on U.S. and
foreign securities or indices of such securities). The index Derivative
Instruments which the Fund may use may be based on indices of U.S. or foreign
equity or debt securities. These Derivative Instruments may be used, for
example, to preserve a return or spread or to facilitate or substitute for the
sale or purchase of securities.
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of a Derivative Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in the Fund's portfolio. Thus, in a short hedge the Fund takes
a position in a Derivative Instrument whose price is expected to move in the
opposite direction of the price of the investment being hedged.
Conversely, a long hedge is a purchase or sale of a Derivative Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that the Fund intends to acquire. Thus, in a
long hedge the Fund takes a position in a Derivative Instrument whose price is
expected to move in the same direction as the price of the prospective
investment being hedged. A long hedge is sometimes referred to as an
anticipatory hedge. In an anticipatory hedge transaction, a Fund does not own a
corresponding security and, therefore, the transaction does not relate to a
security the Fund owns. Rather, it relates to a security that the Fund intends
to acquire. If the Fund does not complete the hedge by purchasing the security
it anticipated purchasing, the effect on the Fund's portfolio is the same as if
the transaction were entered into for speculative purposes.
Derivative Instruments on securities generally are used to hedge against
price movements in one or more particular securities positions that the Fund
owns or intend to acquire. Derivative Instruments on indices, in contrast,
generally are used to attempt to hedge against price movements in market sectors
in which the Fund has invested or expects to invest. Derivative Instruments on
debt securities may be used to hedge either individual securities or broad debt
market sectors.
The use of Derivative Instruments is subject to applicable regulations of
the SEC, the several options and futures exchanges upon which they are traded,
the Commodity Futures Trading Commission ("CFTC") and various state regulatory
authorities. In addition, a Fund's ability to use Derivative Instruments may be
limited by tax considerations. See "Dividends, Other Distributions and Taxes."
In addition to the instruments, strategies and risks described below and
in the Prospectus, the investment adviser expects to discover additional
opportunities in connection with other Derivative Instruments. These new
opportunities may become available as the investment adviser develops new
techniques, as regulatory authorities broaden the range of permitted
transactions and as new techniques are developed. The investment adviser may
utilize these opportunities to the extent that they are consistent with a Fund's
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investment objective, and permitted by the Fund's investment policies and
applicable regulatory authorities.
SPECIAL RISKS. The use of Derivative Instruments involves special
considerations and risks, certain of which are described below. Risks pertaining
to particular Derivative Instruments are described in the sections that follow.
(1) Successful use of most Derivative Instruments depends upon the ability
of the investment adviser not only to forecast the direction of price
fluctuations of the investment involved in the transaction, but also to predict
movements of the overall securities and interest rate markets, which requires
different skills than predicting changes in the prices of individual securities.
There can be no assurance that any particular strategy will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Derivative Instrument and price movements of the
investments being hedged. For example, if the value of a Derivative Instrument
used in a short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which
Derivative Instruments are traded. The effectiveness of hedges using Derivative
Instruments on indices will depend on the degree of correlation between price
movements in the index and price movements in the securities being hedged.
Because there are a limited number of types of exchange-traded options and
futures contracts, it is likely that the standardized contracts available will
not match the Fund's current or anticipated investments exactly. The Fund may
invest in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures position
will not track the performance of the Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. The Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not be
successful in all cases. If price changes in a Fund's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.
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(3) If successful, the above-discussed strategies can reduce risk of loss
by wholly or partially offsetting the negative effect of unfavorable price
movements. However, such strategies can also reduce opportunity for gain by
offsetting the positive effect of favorable price movements. For example, if a
Fund entered into a short hedge because the investment adviser projected a
decline in the price of a security in the Fund's portfolio, and the price of
that security increased instead, the gain from that increase might be wholly or
partially offset by a decline in the price of the Derivative Instrument.
Moreover, if the price of the Derivative Instrument declined by more than the
increase in the price of the security, the Fund could suffer a loss. In either
such case, the Fund would have been in a better position had it not attempted to
hedge at all.
(4) As described below, the Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Derivative Instruments involving obligations to third parties
(i.e., Derivative Instruments other than purchased options). If the Fund was
unable to close out its position in such Derivative Instruments, it might be
required to continue to maintain such assets or accounts or make such payments
until the position expired or matured. These requirements might impair the
Fund's ability to sell a portfolio security or make an investment at a time when
it would otherwise be favorable to do so, or require that the Fund sell a
portfolio security at a disadvantageous time. The Fund's ability to close out a
position in a Derivative Instrument prior to expiration or maturity depends on
the existence of a liquid secondary market or, in the absence of such a market,
the ability and willingness of the other party to the transaction
("counterparty") to enter into a transaction closing out the position.
Therefore, there is no assurance that any position can be closed out at a time
and price that is favorable to the Fund.
(5) The purchase and sale of Derivative Instruments could result in a loss
if the counterparty to the transaction does not perform as expected. This may
increase portfolio turnover rates, which results in correspondingly greater
commission expenses and transaction costs, and may result in certain tax
consequences.
COVER FOR DERIVATIVE INSTRUMENTS. Transactions using Derivative
Instruments may expose the relevant Funds to an obligation to another party. The
Fund will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities, futures or options or (2) cash
and short-term liquid debt securities with a value sufficient at all times to
cover its potential obligations to the extent not covered as provided in (1)
above. The Fund will comply with SEC guidelines regarding cover for Derivative
Instruments and will, if the guidelines so require, set aside cash, U.S.
government securities or other liquid, high-grade debt securities in a
segregated account with its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding Derivative Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of the Fund's assets to cover or segregated accounts could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. When the relevant
Funds purchase a futures contract, it incurs an obligation to take delivery of a
specified amount of the obligation underlying the futures contract at a
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specified time in the future for a specified price. When the Fund sells a
futures contract, it incurs an obligation to deliver a specified amount of the
obligation underlying the futures contract at a specified time in the future for
an agreed upon price. With respect to index futures, no physical transfer of the
securities underlying the index is made. Rather, the parties settle by
exchanging in cash an amount based on the difference between the contract price
and the closing value of the index on the settlement date.
When a Fund writes an option on a futures contract, it becomes obligated,
in return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during the term of the option. If the Fund
writes a call, it assumes a short futures position. If the Fund writes a put, it
assumes a long futures position. When the Fund purchases an option on a futures
contract, it acquires the right, in return for the premium it pays, to assume a
position in a futures contract (a long position if the option is a call and a
short position if the option is a put).
The purchase of futures or call options on futures can serve as a long
hedge, and the sale of futures or the purchase of put options on futures can
serve as a short hedge. Writing call options on futures contracts can serve as a
limited short hedge, using a strategy similar to that used for writing call
options on securities or indices. Similarly, writing put options on futures
contracts can serve as a limited long hedge.
Futures strategies also can be used to manage the average duration of a
Fund's fixed income portfolio. If the investment adviser wishes to shorten the
average duration of the Fund's fixed income portfolio, the Fund may sell an
interest rate futures contract or a call option thereon, or purchase a put
option on that futures contract. If the investment adviser wishes to lengthen
the average duration of a Fund's fixed income portfolio, the Fund may buy an
interest rate futures contract or a call option thereon, or sell a put option
thereon.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a Fund is required to deposit "initial margin"
consisting of cash or U.S. government securities in an amount generally equal to
10% or less of the contract value. Margin must also be deposited when writing a
call or put option on a futures contract, in accordance with applicable exchange
rules. Unlike margin in securities transactions, initial margin on futures
contracts does not represent a borrowing, but rather is in the nature of a
performance bond or good-faith deposit that is returned to the Fund at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, the
Fund may be required by an exchange to increase the level of its initial margin
payment.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking-to-market." Variation margin does not involve borrowing, but rather
represents a daily settlement of a Fund's obligations to or from a futures
broker. When a Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when a Fund purchases or
sells a futures contract or writes a call or put option thereon, it is subject
to daily variation margin calls that could be substantial in the event of
adverse price movements. If the Fund has insufficient cash to meet daily
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variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
Although the Funds intend to enter into futures and options on futures only on
exchanges or boards of trade where there appears to be a liquid secondary
market, there can be no assurance that such a market will exist for a particular
contract at a particular time. In such event, it may not be possible to close a
futures contract or options position.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures or an option on a futures contract can
vary from the previous day's settlement price; once that limit is reached, no
trades may be made that day at a price beyond the limit. Daily price limits do
not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If a Fund were unable to liquidate a futures or options on futures
position due to the absence of a liquid secondary market or the imposition of
price limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the future or option or to maintain cash or securities in a segregated
account.
To the extent that a Fund enters into futures contracts, options on
futures contracts, or options on foreign currencies traded on an exchange
regulated by the CFTC, in each case other than for bona fide hedging purposes
(as defined by the CFTC), the aggregate initial margin and premiums required to
establish those positions (excluding the amount by which options are
"in-the-money" at the time of purchase) will not exceed 5% of the liquidation
value of the Fund's portfolio, after taking into account unrealized profits and
unrealized losses on any contracts the Fund has entered into. This policy does
not limit to 5% the percentage of the Fund's assets that are at risk in futures
contracts and options on futures contracts for hedging purposes.
FUTURES TRANSACTIONS--IN GENERAL. The relevant Funds may enter into
futures contracts in U.S. domestic markets, such as the Chicago Board of Trade.
Engaging in these transactions involves risk of loss to the Fund which could
adversely affect the value of the Fund's net assets. Although the Fund intends
to purchase or sell futures contracts only if there is an active market for such
contracts, no assurance can be given that a liquid market will exist for any
particular contract at any particular time. Many futures exchanges and boards of
trade limit the amount of fluctuation permitted in futures contract prices
during a single trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that limit
or trading may be suspended for specified periods during the trading day.
Futures contract prices could move to the limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting the Fund to substantial losses.
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Successful use of futures by the Fund also is subject to the MPAM
Advisers' ability to predict correctly movements in the direction of the
relevant market and, to the extent the transaction is entered into for hedging
purposes, to ascertain the appropriate correlation between the transaction being
hedged and the price movements of the futures contract. For example, if the Fund
uses futures to hedge against the possibility of a decline in the market value
of securities held in its portfolio and the prices of such securities instead
increase, the Fund will lose part or all of the benefit of the increased value
of securities which it has hedged because it will have offsetting losses in its
futures positions. Furthermore, if in such circumstances the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. The Fund may have to sell such securities at a time when it may be
disadvantageous to do so.
Pursuant to regulations and/or published positions of the SEC, the Fund
may be required to set aside permissible liquid assets in a segregated account
to cover its obligations relating to its transactions in derivatives. To
maintain this required cover, the Fund may have to sell portfolio securities at
disadvantageous prices or times since it may not be possible to liquidate a
derivative position at a reasonable price. In addition, the segregation of such
assets will have the effect of limiting the Fund's ability otherwise to invest
those assets.
SPECIFIC FUTURES TRANSACTIONS. The relevant Funds may purchase and sell
interest rate futures contracts. An interest rate future obligates the Fund to
purchase or sell an amount of a specific debt security at a future date at a
specific price.
OPTIONS. A call option gives the purchaser the right to buy, and obligates
the writer to sell, the underlying investment at the agreed upon exercise price
during the option period. A put option gives the purchaser the right to sell,
and obligates the writer to buy, the underlying investment at the agreed upon
exercise price during the option period. A purchaser of an option pays an
amount, known as the premium, to the option writer in exchange for rights under
the option contract.
Options on indices are similar to options on securities or currencies
except that all settlements are in cash and gain or loss depends on changes in
the index in question rather than on price movements in individual securities or
currencies.
The purchase of call options can serve as a long hedge, and the purchase
of put options can serve as a short hedge. Writing put or call options can
enable the Fund to enhance income or yield by reason of the premiums paid by the
purchasers of such options. However, if the market price of the security or
other instrument underlying a put option declines to less than the exercise
price on the option, minus the premium received, the Fund would expect to suffer
a loss.
Writing call options can also serve as a limited short hedge because
declines in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the investment
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and the Fund will be obligated to
sell the investment at less than its market value unless the option is closed
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out in an offsetting transaction.
Writing put options can serve as a limited long hedge because increases in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the investment depreciates to a
price lower than the exercise price of the put option, it can be expected that
the put option will be exercised and the Fund will be obligated to purchase the
investment at more than its market value.
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options that expire unexercised have
no value and the Fund would experience losses to the extent of premiums paid for
them.
The Fund may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, a Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit the Fund to realize profits or
limit losses on an option position prior to its exercise or expiration.
The Fund may purchase and sell both exchange-traded and over-the-counter
("OTC") options. Exchange-traded options in the United States are issued by a
clearing organization that, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between the Fund and its counterparty (usually a securities dealer or a bank)
with no clearing organization guarantee. Thus, when the Fund purchases an OTC
option, it relies on the counterparty from whom it purchased the option to make
or take delivery of the underlying investment upon exercise of the option.
Failure by the counterparty to do so would result in the loss of any premium
paid by the Fund as well as the loss of any expected benefit of the transaction.
The Fund will enter into only those option contracts that are listed on a
national securities or commodities exchange or traded in the OTC market for
which there appears to be a liquid secondary market. The Fund will not purchase
put or call options that are traded on a national exchange in an amount
exceeding 5% of its net assets.
A Fund will not purchase or write OTC options if, as a result of such
transaction, the sum of (i) the market value of outstanding OTC options
purchased by the Fund, (ii) the market value of the underlying securities
covered by outstanding OTC call options written by the Fund, and (iii) the
market value of all other assets of the Fund that are illiquid or are not
otherwise readily marketable, would exceed 15% of the Fund's net assets, taken
at market value. However, if an OTC option is sold by a Fund to a primary U.S.
government securities dealer recognized by the Federal Reserve Bank of New York
and the Fund has the unconditional contractual right to repurchase such OTC
option from the dealer at a predetermined price, then the Fund will treat as
illiquid such amount of the underlying securities as is equal to the repurchase
price less the amount by which the option is "in-the-money" (the difference
between the current market value of the underlying securities and the price at
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which the option can be exercised). The repurchase price with primary dealers is
typically a formula price that is generally based on a multiple of the premium
received for the option plus the amount by which the option is "in-the-money."
Generally, the OTC debt and foreign currency options used by the Fund are
European style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American style
options, which are exercisable at any time prior to the expiration date of the
option.
A Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. However, there can be no
assurance that such a market will exist at any particular time. Closing
transactions can be made for OTC options only by negotiating directly with the
counterparty, or by a transaction in the secondary market if any such market
exists. Although the Fund will enter into OTC options only with major dealers in
unlisted options, there is no assurance that the Fund will in fact be able to
close out an OTC option position at a favorable price prior to expiration. In
the event of insolvency of the counterparty, the Fund might be unable to close
out an OTC option position at any time prior to its expiration.
If a Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by a Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised. A Fund may write only covered call options on
securities. A call option is covered if the Fund owns the underlying security or
a call option on the same security with a lower strike price.
SPECIFIC OPTIONS TRANSACTIONS. The relevant Funds may purchase and sell
call and put options in respect of specific securities (or groups or "baskets"
of specific securities) or stock indices listed on national securities exchanges
or traded in the OTC market. An option on a stock index is similar to an option
in respect of specific securities, except that settlement does not occur by
delivery of the securities comprising the index. Instead, the option holder
receives an amount of cash if the closing level of the stock index upon which
the option is based is greater than in the case of a call, or less than in the
case of a put, the exercise price of the option. Thus, the effectiveness of
purchasing or writing stock index options will depend upon price movements in
the level of the index rather than the price of a particular stock.
A Fund may purchase and sell call and put options on foreign currency.
These options convey the right to buy or sell the underlying currency at a price
which is expected to be lower or higher than the spot price of the currency at
the time the option is exercised or expires. MPAM Emerging Markets Fund also may
purchase cash-settled options on equity index swaps in pursuit of its investment
objective. Equity index swaps involve the exchange by a Fund with another party
of cash flows based upon the performance of an index or a portion of an index of
securities which usually includes dividends. A cash-settled option on a swap
gives the purchaser the right, but not the obligation, in return for the premium
paid, to receive an amount of cash equal to the value of the underlying swap as
of the exercise date. These options typically are purchased in privately
negotiated transactions from financial institutions, including securities
brokerage firms.
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Successful use by a Fund of options will be subject to the MPAM Advisers'
ability to predict correctly movements in the prices of individual stocks, the
stock market generally, foreign currencies or interest rates. To the extent the
investment adviser's predictions are incorrect, a Fund may incur losses.
FUTURE DEVELOPMENTS. The relevant Funds may take advantage of
opportunities in the area of options and futures contracts and options on
futures contracts and any other derivatives which are not presently contemplated
for use by the Fund or which are not currently available but which may be
developed, to the extent such opportunities are both consistent with the Fund's
investment objective and legally permissible for the Fund.
MUNICIPAL BOND INDEX AND INTEREST RATE FUTURES CONTRACTS AND OPTIONS ON
MUNICIPAL BOND INDEX AND INTEREST RATE FUTURES CONTRACTS. The relevant Funds may
invest in municipal bond index futures contracts and interest rate futures
contracts and purchase and sell options on these futures contracts that are
traded on a domestic exchange or board of trade. Such investments may be made by
a Fund solely for the purpose of hedging against changes in the value of its
portfolio securities due to anticipated changes in interest rates and market
conditions, and not for purposes of speculation. Further, such investments will
be made only in unusual circumstances, such as when the investment adviser
anticipates an extreme change in interest rates or market conditions.
An interest rate futures contract provides for the future purchase or sale
of specified interest rate sensitive debt securities such as United States
Treasury bills, bonds and notes, obligations of the GNMA and bank certificates
of deposit. Although most interest rate futures contracts require the delivery
of the underlying securities, some settle in cash. Each contract designates the
price, date, time and place of delivery. Entering into a futures contract to
deliver the index or instrument underlying the contract is referred to as
entering into a "short" position in the futures contract, whereas entering into
a futures contract to take delivery of the index or instrument is referred to as
entering into a "long" position in the futures contract. A municipal bond index
futures contract is an agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to a specific dollar amount times the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index contract was originally
written. No physical delivery of the underlying municipal bonds in the index is
made. Municipal bond index futures contracts based on an index of 40 tax-exempt,
long-term municipal bonds with an original issue size of at least $50 million
and a rating of A- or higher by S&P or A or higher by Moody's began trading
mid-1985.
The purpose of the acquisition or sale of a Municipal Bond Index Futures
Contract by a Fund, as the holder of long-term municipal securities, is to
protect the Fund from fluctuations in interest rates on tax-exempt securities
without actually buying or selling long-term municipal securities.
Unlike the purchase or sale of a Municipal Obligation, no consideration is
paid or received by a Fund upon the purchase or sale of a futures contract.
Initially, a Fund will be required to deposit with the broker an amount of cash
or cash equivalents equal to approximately 10% of the contract amount (this
amount is subject to change by the board of trade on which the contract is
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traded and members of such board of trade may charge a higher amount). This
amount is known as initial margin and is in the nature of a performance bond or
good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming that all contractual obligations
have been satisfied. Subsequent payments, known as variation margin, to and from
the broker, will be made on a daily basis as the price of the underlying
instrument or index fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as marking-to-market. At
any time prior to the expiration of the contract, a Fund may elect to close the
position by taking an opposite position, which will operate to terminate the
Fund's existing position in the futures contract.
There are several risks in connection with the use of a municipal bond
index or interest rate futures contract as a hedging device. Successful use of
such futures contracts by the Fund is subject to the investment adviser's
ability to correctly predict movements in the direction of interest rates. Such
predictions involve skills and techniques which may be different from those
involved in the management of a long-term municipal bond portfolio. In addition,
there can be no assurance that there will be a correlation between movements in
the price of the underlying instrument of municipal bond index and movements in
the price of the Municipal Obligations which are the subject of the hedge. The
degree of imperfection of correlation depends upon various circumstances, such
as variations in speculative market demand for futures contracts and municipal
securities, technical influences on futures trading, and differences between the
municipal securities being hedged and the municipal securities underlying the
municipal bond index or interest rate futures contracts, in such respects as
interest rate levels, maturities and creditworthiness of issuers. A decision of
whether, when, and how to hedge involves the exercise of skill and judgment and
even a well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected trends in interest rates.
Although the Fund intends to purchase or sell municipal bond index and
interest rate futures contracts only if there is an active market for such
contracts, there is no assurance that a liquid market will exist for the
contracts at any particular time. Most domestic futures exchanges and boards of
trade limit the amount of fluctuation permitted in futures contract prices
during a single trading day. The daily limit establishes the maximum amount the
price of a futures contract may vary either up or down from the previous day's
settlement price at the end of a trading session. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. The daily limit governs only price movement during a
particular trading day and, therefore, does not limit potential losses because
the limit may prevent the liquidation of unfavorable positions. It is possible
that futures contract prices could move to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and subjecting some futures traders to
substantial losses. In such event, it will not be possible to close a futures
position and, in the event of adverse price movements, the Fund would be
required to make daily cash payments of variation margin. In such circumstances,
an increase in the value of the portion of the portfolio being hedged, if any,
may partially or completely offset losses on the futures contract. As described
above, however, there is no guarantee that the price of Municipal Obligations
will, in fact, correlate with the price movements in the municipal bond index or
interest rate futures contract and thus provide an offset to losses on a futures
contract.
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If a Fund has hedged against the possibility of an increase in interest
rates adversely affecting the value of the Municipal Obligations held in its
portfolio and rates decrease instead, the Fund will lose part or all of the
benefit of the increased value of the Municipal Obligations it has hedged
because it will have offsetting losses in its futures positions. In addition, in
such situations, if a Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. Such sales of securities may, but
will not necessarily, be at increased prices which reflect the decline in
interest rates. A Fund may have to sell securities at a time when it may be
disadvantageous to do so.
When a Fund purchases municipal bond index or interest rate futures
contracts, an amount of cash and U.S. government securities or other high grade
debt securities equal to the market value of the futures contracts will be
deposited in a segregated account with the Fund's custodian (and/or such other
persons as appropriate) to collateralize the positions and thereby insure that
the use of such futures contracts is not leveraged. In addition, the ability of
the Fund to trade in municipal bond index or interest rate futures contracts and
options on interest rate futures contracts may be materially limited by the
requirements of the Code, applicable to a regulated investment company. See
"Dividends, Other Distributions and Taxes" below.
Any income earned by a Fund from transactions in futures contracts will be
taxable. Accordingly, it is anticipated that such investments will be made only
in unusual circumstances, such as when the investment adviser anticipates an
extreme change in interest rates or market conditions. Successful use of futures
contracts by a Fund is subject to the ability of the investment adviser to
correctly predict movements in the direction of interest rates.
The relevant Funds may purchase put and call options on municipal bond
index or interest rate futures contracts which are traded on a domestic exchange
or board of trade as a hedge against changes in interest rates, and may enter
into closing transactions with respect to such options to terminate existing
positions. A Fund will sell put and call options on interest rate futures
contracts only as part of closing sale transactions to terminate its options
positions. There is no guarantee that such closing transactions can be effected.
A put or call on a municipal bond index or interest rate futures contract
gives the purchaser the right, in return for the premium paid, to assume a short
or long position, respectively, in the underlying futures contract at a
specified exercise price at any time prior to the expiration date of the option.
The Fund may purchase put and call options on both municipal bond index and
interest rate futures contracts. The Fund will sell options on these futures
contracts only as part of closing purchase transactions to terminate its options
position, although no assurance can be given that closing transactions can be
effected.
A Fund may purchase options when the investment adviser believes that
interest rates will increase and consequently the value of the Fund's portfolio
securities will decrease. A Fund may enter into futures contracts to buy an
index or debt security or may purchase call options when the investment adviser
anticipates purchasing portfolio securities at a time of declining interest
rates.
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Options on municipal bond index or interest rate futures contracts, as
contrasted with the direct investment in such contracts, gives the purchaser the
right, in return for the premium paid, to assume a position in such contracts at
a specified exercise price at any time prior to the expiration date of the
options. Upon exercise of an option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by delivery
of the accumulated balance in the writer's futures contract margin account,
which represents the amount by which the market price of the futures contract
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract. The potential loss related
to the purchase of an option is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments to reflect changes in the value of the
underlying contract; however, the value of the option does change daily and that
change would be reflected in the net asset value of a Fund.
There are several risks relating to options on futures contracts. The
ability to establish and close out positions on such options will be subject to
the existence of a liquid market. In addition, a Fund's purchase of put or call
options will be based upon predictions as to anticipated interest rate trends by
the investment adviser, which could prove to be inaccurate. Even if the
investment adviser's expectations are correct there may be an imperfect
correlation between the change in the value of the options and of a Fund's
portfolio securities.
Any income earned by the Fund from transactions in options on futures
contracts will be taxable. Accordingly, it is anticipated that such investments
will be made only in unusual circumstances, such as when the investment adviser
anticipates an extreme change in interest rates or market conditions. Successful
use of futures contracts by the Fund is subject to the ability of the investment
adviser to correctly predict movements in the direction of interest rates.
The Fund may not enter into futures contracts or purchase options on
futures contracts if, immediately thereafter, the sum of the amount of margin
deposits on the Fund's existing futures contracts and premiums paid for options
would exceed 5% of the value of a Fund's total assets, after taking into account
unrealized profits and losses on any existing contracts. When a Fund enters into
futures contracts, purchases an index or debt security or purchases call
options, an amount of cash, U.S. government securities or other high grade debt
securities equal to the market value of the contract will be deposited and
maintained in a segregated account with the Fund's custodian to collateralize
the positions, thereby insuring that the use of the contract is unleveraged.
The Fund reserves the right to invest in other kinds of futures contracts
and options on futures contracts subject to the policies the Board of Trustees
may establish from time to time.
REVERSE REPURCHASE AGREEMENTS. The relevant Funds may enter into reverse
repurchase agreements to meet redemption requests where the liquidation of
portfolio securities is deemed by a Fund to be inconvenient or disadvantageous.
A reverse repurchase agreement is a transaction whereby a Fund transfers
possession of a portfolio security to a bank or broker-dealer in return for a
percentage of the portfolio security's market value. The Fund retains record
ownership of the security involved including the right to receive interest and
principal payments. At an agreed upon future date, the Fund repurchases the
security by paying an agreed upon purchase price plus interest. Cash or liquid
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high-grade debt obligations of a Fund equal in value to the repurchase price
including any accrued interest will be maintained in a segregated account while
a reverse repurchase agreement is in effect.
SECURITIES LENDING. The relevant Funds may lend securities from its
portfolio to brokers, dealers and other financial organizations. Such loans, if
and when made, may not exceed 33 1/3% of the Fund's total assets, taken at
value. The Fund may not lend portfolio securities to its affiliates without
specific authorization from the SEC. Loans of portfolio securities by the Fund
will be collateralized by cash, letters of credit or securities issued or
guaranteed by the U.S. government or its agencies which will be maintained at
all times in an amount equal to at least 100% of the current market value of the
loaned securities. From time to time, the Fund may return a part of the interest
earned from the investment of collateral received for securities loaned to the
borrower and/or a third party, which is unaffiliated with the Fund and which is
acting as a "finder."
By lending portfolio securities, a Fund can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term instruments or by obtaining yield in
the form of interest paid by the borrower when U.S. government securities are
used as collateral. Requirements of the SEC, which may be subject to future
modifications, currently provide that the following conditions must be met
whenever portfolio securities are loaned: (1) the Fund must receive at least
100% cash collateral or equivalent securities from the borrower; (2) the
borrower must increase such collateral whenever the market value of the loaned
securities rises above the level of such collateral; (3) the Fund must be able
to terminate the loan at any time; (4) the Fund must receive reasonable interest
on the loaned securities and any increase in market value; (5) the Fund may pay
only reasonable custodian fees in connection with the loan; and (6) voting
rights on the loaned securities may pass to the borrower; however, if a material
event adversely affecting the investment occurs, the Trustees must terminate the
loan and regain the right to vote the securities. The risks in lending portfolio
securities, as well as with other extensions of secured credit, consist of
possible delay in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. Loans will be made to firms deemed by the investment adviser to be
of good standing and will not be made unless, in the judgment of the investment
adviser, the consideration to be earned from such loans would justify the risk.
SHORT-SELLING. In these transactions, a Fund sells a security it does not
own in anticipation of a decline in the market value of the security. To
complete the transaction, a Fund must borrow the security to make delivery to
the buyer. A Fund is obligated to replace the security borrowed by purchasing it
subsequently at the market price at 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, which would result in a loss or gain, respectively.
Securities will not be sold short if, after effect is given to any such
short sale, the total market value of all securities sold short would exceed 25%
of the value of a Fund's net assets. A Fund may not make a short sale which
results in the Fund having sold short in the aggregate more than 5% of the
outstanding securities of any class of an issuer. A Fund also may make short
sales "against the box," in which a Fund enters into a short sale of a security
it owns. At no time will more than 15% of the value of the Fund's net assets be
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in deposits on short sales against the box.
Until a Fund closes its short position or replaces the borrowed security,
it will: (a) segregate permissible liquid assets in an amount that, together
with the amount deposited with the broker as collateral, always equals the
current value of the security sold short; or (b) otherwise cover its short
position.
SWAPS, CAPS, COLLARS AND FLOORS. Swap agreements, including interest rate,
equity index and currency swaps, caps, collars and floors, may be individually
negotiated and structured to include exposure to a variety of different types of
investments or market factors. Swaps involve two parties exchanging a series of
cash flows at specified intervals. In the case of an interest rate swap, the
parties exchange interest payments based on an agreed upon principal amount
(referred to as the "notional principal amount"). Under the most basic scenario,
Party A would pay a fixed rate on the notional principal amount to Party B,
which would pay a floating rate on the same notional principal amount to Party
A. Depending on their structure, swap agreements may increase or decrease a
Fund's exposure to long or short-term interest rates (in the U.S. or abroad),
foreign currency values, mortgage securities, corporate borrowing rates, or
other factors. Swap agreements can take many different forms and are known by a
variety of names.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate exceeds
an agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
A Fund will set aside cash or appropriate liquid assets to cover its
current obligations under swap transactions. If a Fund enters into a swap
agreement on a net basis (that is, the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount of the two
payments), the Fund will maintain cash or liquid assets with a daily value at
least equal to the excess, if any, of the Fund's accrued obligations under the
swap agreement over the accrued amount the Fund is entitled to receive under the
agreement. If the Fund enters into a swap agreement on other than a net basis or
writes a cap, collar or floor, it will maintain cash or liquid assets with a
value equal to the full amount of the Fund's accrued obligations under the
agreement.
The most important factor in the performance of swap agreements is the
change in the specific interest rate, currency or other factor(s) that determine
the amounts of payments due to and from the Fund. If a swap agreement calls for
payments by a Fund, the Fund must be prepared to make such payments when due. In
addition, if the counterparty's creditworthiness declines, the value of a swap
agreement would likely decline, potentially resulting in losses.
A Fund will enter into swaps, caps, collars and floors only with banks and
recognized securities dealers believed by the investment adviser to present
minimal credit risks. If there is a default by the other party to such a
transaction, the Fund will have to rely on its contractual remedies (which may
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be limited by bankruptcy, insolvency or similar laws) pursuant to the agreement
relating to the transaction.
The Funds understand that it is the position of the staff of the SEC that
assets involved in swap transactions are illiquid and, therefore, are subject to
the limitations on illiquid investments.
WHEN-ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS. New issues of
U.S. Treasury, other government securities and Municipal Obligations are often
offered on a "when-issued" basis. This means that delivery and payment for the
securities normally will take place approximately 3 to 45 days after the date
the buyer commits to purchase them. The payment obligation and the interest rate
that will be received on securities purchased on a "when-issued" basis are each
fixed at the time the buyer enters into the commitment. The Fund will make
commitments to purchase such securities only with the intention of actually
acquiring the securities, but the Fund may sell these securities or dispose of
the commitment before the settlement date if it is deemed advisable as a matter
of investment strategy. Cash or marketable high-grade debt securities equal to
the amount of the above commitments will be segregated on the Fund's records.
For the purpose of determining the adequacy of these securities the segregated
securities will be valued at market. If the market value of such securities
declines, additional cash or securities will be segregated on the Fund's records
on a daily basis so that the market value of the account will equal the amount
of such commitments by the Fund.
Securities purchased on a "when-issued" basis and the securities held by a
Fund are subject to changes in market value based upon the public's perception
of changes in the level of interest rates. Generally, the value of such
securities will fluctuate inversely to changes in interest rates i.e., they will
appreciate in value when interest rates decline and decrease in value when
interest rates rise. Therefore, if in order to achieve higher interest income
the Fund remains substantially fully invested at the same time that it has
purchased securities on a "when-issued" basis, there will be a greater
possibility of fluctuation in the Fund's net asset value.
When payment for "when-issued" securities is due, the Fund will meet its
obligations from then-available cash flow, the sale of segregated securities,
the sale of other securities and/or, although it would not normally expect to do
so, from the sale of the "when-issued" securities themselves (which may have a
market value greater or less than the Fund's payment obligation). The sale of
securities to meet such obligations carries with it a greater potential for the
realization of capital gains, which are subject to federal income taxes.
To secure advantageous prices or yields, the Fund may purchase or sell
securities for delayed delivery. In such transactions, delivery of the
securities occurs beyond the normal settlement periods, but no payment or
delivery is made by the Fund prior to the actual delivery or payment by the
other party to the transaction. The purchase of securities on a delayed delivery
basis involves the risk that the value of the securities purchased will decline
prior to the settlement date. The sale of securities for delayed delivery
involves the risk that the prices available in the market on the delivery date
may be greater than those obtained in the sale transaction. The Fund will
establish a segregated account consisting of cash, U.S. government securities or
other high-grade debt obligations in an amount at least equal at all times to
the amounts of its delayed delivery commitments.
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SPECIAL FACTORS AFFECTING THE FUNDS
CERTAIN INVESTMENTS. From time to time, to the extent consistent with
relevant investment objectives, policies and restrictions, a Fund may invest in
securities of companies with which Mellon Bank, N.A. ("Mellon Bank"), an
affiliate of Dreyfus, has a lending relationship.
EQUITY SECURITIES. Equity securities fluctuate in value, often based on
factors unrelated to the value of the issuer of the securities, and such
fluctuations can be pronounced. Changes in the value of a Fund's investments
will result in changes in the value of its shares and thus the Fund's total
return to investors.
Each Fund may purchase securities of smaller capitalization companies, the
prices of which may be subject to more abrupt or erratic market movements than
larger, more established companies, because these securities typically are
traded in lower volume and the issuers typically are more subject to changes in
earnings and prospects.
FIXED-INCOME SECURITIES. Even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities generally are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. The values of
fixed-income securities also may be affected by changes in the credit rating or
financial condition of the issuer. Once the rating of a portfolio security has
been changed, the Funds will consider all circumstances deemed relevant in
determining whether to continue to hold the security. See "Appendix B," for a
summary of bond ratings.
FOREIGN SECURITIES. Foreign securities markets generally are not as
developed or efficient as those in the United States. Securities of some foreign
issuers are less liquid and more volatile than securities of comparable U.S.
issuers. Similarly, volume and liquidity in most foreign securities markets are
less than in the United States and, at times, volatility of price can be greater
than in the United States.
Because evidences of ownership of foreign securities usually are held
outside the United States, the Fund will be subject to additional risks which
include: possible adverse political and economic developments, seizure or
nationalization of foreign deposits and adoption of governmental restrictions
which might adversely affect or restrict the payment of principal, interest and
dividends on the foreign securities to investors located outside the country of
the issuer, whether from currency blockage or otherwise. Moreover, foreign
securities held by the Fund may trade on days when the Fund does not calculate
its net asset value and thus affect the Fund's net asset value on days when
investors have no access to the Fund.
The risks associated with investing in foreign securities are often
heightened for investments in emerging markets countries. These heightened risks
include (i) greater risks of expropriation, confiscatory taxation,
nationalization, and less social, political and economic stability; (ii) the
small current size of the markets for securities of emerging markets issuers and
the currently low or nonexistent volume of trading, resulting in lack of
liquidity and in price volatility; (iii) certain national policies which may
restrict the Fund's investment opportunities including restrictions on investing
in issuers or industries deemed sensitive to relevant national interests; and
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(iv) the absence of developed legal structures governing private or foreign
investment and private property. In addition, some emerging markets countries
may have fixed or managed currencies which are not free-floating against the
U.S. dollar. Further, certain emerging markets countries' currencies may not be
internationally traded. Certain of these currencies have experienced a steady
devaluation relative to the U.S. dollar. If the Fund is unable to hedge the U.S.
dollar value of securities it owns denominated in such currencies, the Fund's
net asset value will be adversely affected. Many emerging markets countries have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. Inflation and rapid fluctuations in inflation rate have had, and
may continue to have, negative effects on the economies and securities markets
of certain emerging markets countries.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in currency rates
and exchange control regulations.
LOWER-RATED BONDS. See "Appendix B" for a general description of Moody's,
S&P and Fitch ratings of debt obligations. Although ratings may be useful in
evaluating the safety of interest and principal payments, they do not evaluate
the market value risk of these bonds. The Fund will rely on the investment
adviser's judgment, analysis and experience in evaluating the creditworthiness
of an issuer.
After being purchased by a Fund, the rating of an obligation may be
reduced below the minimum rating required for purchase by the Fund or the issuer
of the obligation may default on its obligations. Although neither event will
require the sale of such obligation by a Fund, you should be aware that the
market values of bonds below investment grade tend to be more sensitive to
economic conditions than are higher rated securities and will fluctuate over
time. These bonds generally are considered by S&P, Moody's and Fitch to be, on
balance, predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation and generally
will involve more credit risk than securities in the higher rating categories.
Because there may be no established retail secondary market for some of
these securities, it is possible that such securities could be sold only to a
limited number of dealers or institutional investors. To the extent a secondary
trading market for these bonds does exist, it generally is not as liquid as the
secondary market for higher rated securities. The lack of a liquid secondary
market may have an adverse impact on market price and yield and the Fund's
ability to dispose of particular issues when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for the
Fund to obtain accurate market quotations for purposes of valuing the Fund's
portfolio and calculating its net asset value. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of these securities. In such cases, judgment may play a
greater role in valuation because less reliable objective data may be available.
Lower-rated bonds may be particularly susceptible to economic downturns.
It is likely that any economic recession could disrupt severely the market for
such securities and may have an adverse impact on the value of such securities.
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In addition, it is likely that any such economic downturn could adversely affect
the ability of the issuers of such securities to repay principal and pay
interest thereon and increase the incidence of default for such securities.
The credit risk factors pertaining to lower rated securities also apply to
lower rated zero coupon bonds. Zero coupon, or delayed interest bonds, carry an
additional risk in that unlike bonds which pay interest throughout the period to
maturity, the Fund will realize no cash until the cash payment date unless a
portion of such securities are sold and, if the issuer defaults, the Fund may
obtain no return at all on its investment. See "Dividends, Distributions and
Taxes."
MORTGAGE-RELATED SECURITIES. Mortgage-related securities are complex
derivative instruments, subject to both credit and prepayment risk, and may be
more volatile and less liquid than more traditional debt securities.
Mortgage-related securities are subject to credit risks associated with the
performance of the underlying mortgage properties. Adverse changes in economic
conditions and circumstances are more likely to have an adverse impact on
mortgage-related securities secured by loans on certain types of commercial
properties than on those secured by loans on residential properties. In
addition, these securities are subject to prepayment risk, although commercials
mortgages typically have shorter maturities than residential mortgages and
prepayment protection features. Some mortgage-related securities have structures
that make their reactions to interest rate changes and other factors difficult
to predict, making their value highly volatile.
In certain instances, the credit risk associated with mortgage-related
securities can be reduced by third party guarantees or other forms of credit
support. Improved credit risk does not reduce prepayment risk which is unrelated
to the rating assigned to the mortgage-related security. Prepayment risk can
lead to fluctuations in value of the mortgage-related security which may be
pronounced. If a mortgage-related security is purchased at a premium, all or
part of the premium may be lost if there is a decline in the market value of the
security, whether resulting from changes in interest rates or prepayments on the
underlying mortgage collateral Certain mortgage-related securities that may be
purchased by the Fund, such as inverse floating rate collateral mortgage
obligations, have coupons that move inversely to a multiple of a specific index
which may result in a form of leverage. As with other interest-bearing
securities, the prices of certain mortgage-related securities are inversely
affected by changes in interest rates. However, although the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true, since in periods of declining interest rates the mortgages
underlying the security are more likely to be prepaid. For this and other
reasons, a mortgage-related security's stated maturity may be shortened by
unscheduled prepayments on the underlying mortgages, and, therefore, it is not
possible to predict accurately the security's return to the Fund. Moreover, with
respect to certain stripped mortgage-backed securities, if the underlying
mortgage securities experience greater than anticipated prepayments of
principal, the Fund may fail to fully recoup its initial investment even if the
securities are rated in the highest rating category by a nationally recognized
statistical rating organization. During periods of rapidly rising interest
rates, prepayments of mortgage-related securities may occur at slower than
expected rates. Slower prepayments effectively may lengthen a mortgage-related
security's expected maturity which generally would cause the value of such
security to fluctuate more widely in response to changes in interest rates. Were
the prepayments of the Fund's mortgage-related securities to decrease broadly,
the Fund's effective duration, and thus sensitivity to interest rate
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fluctuations, would increase.
MUNICIPAL OBLIGATIONS. The relevant Funds may invest more than 25% of the
value of its total assets in Municipal Obligations which are related in such a
way that an economic, business or political development or change affecting one
such security also would affect the other securities; for example, securities
the interest upon which is paid from revenues of similar types of projects. As a
result, the Fund may be subject to greater risk as compared to a fund that does
not follow this practice.
Certain municipal lease/purchase obligations in which the Fund may invest
may contain "non-appropriation" clauses which provide that the municipality has
no obligation to make lease payments in future years unless money is
appropriated for such purpose on a yearly basis. Although "non-appropriation"
lease/purchase obligations are secured by the leased property, disposition of
the leased property in the event of foreclosure might prove difficult. In
evaluating the credit quality of a municipal lease/purchase obligation that is
unrated, the investment adviser will consider, on an ongoing basis, a number of
factors including the likelihood that the issuing municipality will discontinue
appropriating funding for the leased property.
Certain provisions in the Internal Revenue Code of 1986, as amended (the
"Code"), relating to the issuance of Municipal Obligations may reduce the volume
of Municipal Obligations qualifying for Federal tax exemption. One effect of
these provisions could be to increase the cost of the Municipal Obligations
available for purchase by the Fund and thus reduce available yield. Shareholders
should consult their tax advisers concerning the effect of these provisions on
an investment in the Fund. Proposals that may restrict or eliminate the income
tax exemption for interest on Municipal Obligations may be introduced in the
future. If any such proposal were enacted that would reduce the availability of
Municipal Obligations for investment by the Fund so as to adversely affect Fund
shareholders, the Fund would reevaluate its investment objective and policies
and submit possible changes in the Fund's structure to shareholders for their
consideration. If legislation were enacted that would treat a type of Municipal
Obligation as taxable, the Fund would treat such security as a permissible
Taxable Investment within the applicable limits set forth herein.
PENNSYLVANIA MUNICIPAL OBLIGATIONS. You should consider carefully the
special risks inherent in the Fund's investment in Pennsylvania Municipal
Obligations. These risks result from the financial condition of the Commonwealth
of Pennsylvania (the "Commonwealth"). If there should be a default or other
financial crisis relating to the Commonwealth or an agency or municipality
thereof, the market value and marketability of Pennsylvania Municipal
Obligations held by the Fund and the interest income to the Fund could be
adversely affected. The Commonwealth has been historically identified as a heavy
industry state although that reputation has recently changed as the coal, steel
and railroad industries declined. A more diversified economy has developed in
the Commonwealth as a long-term shift in jobs, investment and workers away from
the northeast part of the nation took place. The major new sources of growth
currently are in the service sector, including trade, medical and health
services, education and financial institutions. The Commonwealth is highly
urbanized, with almost 44% of its total population contained in the metropolitan
areas which include the cities of Philadelphia and Pittsburgh. The
Commonwealth's adopted fiscal 1998-99 General Fund Budget provided for a
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decrease in taxes of over $___ million. The General Fund balance at June 30,
1998, totaled $___ billion, an increase of $___ million over the General Fund
balance at June 30, 1997. You should review "Appendix A" which sets forth
additional information relating to investing in Pennsylvania Municipal
Obligations.
RATINGS AS INVESTMENT CRITERIA. The ratings of nationally recognized
statistical rating organizations ("NRSROs") such as S&P and Moody's represent
the opinions of these agencies as to the quality of obligations that they rate.
It should be emphasized, however, that such ratings are relative and subjective
and are not absolute standards of quality. These ratings will be used by the
Fund as initial criteria for the selection of portfolio securities, but the Fund
will also rely upon the independent advice of the investment adviser to evaluate
potential investments. Among the factors which will be considered are the
long-term ability of the issuer to pay principal and interest and general
economic trends. Further information concerning the ratings of the NRSROs and
their significance is contained in Appendix B to this SAI.
After being purchased by a Fund, the rating of an obligation may be
reduced below the minimum rating required for purchase by the Fund or the issuer
of the obligation may default on its obligations. In that event, the Fund will
dispose of the obligation as soon as practicable, consistent with achieving an
orderly disposition of the obligation, unless the Trust's Board of Trustees
determines that disposal of the obligation would not be in the best interest of
the Fund. In addition, it is possible that an obligation may cease to be rated
or an NRSRO might not timely change its rating of a particular obligation to
reflect subsequent events. Although neither event will require the sale of such
obligation by a Fund, the investment adviser will consider such event in
determining whether the Fund should continue to hold the obligation. In
addition, if an NRSRO changes its rating system, a Fund will attempt to use
comparable ratings as standards for its investments in accordance with its
investment objective and policies. For a discussion of special risks are
associated with bonds not rated investment grade, see "Lower Rated Bonds."
SIMULTANEOUS INVESTMENTS. Investment decisions for the Funds are made
independently from those of other investment companies advised by the investment
adviser. If, however, such other investment companies desire to invest in, or
dispose of, the same securities as the Funds, available investments or
opportunities for sales will be allocated equitably to each investment company.
In some cases, this procedure may adversely affect the size of the position
obtained for or disposed of by the Funds or the price paid or received by the
Funds.
MASTER/FEEDER OPTION
The Trust may in the future seek to achieve a Fund's investment objective
by investing all of the Fund's net investable assets in another investment
company having the same investment objective and substantially the same
investment policies and restrictions as those applicable to the Fund.
Shareholders of a Fund will be given at least 30 days' prior notice of any such
investment. Such investment would be made only if the Trust's Board of Trustees
determines it to be in the best interest of a Fund and its shareholders. In
making that determination, the Trust's Board of Trustees will consider, among
other things, the benefits to shareholders and/or the opportunity to reduce
costs and achieve operational efficiency. Although the Fund believes that the
Board of Trustees will not approve an arrangement that is likely to result in
higher costs, no assurance is given that risks will be materially reduced if
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this option is implemented.
INVESTMENT RESTRICTIONS
FUNDAMENTAL. The following limitations have been adopted by each Fund.
Each Fund may not change any of these fundamental investment limitations without
the consent of: (a) 67% or more of the shares present at a meeting of
shareholders duly called if the holders of more than 50% of the outstanding
shares of the Fund are present or represented by proxy; or (b) more than 50% of
the outstanding shares of the Fund, whichever is less. Each Fund may not:
1. Purchase any securities which would cause more than 25% of the value of
a Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. government securities and
state or municipal governments and their political subdivisions are not
considered members of any industry.)
2. Borrow money or issue senior securities as defined in the 1940 Act,
except that (a) a Fund may borrow money in an amount not exceeding one-third of
the Fund's total assets at the time of such borrowing, and (b) a Fund may issue
multiple classes of shares. The purchase or sale of options, forward contracts,
futures contracts, including those relating to indices, and options on futures
contracts or indices shall not be considered to involve the borrowing of money
or issuance of senior securities.
3. Make loans or lend securities, if as a result thereof more than
one-third of the Fund's total assets would be subject to all such loans. For
purposes of this restriction, debt instruments and repurchase agreements shall
not be treated as loans.
4. Underwrite securities issued by any other person, except to the extent
that the purchase of securities and the later disposition of such securities in
accordance with the Fund's investment program may be deemed an underwriting.
5. Purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent a Fund from
investing in securities or other instruments backed by real estate, including
mortgage loans, or securities of companies that engage in the real estate
business or invest or deal in real estate or interests therein).
6. Purchase or sell commodities, except that a Fund may enter into
options, forward contracts, and futures contracts, including those relating to
indices, and options on futures contracts or indices.
The following fundamental limitation does not apply to MPAM Pennsylvania
Intermediate Municipal Bond Fund, MPAM Intermediate Municipal Bond Fund, and
MPAM National Short-Term Municipal Bond Fund.
7. Purchase with respect to 75% of the Fund's total assets securities of
any one issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, as a result, (a) more than 5%
of the Fund's total assets would be invested in the securities of that issuer,
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or (b) the Fund would hold more than 10% of the outstanding voting securities of
that issuer.
Each Fund may, notwithstanding any other fundamental investment policy or
limitation, invest all of its investable assets in securities of a single,
open-end management investment company with substantially the same investment
objective, policies, and limitations as the Fund.
NON-FUNDAMENTAL. Each Fund has adopted the following additional
non-fundamental investment restrictions. These non-fundamental restrictions
may be changed without shareholder approval, in compliance with applicable
law and regulatory policy.
1. The Fund will not invest more than 15% of the value of its net assets
in illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities in excess of
seven days, and other securities which are not readily marketable. For purposes
of this restriction, illiquid securities shall not include commercial paper
issued pursuant to Section 4(2) of the Securities Act of 1933, as amended, and
securities which may be resold under Rule 144A under the Act, provided that the
Board of Trustees, or its delegate, determines that such securities are liquid,
based upon the trading markets for the specific security.
2. (Not applicable to MPAM Balanced Fund.) The Fund will not invest in
securities of other investment companies, except as they may be acquired as part
of a merger, consolidation or acquisition of assets and except to the extent
otherwise permitted by the 1940 Act.
3. The Fund will not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities sold
short, and provided that transactions in futures contracts and options are not
deemed to constitute selling short.
4. The Fund will not purchase securities on margin, except that a Fund may
obtain such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments in connection with futures
contracts and options shall not constitute purchasing securities on margin.
5. The Fund will not purchase any security while borrowings representing
more than 5% of such Fund's total assets are outstanding.
If a percentage restriction is adhered to at the time of an investment, a
later increase or decrease in such percentage resulting from a change in the
values of assets will not constitute a violation of such restriction, except as
otherwise required by the 1940 Act.
If a Fund's investment objective, policies, restrictions, practices or
procedures change, shareholders should consider whether the Fund remains an
appropriate investment in light of the shareholder's then-current position and
needs.
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MANAGEMENT OF THE FUNDS
Federal Law Affecting Mellon Bank, N.A.
- ---------------------------------------
The Glass-Steagall Act of 1933 prohibits national banks from engaging in
the business of underwriting, selling or distributing securities and prohibits a
member bank of the Federal Reserve System from having certain affiliations with
an entity engaged principally in that business. The activities of Mellon Bank,
N.A. in informing its customers of, and performing, investment and redemption
services in connection with the Fund, and in providing services to the Fund as
custodian, as well as the investment adviser's investment advisory activities,
may raise issues under these provisions. Mellon Bank, N.A. has been advised by
counsel that the activities contemplated under these arrangements are consistent
with its statutory and regulatory obligations.
Board Members and Officers of the Trust
- ---------------------------------------
The Trust's Board is responsible for the management and supervision of the
Funds. The Board approves all significant agreements between the Trust, on
behalf of the Funds, and those companies that furnish services to the Funds.
These companies are as follows:
MPAM Advisers, a division of The
Dreyfus Corporation.................... Investment Adviser
Dreyfus Service Corporation............ Distributor
Dreyfus Transfer, Inc.................. Transfer Agent
Mellon Bank, N.A....................... Custodian for the Fund except
MPAM International Fund and
MPAM Emerging Markets Fund
Boston Safe Deposit and Trust Custodian for MPAM International
Company........................... Fund and MPAM Emerging
Markets Fund
Board Members of the Trust
--------------------------
[BOARD MEMBERS TO BE ADDED]
Officers of the Trust
---------------------
[OFFICERS TO BE ADDED]
[The address of each officer of the Trust is 200 Park Avenue, New York,
New York 10166.]
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[No officer or employee of the Distributor (or of any parent, subsidiary
or affiliate thereof) receives any compensation from the Trust for serving as an
officer or Trustee of the Trust. In addition, no officer or employee of the
investment adviser (or of any parent, subsidiary or affiliate thereof) serves as
an officer or Trustee of the Trust. The Trustees are compensated on the basis of
[to be supplied].
The aggregate amount of fees and expenses received by each current Trustee
from the Trust for the fiscal year ended [DATE], and from all other funds in the
Dreyfus Family of Funds for which such person was a Board member (the number of
which is set forth in parentheses next to each Board member's total
compensation)* during the year ended December 31, 1999, were as follows:
Total Compensation From the
Aggregate Compensation Trust and Fund Complex Paid
Name of Board Member From the Trust* to Board Member**
- -------------------- --------------- -----------------
[ADD] [ESTIMATE] [ESTIMATE]
- ----------------------------
* Amounts required to be paid by the Trust directly to the non-interested
Trustees, that would be applied to offset a portion of the management fee
payable to the investment adviser, are in fact paid directly by the
investment adviser to the non-interested Trustees. Amount does not include
reimbursable expenses for attending Board meetings.
** Represents the number of separate portfolios comprising the investment
companies in the Fund complex, including the Trust, for which the Board
member served.
The Officers and Trustees of the Trust as a group owned beneficially less
than 1% of the total shares of the Fund's outstanding.
MANAGEMENT ARRANGEMENTS
INVESTMENT ADVISER. MPAM Advisers is a division of the Dreyfus Corporation
a wholly-owned subsidiary of Mellon Financial Corporation ("Mellon"). Mellon is
a publicly owned multibank holding company incorporated under Pennsylvania law
in 1971 and registered under the Federal Bank Holding Company Act of 1956, as
amended.
MANAGEMENT AGREEMENT. MPAM Advisers serves as the investment adviser for
the Funds pursuant to an Investment Management Agreement with the Trust dated
[DATE] ("Investment Management Agreement"), which was last approved by the
Trust's Board of Trustees on [DATE] to continue until [DATE]. Pursuant to the
Investment Management Agreement, the investment adviser provides, or arranges
for one or more third parties to provide, investment advisory, fund accounting
and transfer agency services to the Funds. The investment adviser manages the
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Funds by making investment decisions based on each Fund's investment objective,
policies and restrictions.
The Investment Management Agreement will continue from year to year as to
each Fund provided that a majority of the Trustees who are not "interested
persons" of the Trust and either a majority of all Trustees or a majority (as
defined in the 1940 Act) of the shareholders of the respective Fund respectively
approve its continuance. The Trust may terminate the Investment Management
Agreement with respect to each Fund upon the vote of a majority of the Board of
Trustees or upon the vote of a majority of the respective Fund's outstanding
voting securities on 60 days' written notice to the investment adviser. The
investment adviser may terminate the Investment Management Agreement upon 60
days' written notice to the Trust. The Investment Management Agreement will
terminate immediately and automatically upon its assignment.
The following persons are officers and/or directors of Dreyfus:
Christopher M. Condron, Chairman of the Board and Chief Executive Officer;
Stephen E. Canter, President, Chief Operating Officer, Chief Investment
Officer and a director; Thomas F. Eggers, Vice Chairman-Institutional and a
director; Lawrence S. Kash, Vice Chairman; Ronald P. O'Hanley III, Vice
Chairman; J. David Officer, Vice Chairman and a director; William T.
Sandalls, Jr., Executive Vice President; Stephen R. Byers, Senior Vice
President; Mark N. Jacobs, Vice President, General Counsel and Secretary;
Diane P. Durnin, Vice President-Product Development; Patrice M. Kozlowski,
Vice President-Corporate Communications; Mary Beth Leibig, Vice
President-Human Resources; Ray Van Cott, Vice President-Information Systems;
Andrew S. Wasser, Vice President-Information Systems; Theodore A. Schachar,
Vice President-Tax; Wendy Strutt, Vice President; Richard Terres, Vice
President; William H. Maresca, Controller; James Bitetto, Assistant
Secretary; Steven F. Newman, Assistant Secretary and Mandell L. Berman,
Burton Borgelt, Steven G. Elliott, Martin C. McGuinn, Richard W. Sabo, and
Richard F. Syron, directors.
Dreyfus's Code of Ethics (the "Code") subjects its employees personal
securities transactions to various restrictions to ensure that such trading does
not disadvantage any fund it advises. In that regard, portfolio managers and
other investment personnel of Dreyfus must preclear and report their personal
securities transactions and holdings, which are reviewed for compliance with the
Code and are also subject to the oversight of Mellon's Investment Ethics
Committee. Portfolio managers and other investment personnel who comply with the
Code's preclearance and disclosure procedures and the requirements of the
Committee, may be permitted to purchase, sell or hold securities which also may
be or are held in fund(s) they manage or for which they otherwise provide
investment advice.
ADMINISTRATION AGREEMENT. Mellon Bank, the parent of Dreyfus, serves as
administrator for the Funds pursuant to an Administration Agreement with the
Trust dated [DATE] ("Administration Agreement"), which was last approved by the
Trust's Board of Trustees on [DATE] to continue until [DATE]. Pursuant to the
Administration Agreement, Mellon Bank provides [administrative services to the
Funds, and is responsible for payment of the fees associated with the initial
registration of the Funds and the shares thereof pursuant to the 1940 Act and
the Federal securities laws].
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DISTRIBUTOR. Dreyfus Service Corporation ("Distributor"), located at 200
Park Avenue, New York, New York 10166, serves as each Fund's distributor on a
best efforts basis pursuant to an agreement which is renewable annually. Dreyfus
may pay the Distributor for shareholder services from the assets of Dreyfus,
including past profits but not including the management fee paid by a Fund. The
Distributor may use part or all of such payments to pay certain banks,
securities brokers or dealers and other financial institutions ("Agents") for
these services. The Distributor also acts as sub-administrator for the Funds and
as distributor for the other funds in the Dreyfus Family of Funds.
CUSTODIAN. Mellon Bank, N.A., the parent of Dreyfus, One Mellon Bank
Center, Pittsburgh, Pennsylvania 15258, acts as custodian for the investments of
each Fund, except MPAM International Fund and MPAM Emerging Markets Fund. Boston
Safe Deposit and Trust Company, One Boston Place, Boston, Massachusetts 02108
("Boston Safe"), an indirect subsidiary of Mellon, acts as custodian for the
investments of MPAM International Fund and MPAM Emerging Markets Fund. Under the
custody agreements with the Trust, the custodians hold the Funds' portfolio
securities and keeps all necessary accounts and records.
TRANSFER AGENT. Dreyfus Transfer, Inc., a wholly-owned subsidiary of
Dreyfus, P.O. Box 9671, Providence, Rhode Island 02940-9671, is each Fund's
transfer and dividend disbursing agent. Under a transfer agency agreement with
the Trust, the Transfer Agent arranges for the maintenance of shareholder
account records for the Trust, the handling of certain communications between
shareholders and the Fund and the payment of dividends and distributions payable
by the Fund. For these services, the Transfer Agent receives a monthly fee
computed on the basis of the number of shareholder accounts it maintains for the
Trust during the month, and is reimbursed for certain out-of-pocket expenses.
EXPENSES. [TO BE ADDED]
HOW TO BUY SHARES
GENERAL. Shares are sold without a sales charge. The Funds reserve the
right to reject any purchase order.
There is no minimum initial or subsequent investment for shareholders that
maintain a qualified fiduciary, custody or other account with Mellon Bank,
Boston Safe, or their bank affiliates and that have their shares held in omnibus
accounts on the books of the Fund ("Mellon Account"). Such shareholders may also
transfer fund shares from a Mellon Account to individuals or corporations that
do not have Mellon Accounts, for whom such fund shares will be held in separate
accounts ("Individual Accounts"). Shareholders that have had qualified
fiduciary, custody or other accounts with Mellon Bank, Boston Safe, or their
bank affiliates, and who terminate such relationships but who wish to continue
to hold MPAM Fund shares, may do so only by establishing Individual Accounts.
Initial investments in Individual Accounts must be accompanied by an Account
Application. For Individual Accounts, the minimum initial investment is $10,000,
and subsequent investments must be at least $1,000.
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Management understands that Mellon Bank, Boston Safe, or their bank
affiliates may impose certain conditions on their clients with qualified
fiduciary, custody or other accounts which are different from those described in
the relevant Fund's Prospectus and this Statement of Additional Information,
and, to the extent permitted by applicable regulatory authority, may charge
their clients direct fees. Holders of Mellon Accounts should consult their
Account Officers in this regard.
Fund shares are sold on a continuous basis at the net asset value per
share ("NAV") next determined after an order in proper form is received by the
Transfer Agent or other entity authorized to receive orders on behalf of a Fund.
NAV is determined as of the close of trading on the floor of the New York Stock
Exchange ("NYSE") (currently 4:00 p.m., New York time), on each day the NYSE is
open for business. For purposes of determining NAV, options and futures
contracts will be valued 15 minutes after the close of trading on the floor of
the NYSE. NAV is computed by dividing the value of the Fund's net assets (i.e.,
the value of its assets less liabilities) by the total number of Fund shares
outstanding. The Fund's investments are valued based on market value or, where
market quotations are not readily available, based on fair value as determined
in good faith by the Trust's Board. Certain securities may be valued by an
independent pricing service approved by the Trust's Board and are valued at fair
value as determined by the pricing service. For information regarding the
methods employed in valuing each Fund's investments, see "Determination of Net
Asset Value."
For certain institutions that have entered into agreements with the
Distributor, payment for the purchase of the Fund shares may be transmitted, and
must be received by the Transfer Agent, within three business days after the
order is placed. If such payment is not received within three business days
after the order is placed, the order may be canceled and the institution could
be held liable for resulting fees and/or losses.
DREYFUS TELETRANSFER PRIVILEGE. Holders of Individual Accounts may
purchase Fund shares (minimum $1,000 and maximum $150,000 per day) by telephone
through the TELETRANSFER Privilege if they have checked the appropriate box and
supplied the necessary information on the Account Application or have filed a
Shareholder Services Form with the Transfer Agent. The proceeds will be
transferred between the bank account designated in one of these documents and
the holder's Fund account. Only a bank account maintained in a domestic
financial institution that is an ACH member may be so designated.
TELETRANSFER purchase orders may be made at any time. Purchase orders
received by 4:00 p.m., New York time, on any business day that the Transfer
Agent and the NYSE are open for business will be credited to the shareholder's
Fund account on the next bank business day following such purchase order.
Purchase orders made after 4:00 p.m., New York time, on any business day the
Transfer Agent and the NYSE are open for business, or orders made on Saturday,
Sunday or any Fund holiday (e.g., when the NYSE is not open for business), will
be credited to the shareholder's Fund account on the second bank business day
following such purchase order. To qualify to use the TELETRANSFER Privilege, the
initial payment for purchase of Fund shares must be drawn on, and redemption
proceeds paid to, the same bank and account as are designated on the Account
Application or Shareholder Services Form on file. If the proceeds of a
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<PAGE>
particular redemption are to be wired to an account at any other bank, the
request must be in writing and signature-guaranteed. See "How To Redeem Shares -
Dreyfus TELETRANSFER Privilege." Each Fund may modify or terminate this
Privilege at any time or charge a service fee upon notice to shareholders. No
such fee currently is contemplated by the Funds.
IN-KIND PURCHASES. If the following conditions are satisfied, a Fund may
at its discretion, permit the purchase of shares through an "in-kind" exchange
of securities. Any securities exchanged must meet the investment objective,
policies and limitations of the applicable Fund, must have a readily
ascertainable market value, must be liquid and must not be subject to
restrictions on resale. The market value of any securities exchanged, plus any
cash, must be at least equal to $25,000. Shares purchased in exchange for
securities generally cannot be redeemed for fifteen days following the exchange
in order to allow time for the transfer to settle.
The basis of the exchange will depend upon the relative NAVs of the shares
purchased and securities exchanged. Securities accepted by a Fund will be valued
in the same manner as the Fund values its assets. Any interest earned on the
securities following their delivery to a Fund and prior to the exchange will be
considered in valuing the securities. All interest, dividends, subscription or
other rights attached to the securities become the property of the Fund, along
with the securities. For further information about "in-kind" purchases, call
[NUMBER].
HOW TO REDEEM SHARES
WIRE REDEMPTION PRIVILEGE. Holders of Individual Accounts may redeem by
wire. By using this Privilege, you authorize the Transfer Agent to act on wire,
telephone or letter redemption instructions from any person representing himself
or herself to be you and reasonably believed by the Transfer Agent to be
genuine. Ordinarily, the Trust will initiate payment for shares redeemed
pursuant to this Privilege on the next business day after receipt by the
Transfer Agent of the redemption request in proper form. Redemption proceeds
($1,000 minimum) will be transferred by Federal Reserve wire only to the
commercial bank account specified by you on the Account Application or
Shareholder Services Form, or to a correspondent bank if your bank is not a
member of the Federal Reserve System. Fees ordinarily are imposed by such bank
and borne by the investor. Immediate notification by the correspondent bank to
your bank is necessary to avoid a delay in crediting the funds to your bank
account.
If you have access to telegraphic equipment, you may wire redemption
requests to the Transfer Agent by employing the following transmittal code which
may be used for domestic or overseas transmissions:
Transmittal Code Transfer Agent's
---------------- Answer Back Sign
----------------
[NUMBER] [NUMBER]
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If you do not have direct access to telegraphic equipment, you may have
the wire transmitted by contacting a TRT Cables operator at [NUMBER], toll free.
You should advise the operator that the above transmittal code must be used and
should also inform the operator of the Transfer Agent's answer back sign.
To change the commercial bank or account designated to receive wire
redemption proceeds, a written request must be sent to the Transfer Agent. This
request must be signed by each shareholder, with each signature guaranteed as
described below under "Stock Certificates; Signatures."
DREYFUS TELETRANSFER PRIVILEGE. Holders of Individual Accounts may request
by telephone that redemption proceeds be transferred between their Fund account
and their bank account. Only a bank account maintained in a domestic financial
institution which is an ACH member may be designated. Holders of jointly
registered Fund or bank accounts may redeem through the TELETRANSFER Privilege
for transfer to their bank account not more than $500,000 within any 30-day
period. You should be aware that if you have selected the TELETRANSFER
Privilege, any request for a wire redemption will be effected as a TELETRANSFER
transaction through the ACH system unless more prompt transmittal specifically
is requested. Redemption proceeds will be on deposit in your account at an ACH
member bank ordinarily two business days after receipt of the redemption
request. See "How to Buy Shares -- TELETRANSFER Privilege."
SIGNATURES. Written redemption requests must be signed by each
shareholder, including each holder of a joint account, and each signature must
be guaranteed. The Transfer Agent has adopted standards and procedures pursuant
to which signature-guarantees in proper form generally will be accepted from
domestic banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations
as well as from participants in the NYSE Medallion Signature Program, the
Securities Transfer Agents Medallion Program ("STAMP") and the Stock Exchanges
Medallion Program. Guarantees must be signed by an authorized signatory of the
guarantor and "Signature- Guaranteed" must appear with the signature. The
Transfer Agent may request additional documentation from corporations,
executors, administrators, trustees or guardians, and may accept other suitable
verification arrangements from foreign investors, such as consular verification.
For more information with respect to signature-guarantees, please call [NUMBER].
[REDEMPTION COMMITMENT. The Trust has committed itself to pay in cash all
redemption requests by any shareholder of record of a Fund, limited in amount
during any 90-day period to the lesser of $250,000 or 1% of the value of the
Fund's net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the SEC. In the case of requests for
redemption in excess of such amount, the Trust's Trustees reserve the right to
make payments in whole or in part in securities or other assets in case of an
emergency or any time a cash distribution would impair the liquidity of the Fund
to the detriment of the existing shareholders. In such event, the securities
would be valued in the same manner as each Fund's portfolio is valued. If the
recipient sold such securities, brokerage charges might be incurred.]
SUSPENSION OF REDEMPTIONS. The right to redeem Fund shares may be
suspended or the date of payment postponed (a) during any period when the NYSE
is closed (other than customary weekend and holiday closings); (b) when trading
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in the markets a Fund ordinarily utilizes is restricted or when an emergency
exists as determined by the SEC so that disposal of the Fund's investments or
determination of its NAV is not reasonably practicable, or (c) for such other
periods as the SEC, by order, may permit to protect a Fund's shareholders.
SHAREHOLDER SERVICES
FUND EXCHANGES. Holders of Individual Accounts may purchase, in exchange
for shares of a Fund, shares of other MPAM Funds, to the extent such shares are
offered for sale in their state or residence. To request an exchange, you must
give exchange instructions to the Transfer Agent in writing or by telephone.
Before any exchange, you must obtain and should review a copy of the current
prospectus of the fund into which the exchange is being made. Prospectuses may
be obtained by calling [NUMBER]. The shares being exchanged must have a current
value of at least $1,000. However, each fund account, including those
established through exchanges, must continue to meet the minimum balance
requirement of $10,000. The ability to issue exchange instructions by telephone
is given to all holders of Individual Accounts automatically, unless the account
holder checks the relevant "No" box on the Account Application, indicating that
this privilege is specifically refused.
By using the Telephone Exchange Privilege, the investor authorizes the
Transfer Agent to act on telephonic instructions (including over The MPAM
Touch(R) automated telephone system) from any person representing himself or
herself to be the investor or a representative of the investor's Agent, and
reasonably believed by the Transfer Agent to be genuine. Telephone exchanges may
be subject to limitations as to the amount involved or the number of telephone
exchanges permitted. No fees currently are charged shareholders directly in
connection with exchanges, although each Fund reserves the right, upon not less
than 60 days' written notice, to charge shareholders a nominal fee in accordance
with rules promulgated by the SEC. Each Fund reserves the right to reject any
exchange request in whole or in part. The availability of fund exchanges may be
modified or terminated at any time upon notice to shareholders
Shareholder Services Forms may be obtained by calling [NUMBER]. The Funds
reserve the right to reject any exchange request in whole or in part. The Fund
Exchange service may be modified or terminated at any time upon notice to
shareholders.
ADDITIONAL INFORMATION ABOUT PURCHASES,
EXCHANGES AND REDEMPTIONS
The Funds are intended to be long-term investment vehicles and are not
designed to provide investors with a means of speculation on short-term market
movements. A pattern of frequent purchases and exchanges can be disruptive to
efficient portfolio management and, consequently, can be detrimental to a Fund's
performance and its shareholders. Accordingly, if a Fund's management determines
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that an investor is engaged in excessive trading, the Fund, with or without
prior notice, may temporarily or permanently terminate the availability of Fund
Exchanges, or reject in whole or part any purchase or exchange request, with
respect to such investor's account. Such investors also may be barred from
purchasing other funds in the Dreyfus Family of Funds. Generally, an investor
who makes more than four exchanges out of a Fund during any calendar year or who
makes exchanges that appear to coincide with an active market-timing strategy
may be deemed to be engaged in excessive trading. Accounts under common
ownership or control will be considered as one account for purposes of
determining a pattern of excessive trading. In addition, a Fund may refuse or
restrict purchase or exchange requests by any person or group if, in the
judgment of the Fund's management, the Fund would be unable to invest the money
effectively in accordance with its investment objective and policies or could
otherwise be adversely affected or if the Fund receives or anticipates receiving
simultaneous orders that may significantly affect the Fund (e.g., amounts equal
to 1% or more of the Fund's total assets). If an exchange request is refused, a
Fund will take no other action with respect to the shares until it receives
further instructions from the investor. A Fund may delay forwarding redemption
proceeds for up to seven days if the investor redeeming shares is engaged in
excessive trading or if the amount of the redemption request otherwise would be
disruptive to efficient portfolio management or would adversely affect the Fund.
A Fund's policy on excessive trading applies to investors who invest in the Fund
directly or through financial intermediaries, but does not apply to any
automatic investment or withdrawal privilege described herein.
During times of drastic economic or market conditions, a Fund may suspend
Fund Exchanges temporarily without notice and treat exchange requests based on
their separate components - redemption orders with a simultaneous request to
purchase the other fund's shares. In such a case, the redemption request would
be processed at the Fund's next determined NAV but the purchase order would be
effective only at the NAV next determined after the fund being purchased
receives the proceeds of the redemption, which may result in the purchase being
delayed.
DETERMINATION OF NET ASSET VALUE
VALUATION OF PORTFOLIO SECURITIES. Each Fund's equity securities,
including covered call options written by a Fund, are valued at the last sale
price on the securities exchange or national securities market on which such
securities primarily are traded. Securities not listed on an exchange or
national securities market, or securities in which there were no transactions,
are valued at the average of the most recent bid and asked prices, except that
open short positions are valued at the asked price. Bid price is used when no
asked price is available.
Debt securities are valued by an independent pricing service (the
"Service") approved by the Fund's board. Securities valued by the Service for
which quoted bid prices in the judgment of the Service are readily available and
are representative of the bid side of the market are valued at the mean between
the quoted bid prices (as obtained by the Service from dealers in such
securities) and asked prices (as calculated by the Service based upon its
evaluation of the market for such securities). Other debt securities valued by
the Service are carried at fair value as determined by the Service, based on
methods that include consideration of: yields or prices of securities of
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comparable quality, coupon, maturity and type; indications as to value from
dealers; and general market conditions. Debt securities that are not valued by
the Service are valued at the average of the most recent bid and asked prices in
the market in which such investments are primarily traded, or at the last sales
rice for securities traded primarily on an exchange. Bid price is used when no
asked price is available.
Short-term investments may be carried at amortized cost, which
approximates value. Expenses and fees, including the management fee are accrued
daily and taken into account for the purpose of determining NAV.
Any assets or liabilities initially expressed in terms of foreign currency
will be translated into U.S. dollars at the midpoint of the New York interbank
market spot exchange rate as quoted on the day of such translation or, if no
such rate is quoted on such date, such other quoted market exchange rate as may
be determined to be appropriate by the investment adviser. Forward currency
contracts will be valued at the current cost of offsetting the contract. If a
Fund has to obtain prices as of the close trading on various exchanges
throughout the world, the calculation of NAV may not take place
contemporaneously with the determination of prices of certain of the Fund's
securities. Expenses and fees, including the management fee, are accrued daily
and are taken into account for the purpose of determining NAV.
Restricted securities, as well as securities or other assets for which
recent market quotations are not readily available, or are not valued by a
pricing service approved by the Board, are valued at fair value as determined in
good faith by the Board. The Board will review the method of valuation on a
current basis. In making their good faith valuation of restricted securities,
the Board members generally will take the following factors into consideration:
restricted securities which are, or are convertible into, securities of the same
class of securities for which a public market exists usually will be valued at
market value less the same percentage discount at which purchased. This discount
will be revised periodically by the Board if the Board members believe that it
no longer reflects the value of the restricted securities. Restricted securities
not of the same class as securities for which a public market exits usually will
be valued initially at cost. Any subsequent adjustment from cost will be based
upon considerations deemed relevant by the Board.
NEW YORK STOCK EXCHANGE CLOSINGS. The holidays (as observed) on which
the NYSE is currently scheduled to be closed are: New Year's Day, Dr.
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
GENERAL. Each Fund usually pays its shareholders dividends from its net
investment income as follows [subject to change]:
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FUND DIVIDEND FREQUENCY
MPAM Large Cap Stock Fund Monthly
MPAM Income Stock Fund Monthly
MPAM Mid Cap Stock Fund Annually
MPAM Small Cap Stock Fund Annually
MPAM International Fund Annually
MPAM Emerging Markets Fund Annually
MPAM Bond Fund Monthly
MPAM Intermediate Bond Fund Monthly
MPAM Short-Term U.S. Government Securities Monthly
Fund
MPAM National Intermediate Municipal Bond Fund Monthly
MPAM National Short-Term Municipal Bond Fund Monthly
MPAM Pennsylvania Intermediate Municipal Bond Monthly
Fund
MPAM Balanced Fund Monthly
Each fund distributes any net capital gains it has realized once a year.
The Funds will make distributions from net realized capital gains unless
all capital loss carryovers, if any, have been utilized or have expired. All
expenses are accrued daily and deducted before declaration of dividends to
investors. Shares purchased on a day on which a Fund calculates its NAV will
begin to accrue dividends on that day, and redemption orders effected on any
particular day will receive dividends declared only through the business day
prior to the day of redemption.
Investors may choose whether to receive dividends and other distributions
in cash, to receive dividends in cash, and reinvest other distributions in
additional Fund shares at NAV, or to reinvest both dividends and other
distributions in additional Fund shares at NAV. Dividends and other
distributions will be reinvested in fund shares unless the shareholder instructs
the Fund otherwise.
Any dividend or other distribution paid shortly after an investor's
purchase of shares may have the effect of reducing the NAV of the shares below
the cost of his or her investment. Such a dividend or other distribution would
be a return on investment in an economic sense, although taxable as stated under
"Dividends, Other Distributions and Taxes" in the Funds' Prospectus. In
addition, if a shareholder sells shares of a Fund held for six months or less
and receives a capital gain distribution with respect to those shares, any loss
incurred on the sale of those shares will be treated as a long-term capital loss
to the extent of the capital gain distribution received.
Dividends and other distributions declared by a Fund in October, November
or December of any year and payable to shareholders of record on a date in any
of those months are deemed to have been paid by a Fund and received by the
shareholders on December 31 of that year if the distributions are paid by a Fund
during the following January. Accordingly, those distributions will be taxed to
shareholders for the year in which that December 31 falls.
It is expected that the Funds will qualify for treatment as a "regulated
investment company" ("RIC") under the Code so long as such qualification is in
the best interests of its shareholders. Such qualification will relieve the
Funds of any liability for Federal income tax to the extent its earnings and
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realized gains are distributed in accordance with applicable provisions of the
Code. To qualify for treatment as a RIC under the Code, each Fund (1) must
distribute to its shareholders each year at least 90% of its investment company
taxable income (generally consisting of net investment income, net short-term
capital gains and net gains from certain foreign currency transactions)
("Distribution Requirement" ), (2) must derive at least 90% of its annual gross
income from specified sources ("Income Requirement"), and (3) must meet certain
asset diversification and other requirements.
The term "regulated investment company" does not imply the supervision of
management or investment practices or policies by any government agency.
Because each Municipal Bond Fund will distribute exempt-interest
dividends, interest on indebtedness incurred by a shareholder to purchase or
carry Fund shares is not deductible for Federal income tax purposes. If a
shareholder receives an exempt-interest dividend with respect to shares of a
Fund and if such shares are held by the shareholder for six months or less, then
any loss on the redemption or exchange of such shares will, to the extent of
such exempt-interest dividends, be disallowed. In addition, the Code may require
a shareholder, if he or she receives exempt-interest dividends, to treat as
taxable income a portion of certain otherwise non-taxable social security and
railroad retirement benefit payments. Furthermore, that portion of an
exempt-interest dividend paid by a Fund which represents income from private
activity bonds may not retain its tax-exempt status in the hands of a
shareholder who is a "substantial user" of a facility financed by such bonds, or
a "related person" thereof. Moreover, some or all of a Fund's dividends may be a
specific preference item, or a component of an adjustment item, for purposes of
the Federal individual and corporate alternative minimum taxes. In addition, the
receipt of Fund dividends and distributions may affect a foreign corporate
shareholder's Federal "branch profits" tax liability and a Subchapter S
corporation shareholder's Federal "excess net passive income" tax liability.
Shareholders should consult their own tax advisers as to whether they are (1)
substantial users with respect to a facility or related to such users within the
meaning of the Code or (2) subject to a Federal alternative minimum tax, any
applicable state alternative minimum tax, the Federal branch profits tax, or the
Federal excess net passive income tax.
Dividends derived from taxable investments, together with distributions
from net realized short-term capital gains and all or a portion of any gains
realized from the sale or other disposition of certain market discount bonds
(collectively "dividends distributions") paid by the Funds are taxable to U.S.
shareholders as ordinary income, to the extent of the Fund's earnings and
profits, whether received in cash or reinvested in Fund shares. Distributions
from the Funds' capital gain (the excess of net long-term capital gain over
short-term capital loss) are taxable to such shareholders as long-term capital
gains, regardless of how long the shareholders have held their Fund shares and
whether such distributions are received in cash or reinvested in additional Fund
shares. Dividends and other distributions also may be subject to state and local
taxes.
Dividends derived by the Funds from tax-exempt interest are designated as
tax-exempt in the same percentage of the day's dividend as the actual tax-exempt
income earned that day. Thus, the percentage of the dividend designated as
tax-exempt may vary from day to day. Similarly, dividends derived by the Funds
from interest on relevant state Municipal Obligations will be designated as
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exempt from that state's taxation in the same percentage of the day's dividend
as the actual interest on that state's Municipal Obligations earned on that day.
Notice as to the tax status of your dividends and other distributions will
be mailed to you annually. You also will receive periodic summaries of your
account that will include information as to dividends and distributions from net
capital gains, if any, paid during the year.
The Funds must withhold and remit to the U.S. Treasury ("backup
withholding") 31 % of taxable dividends, capital gain distributions and
redemption proceeds, regardless of the extent to which gain or loss may be
realized, paid to an individual or certain other non-corporate shareholders if
the shareholder fails to certify that the TIN furnished to the Fund is correct.
Backup withholding at that rate also is required from dividends and capital gain
distributions payable to such a shareholder if (1) that shareholder fails to
certify that he or she has not received notice from the IRS that the shareholder
is subject to backup withholding as a result of a failure to properly report
taxable dividend or interest income on a Federal income tax return, or (2) the
IRS notifies the Funds to institute backup withholding because the IRS
determines the shareholder's TIN is incorrect or that the shareholder has failed
to properly report such income.
A TIN is either the Social Security number, IRS individual taxpayer
identification number or employer identification number of the record owner of
the account. Any tax withheld as a result of backup withholding does not
constitute an additional tax imposed on the record owner of the account and may
be claimed as a credit on the record owner's Federal income tax return.
The Funds may be subject to a non-deductible 4% excise tax, measured with
respect to certain undistributed amounts of taxable investment income and
capital gains.
Any net long-term capital gains realized will be distributed annually.
Such distributions ("capital gain dividends"), if any, will be taxable to the
shareholders as long-term capital gains, regardless of how long a shareholder
has held a Fund's shares, and will be designated as capital gain dividends in a
written notice mailed by the Funds to the shareholders after the close of the
Funds' prior taxable year. If a shareholder receives a capital gain dividend
with respect to any share and if such share is held by the shareholder for six
months or less, then any loss (to the extent not disallowed pursuant to the
other six month rule described above) on the sale or exchange of such share, to
the extent of the capital gain dividend, shall be treated as a long-term capital
loss.
A portion of the dividends paid by a Fund, whether received in cash or
reinvested in additional Fund shares, may be eligible for the dividends-received
deduction allowed to corporations. The eligible portion may not exceed the
aggregate dividends received by a Fund from U.S. corporations. However,
dividends received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the alternative minimum
tax.
Dividends and interest received by a Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
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however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors.
Gains from the sale or other disposition of foreign currencies (except
certain gains therefrom that may be excluded by future regulations), and gains
from options, futures and forward contracts derived by the Fund with respect to
its business of investing in securities or foreign currencies, will qualify as
permissible income under the Income Requirement.
Ordinarily, gains and losses realized from portfolio transactions will be
treated as capital gain and loss. However, a portion of the gain or loss from
the disposition of foreign currencies and non-U.S. dollar denominated securities
(including debt instruments, certain financial forward, futures and option
contracts and certain preferred stock) may be treated as ordinary income or loss
under Section 988 of the Code. In addition, all or a portion of any gain
realized from the sale or other disposition of certain market discount bonds
will be treated as ordinary income. Moreover, all or a portion of the gain
realized from engaging in "conversion transactions" may be treated as ordinary
income under Section 1258. "Conversion transactions" are defined to include
certain forward, futures, option and straddle transactions, transactions
marketed or sold to produce capital gains, or transactions described in Treasury
regulations to be issued in the future.
Under Section 1256 of the Code, any gain or loss realized by a Fund from
certain futures and forward contracts and options transactions will be treated
as 60% long-term capital gain or loss and 40% short-term capital gain or loss.
Gain or loss will arise upon exercise or lapse of such contracts and options as
well as from closing transactions. In addition, any such contracts or options
remaining unexercised at the end of a Fund's taxable year will be treated as
sold for their then fair market value (a process known as "marking to market"),
resulting in additional gain or loss to the Fund characterized in the manner
described above.
Offsetting positions held by a Fund involving certain foreign currency
forward contracts or options may constitute "straddles." "Straddles" are defined
to include "offsetting positions" in actively traded personal property. The tax
treatment of straddles is governed by Sections 1092 and 1258 of the Code, which,
in certain circumstances, override or modify Sections 1256 and 988. As such, all
or a portion of any short-term or long-term capital gain from certain straddle
transactions may be recharacterized ordinary income. If the Fund were treated as
entering into "straddles" by reason of its engaging in certain forward contracts
or options transactions, such "straddles" would be characterized as "mixed
straddles" if the forward contracts or options transactions comprising a part of
such straddles were governed by Section 1256. Each Fund may make one or more
elections with respect to mixed straddles. Depending on which election is made,
if any, the results to a Fund may differ. If no election is made, then to the
extent the "straddle" and conversion transaction rules apply to positions
established by a Fund, losses realized by a Fund will be deferred to the extent
of unrealized gain in the offsetting position. Moreover, as a result of the
"straddle" and conversion transaction rules, short-term capital loss on
"straddle" positions may be recharacterized as long-term capital loss, and
long-term capital gains may be treated as short-term capital gains or ordinary
income.
The Taxpayer Relief Act of 1997 included constructive sale provisions that
generally will apply if the Fund either (1) holds an appreciated financial
position with respect to stock, certain debt obligations, or partnership
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interests ("appreciated financial position") and then enters into a short sale,
futures, forward, or offsetting notional principal contract (collectively, a
"Contract") respecting the same or substantially identical property or (2) holds
an appreciated financial position that is a Contract and then acquires property
that is the same as, or substantially identical to, the underlying property. In
each instance, with certain exceptions, the Fund generally will be taxed as if
the appreciated financial position were sold at its fair market value on the
date the Fund enters into the financial position or acquires the property,
respectively. Transaction that are identified hedging or straddle transactions
of the Code can be subject to the constructive sale provisions.
Investment by a Fund in securities issued or acquired at a discount (for
example, zero coupon securities) could, under special tax rules, affect the
amount and timing of distributions to shareholders by causing the Fund to
recognize income prior to the receipt of cash payments. For example, a Fund
could be required to take into gross income annually a portion of the discount
(or deemed discount) at which the securities were issued and to distribute such
income to satisfy the Distribution Requirement and avoid the 4% excise tax
discussed above. In such case, the Fund may have to dispose of securities it
might otherwise have continued to hold in order to generate cash to satisfy
these distribution requirements.
STATE AND LOCAL TAXES. Depending upon the extent of a Fund's activities in
states and localities in which it is deemed to be conducting business, the Fund
may be subject to the tax laws of such states or localities. Shareholders are
advised to consult their tax advisers concerning the application of state and
local taxes to them.
FOREIGN SHAREHOLDERS U.S. FEDERAL INCOME TAXATION. U.S. federal income
taxation of a shareholder who, as to the United States, is a nonresident alien
individual, a foreign trust or estate, a foreign corporation or a foreign
partnership (a "foreign shareholder") depends on whether the income from a Fund
is "effectively connected" with a U.S. trade or business carried on by the
shareholder, as discussed generally below. Special U.S. federal income tax rules
that differ from those described below may apply to certain foreign persons who
invest in a Fund, such as a foreign shareholder entitled to claim the benefits
of an applicable tax treaty. Foreign shareholders are advised to consult their
own tax advisers with respect to the particular tax consequences to them of an
investment in a Fund.
FOREIGN SHAREHOLDERS - DIVIDENDS. Dividends (other than exempt-interest
dividends) distributed to a foreign shareholder whose ownership of Fund shares
is not effectively connected with a U.S. trade or business carried on by the
foreign shareholder ("effectively connected") generally will be subject to a
U.S. federal withholding tax of 30% (or lower treaty rate). If a foreign
shareholder's ownership of Fund shares is effectively connected, however, then
all distributions to that shareholder will not be subject to such withholding
and instead will be subject to U.S. federal income tax at the graduated rates
applicable to U.S. citizens and domestic corporations, as the case may be.
Foreign shareholders also may be subject to the branch profits tax.
Capital gains realized by foreign shareholders on the sale of Fund shares
and distributions to them of net capital gain (the excess of long-term capital
gain over short-term capital loss), generally will not be subject to U.S.
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federal income tax unless the foreign shareholder is a nonresident alien
individual and is physically present in the United States for more than 182 days
during the taxable year. In the case of certain foreign shareholders, the Fund
may be required to withhold U.S. Federal income tax at a rate of 31% of capital
gain distributions and of the gross proceeds from a redemption of Fund shares
unless the shareholder furnishes the Fund with a certificate regarding the
shareholder's foreign status.
Distributions paid by the Funds to a non-resident foreign investor, as
well as the proceeds of any redemptions by such an investor, regardless of the
extent to which gain or loss may be realized, generally are not subject to US.
withholding tax. However, such distributions may be subject to backup
withholding, unless the foreign investor certifies his non-U.S.
residency status.
FOREIGN SHAREHOLDERS - ESTATE TAX. Foreign individuals generally are
subject to U.S. federal estate tax on their U.S. situs property, such as
shares of the Funds, that they own at the time of their death. Certain
credits against that tax and relief under applicable tax treaties may be
available.
The foregoing is only a summary of certain tax considerations generally
affecting the Funds and their shareholders, and is not intended as a substitute
for careful tax planning. Investors are urged to consult their tax advisers with
specific reference to their own tax situations.
PORTFOLIO TRANSACTIONS
All portfolio transactions of a Fund are placed on behalf of each Fund by
the investment adviser. Debt securities purchased and sold by a Fund are
generally traded on a net basis (i.e., without commission) through dealers
acting for their own account and not as brokers, or otherwise involve
transactions directly with the issuer of the instrument. This means that a
dealer (the securities firm or bank dealing with a Fund) makes a market for
securities by offering to buy at one price and sell at a slightly higher price.
The difference between the prices is known as a spread. Other portfolio
transactions may be executed through brokers acting as agent. Each Fund will pay
a spread or commissions in connection with such transactions. The investment
adviser uses its best efforts to obtain execution of portfolio transactions at
prices which are advantageous to each Fund and at spreads and commission rates,
if any, which are reasonable in relation to the benefits received. The
investment adviser also places transactions for other accounts that it provides
with investment advice.
Brokers and dealers involved in the execution of portfolio transactions on
behalf of a Fund are selected on the basis of their professional capability and
the value and quality of their services. In selecting brokers or dealers, the
investment adviser will consider various relevant factors, including, but not
limited to, the size and type of the transaction; the nature and character of
the markets for the security to be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer; the
broker-dealer's execution services rendered on a continuing basis; and the
reasonableness of any spreads (or commissions, if any). Any spread, commission,
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fee or other remuneration paid to an affiliated broker-dealer is paid pursuant
to the Trust's procedures adopted in accordance with Rule 17e-1 under the 1940
Act.
Brokers or dealers may be selected who provide brokerage and/or research
services to a Fund and/or other accounts over which the investment adviser or
its affiliates exercise investment discretion. Such services may include advice
concerning the value of securities; the advisability of investing in, purchasing
or selling securities; the availability of securities or the purchasers or
sellers of securities; furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy and
performance of accounts; and effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement).
The receipt of research services from broker-dealers may be useful to the
investment adviser in rendering investment management services to a Fund and/or
its other clients; and, conversely, such information provided by brokers or
dealers who have executed transaction orders on behalf of other clients of the
investment adviser may be useful to the investment adviser in carrying out its
obligation to the Fund. The receipt of such research services does not reduce
the normal independent research activities of the investment adviser; however,
it enables it to avoid the additional expenses which might otherwise be incurred
if it were to attempt to develop comparable information through its own staff.
The investment adviser is authorized to allocate purchase and sale orders
for portfolio securities to certain financial institutions, including, in the
case of agency transactions, financial institutions that are affiliated with the
investment adviser or Mellon Bank or that have sold shares of the Fund, if the
investment adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms.
The Funds will not purchase Municipal Obligations during the existence of
any underwriting or selling group relating thereto of which an affiliate is a
member, except to the extent permitted by the SEC. Under certain circumstances,
the Funds may be at a disadvantage because of this limitation in comparison with
other investment companies which have a similar investment objective but are not
subject to such limitations.
Although the investment adviser manages other accounts in addition to the
Funds, investment decisions for the Funds are made independently from decisions
made for these other accounts. It sometimes happens that the same security is
held by more than one of the accounts managed by the investment adviser.
Simultaneous transactions may occur when several accounts are managed by the
same investment manager, particularly when the same investment instrument is
suitable for the investment objective of more than one account.
When more than one account is simultaneously engaged in the purchase or
sale of the same investment instrument, the prices and amounts are allocated in
accordance with a formula considered by the investment adviser to be equitable
to each account. In some cases this system could have a detrimental effect on
the price or volume of the investment instrument as far as the Funds are
concerned. In other cases, however, the ability of the Funds to participate in
volume transactions will produce better executions for the Funds. While the
Trustees will continue to review simultaneous transactions, it is their present
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opinion that the desirability of retaining the investment adviser as investment
manager to the Funds outweighs any disadvantages that may be said to exist from
exposure to simultaneous transactions.
PORTFOLIO TURNOVER. While securities are purchased for the Funds on the
basis of potential for current income and not for short-term trading profits, a
Fund's portfolio turnover rate may exceed 100%. A portfolio turnover rate of
100% would occur, for example, if all the securities held by a Fund were
replaced once in a period of one year. A higher rate of portfolio turnover
involves correspondingly greater brokerage commissions and other expenses that
must be borne directly by the Funds and, thus, indirectly by their shareholders.
In addition, a higher rate of portfolio turnover may result in the realization
of larger amounts of short-term and/or long-term capital gains that, when
distributed to the Fund's shareholders, are taxable to them at the then current
rate. Nevertheless, securities transactions for the Funds will be based only
upon investment considerations and will not be limited by any other
considerations when the investment adviser deems its appropriate to make changes
in the Funds' assets. The portfolio turnover rate for the Fund is calculated by
dividing the lesser of the Fund's annual sales or purchases of portfolio
securities (exclusive of purchases and sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
securities in the Fund during the year. Portfolio turnover may vary from year to
year as well as within a year.
PERFORMANCE INFORMATION
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased at net asset value per share with a
hypothetical $1,000 payment made at the beginning of the period (assuming the
reinvestment of dividends and other distributions), dividing by the amount of
the initial investment, taking the "n"th root of the quotient (where "n" is the
number of years in the period) and subtracting 1 from the result. Total return
is calculated by subtracting the NAV of a Fund share at the beginning of a
stated period from the NAV at the end of the period (after giving effect to the
reinvestment of dividends and other distributions during the period), and
dividing the result by the NAV at the beginning of the period.
Each Fund may compare the performance of its shares to that of other
mutual funds, relevant indices or rankings prepared by independent services or
other financial or industry publications that monitor mutual fund performance.
[PARTICULAR INDICES MAY BE MENTIONED WITH RESPECT TO PARTICULAR FUNDS.]
Performance rankings as reported in CHANGING TIMES, BUSINESS WEEK,
INSTITUTIONAL INVESTOR, THE WALL STREET JOURNAL, MUTUAL FUND FORECASTER, NO LOAD
INVESTOR, MONEY MAGAZINE, MORNINGSTAR MUTUAL FUND VALUES, U.S. NEWS AND WORLD
REPORT, FORBES, FORTUNE, BARRON'S, FINANCIAL PLANNING, FINANCIAL PLANNING ON
WALL STREET, CERTIFIED FINANCIAL PLANNER TODAY, INVESTMENT ADVISOR, KIPLINGER'S,
SMART MONEY and similar publications may also be used in comparing a Fund's
performance. Furthermore, a Fund may quote its yields in advertisements or in
shareholder reports. [Advertisements for MPAM Mid Cap Stock Fund and MPAM Small
Cap Stock Fund also may discuss the potential benefits and risks of small cap
investing.]
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From time to time, advertising materials for the Fund may refer to
Morningstar ratings and related analyses supporting the rating.
From time to time, advertising material for a Fund may including
biographical information relating to its portfolio manager and may refer to, or
include commentary by the portfolio manager relating to investment strategy,
asset growth, current or past business, political, economic or financial
conditions and other matters of general interest to investors.
From time to time, advertising materials may refer to studies performed by
the investment adviser or its affiliates, such as "The Dreyfus Tax Informed
Investing Study" or "The Dreyfus Gender Investment Comparison Study (1996-1997)"
or other such studies.
Yield information is useful in reviewing the Funds' performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in a Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is a function of the kind and quality of the instruments in the Funds'
portfolios, portfolio maturity, operating expenses and market conditions. The
Funds' yields and total returns will also be affected if the investment adviser
waives any portion of its investment management fees.
The Funds' net investment income may change in response to fluctuations in
interest rates and the expenses of the Funds. Consequently, any given
performance quotation should not be considered as representative of the Funds'
performance for any specified period in the future.
For the purpose of determining the interest earned on debt obligations
that were purchased by a Fund at a discount or premium, the formula generally
calls for amortization of the discount or premium; the amortization schedule
will be adjusted monthly to reflect changes in the market values of the debt
obligations.
A Fund's equivalent taxable yield is computed by dividing that portion of
the Fund's yield which is tax-exempt by one minus a stated income tax rate and
adding the product to that portion, if any, of the Fund's yield that is not
tax-exempt.
Investors should recognize that in periods of declining interest rates a
Fund's yield will tend to be somewhat higher than prevailing market rates, and
in periods of rising interest rates a Fund's yield will tend to be somewhat
lower. Also, when interest rates are falling, the inflow of net new money to a
Fund from the continuous sale of its shares will likely be invested in portfolio
instruments producing lower yields than the balance of the Fund's portfolio,
thereby reducing the current yield of the Fund. In periods of rising interest
rates, the opposite can be expected to occur.
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INFORMATION ABOUT THE FUNDS
Each Fund share has one vote and, when issued and paid for in accordance
with the terms of the offering, is fully paid and non-assessable. Fund shares
have equal rights in liquidation. Fund shares are without par value, have no
preemptive or subscription rights, and are freely transferable.
The Trust is a "series fund," which is a mutual fund divided into separate
portfolios, each of which is treated as a separate entity for certain matters
under the 1940 Act and for other purposes. A shareholder of one portfolio is not
deemed to be a shareholder of any other portfolio. For certain matters
shareholders vote together as a group; as to others they vote separately by
portfolio. The Trustees have authority to create an unlimited number of shares
of beneficial interest, without par value, in separate series. The Trustees have
authority to create additional series at any time in the future without
shareholder approval.
On each matter submitted to a vote of the shareholders, all shares of each
fund shall vote together, except as to any matter for which a separate vote of
any fund is required by 1940 Act and except as to any matter which affects the
interest of a particular fund, in which case only the holders of shares of the
one or more affected funds shall be entitled to vote.
The assets received by the Trust for the issue or sale of shares of each
fund and all income, earnings, profits and proceeds thereof, subject only to the
rights of creditors, are specifically allocated to such fund, and constitute the
underlying assets of such fund. The underlying assets of each fund are required
to be segregated on the books of account, and are to be charged with the
expenses in respect to such fund and with a share of the general expenses of the
Trust. Any general expenses of the Trust not readily identifiable as belonging
to a particular fund shall be allocated by or under the direction of the
Trustees in such manner as the Trustees determine to be fair and equitable,
taking into consideration, among other things, the relative sizes of the funds
and the relative difficulty in administering each fund. Each share of each fund
represents an equal proportionate interest in that fund with each other share
and is entitled to such dividends and distributions out of the income belonging
to such fund as are declared by the Trustees. Upon any liquidation of a fund,
shareholders thereof are entitled to share pro rata in the net assets belonging
to that fund available for distribution.
The Trust does not hold annual meetings of shareholders. There will
normally be no meetings of shareholders for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by shareholders, at which time the Trustees then in
office will call a shareholders' meeting for the election of Trustees. Under the
1940 Act, shareholders of record of no less than two-thirds of the outstanding
shares of the Trust may remove a Trustee through a declaration in writing or by
a vote cast in person or by proxy at a meeting called for that purpose. The
Trustees are required to call a meeting of shareholders for the purposes of
voting upon the question of removal of any Trustee when requested in writing to
do so by the shareholders of record of not less than 10% of the Trust's
outstanding shares.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the holders of the outstanding voting securities of an investment
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company, such as the Trust, will not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each series affected by such matter. Rule 18f-2 further provides that a series
shall be deemed to be affected by a matter unless it is clear that the interests
of each series in the matter are identical or that the matter does not affect
any interest of such series. The Rule exempts the selection of independent
accountants and the election of Trustees from the separate voting requirements
of the Rule.
The Funds will send annual and semi-annual financial statements to all of
its shareholders.
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the
Agreement and Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Agreement and Declaration of Trust provides for
indemnification from the Trust's property for all losses and expenses of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations, a possibility which the investment adviser believes is
remote. Upon payment of any liability incurred by the Trust, the shareholder
paying such liability will be entitled to reimbursement from the general assets
of the Trust. The Trustees intend to conduct the operations of each fund in such
a way so as to avoid, as far as possible, ultimate liability of the shareholders
for liabilities of such fund.
COUNSEL AND INDEPENDENT AUDITORS
______________________, Washington, D.C., 20036-1800 has passed upon the
legality of the shares offered by the Funds' Prospectuses and this SAI.
______________________, New York, NY 10017, was appointed by the Trustees
to serve as the Funds' independent auditors for the year ending June 30, 2000,
providing audit services including (1) examination of the annual financial
statements (2) assistance, review and consultation in connection with SEC
filings (3) and review of the annual Federal income tax return filed on behalf
of each Fund.
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APPENDIX A
Risk Factors--Investing
In Pennsylvania Municipal Obligations
The following information constitutes only a brief summary, does not
purport to be a complete description, and is based on information drawn from
official statements relating to securities offerings of the Commonwealth of
Pennsylvania (the "Commonwealth") and various local agencies, available as of
the date of this Statement of Additional Information. While the Fund has not
independently verified such information, it has no reason to believe that such
information is not correct in all material respects.
General. Pennsylvania historically has been dependent on heavy industry
although recent declines in the coal, steel and railroad industries have led to
diversification of the Commonwealth's economy. Recent sources of economic growth
in Pennsylvania are in the service sector, including trade, medical and health
services, education and financial institutions. Agriculture continues to be an
important component of the Commonwealth's economic structure, with nearly
one-fourth of the Commonwealth's total land area devoted to cropland, pasture
and farm woodlands.
In 1997, the population of Pennsylvania was 12.02 million people, ranking
fifth in the nation. According to the U.S. Bureau of the Census, Pennsylvania
experienced a slight increase in population from the 1988 population of 11.85
million. Pennsylvania has a high proportion of persons 65 or older, and is
highly urbanized, with 79% of the 1990 census population residing in
metropolitan statistical areas. The cities of Philadelphia and Pittsburgh, the
Commonwealth's largest metropolitan statistical areas, together comprise almost
44% of the Commonwealth's total population.
The State's workforce is estimated at 5.9 million people, ranking as the
sixth largest labor pool in the nation. Pennsylvania's average annual
unemployment rate remained below the national average between 1986 and 1990.
Slower economic growth caused the rate to rise to 6.9% in 1991 and 7.5% in 1992.
The resumption of faster economic growth resulted in a decrease in the
Commonwealth's unemployment rate to 7.1% in 1993. Seasonally adjusted as of
December 1997 shows an unemployment rate of 4.8%, compared to an unemployment
rate of 4.9% for the United States as a whole.
Financial Accounting. Pennsylvania utilizes the fund method of accounting
and over 150 funds have been established for the purpose of recording receipts
and disbursements, of which the General Fund is the largest. Most of the
operating and administrative expenses are payable from the General Fund. The
Motor License Fund is a special revenue fund that receives tax and fee revenues
relating to motor fuels and vehicles (except one-half cent per gallon of the
liquid fuels tax which is deposited in the Liquid Fuels Tax Fund for
distribution to local municipalities) and all such revenues are required to be
used for highway purposes. Other special revenue funds have been established to
receive specified revenues appropriated to specific departments, boards and/or
commissions. Such funds include the Game, Fish, Boat, Banking Department, Milk
Marketing, State Farm Products Show, State Racing and State Lottery Funds. The
General Fund, all special revenue funds, the Debt Service Funds and the Capital
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Project Funds combine to form the Governmental Fund Types.
Enterprise funds are maintained for departments or programs operated like
private enterprises. The largest of the Enterprise funds is the State Stores
Fund, which is used for the receipts and disbursements of the Commonwealth's
liquor store system. Sale and distribution of all liquor within Pennsylvania is
a government enterprise.
Financial information for the funds is maintained on a budgetary basis of
accounting ("Budgetary"). Since 1984, the Commonwealth has also prepared
financial statements in accordance with generally accepted accounting principles
("GAAP"). The GAAP statements have been audited jointly by the Auditor General
of the Commonwealth and an independent public accounting firm. The Budgetary
information is adjusted at fiscal year end to reflect appropriate accruals for
financial reporting in conformity with GAAP. The Commonwealth maintains a June
30th fiscal year end.
The Constitution of Pennsylvania provides that operating budget
appropriations may not exceed the actual and estimated revenues and available
surplus in the fiscal year for which funds are appropriated. Annual budgets are
enacted for the General Fund and for certain special revenue funds which
represent the majority of expenditures of the Commonwealth.
Revenues and Expenditures. Pennsylvania's Governmental Fund Types receive
over 57% of their revenues from taxes levied by the Commonwealth. Interest
earnings, licenses and fees, lottery ticket sales, liquor store profits,
miscellaneous revenues, augmentations and federal government grants supply the
balance of the receipts to these funds. Revenues not required to be deposited in
another fund are deposited in the General Fund. The major tax sources for the
General Fund are the 6% sales and use tax (34.9% of General Fund revenues in
fiscal 1997), the 2.8% personal income tax (33.2% of General Fund revenues in
fiscal 1997) and the 9.99% corporate net income tax (19.8% of General Fund
revenues in fiscal 1997). Tax and fee proceeds relating to motor fuels and
vehicles are constitutionally dedicated to highway purposes and are deposited
into the Motor License Fund. The major sources of revenues for the Motor License
Fund include the liquid fuels tax and the oil company franchise tax. That Fund
also receives revenues from fees levied on heavy trucks and from taxes on fuels
used for aviation purposes. These latter revenues are restricted to the repair
and construction of highway bridges and aviation programs, respectively.
Revenues from lottery ticket sales are deposited in the State Lottery Fund and
are reserved by statute for programs to benefit senior citizens.
Pennsylvania's major expenditures include funding for education ($6.67
billion of fiscal 1995 expenditures, $6.99 billion of the fiscal 1996
expenditures and $7.0 billion of fiscal 1997 expenditures) and public health and
human services ($12.4 billion of fiscal 1995 expenditures, $12.9 billion of
fiscal 1996 expenditures and $13.4 billion of fiscal 1997 expenditures).
Governmental Fund Types: Financial Condition/Results of Operations (GAAP
Basis). The period from fiscal year 1993 through fiscal 1997 was a time of
steady, modest economic growth and low rates of inflation. These economic
conditions, together with tax reductions in the several years following the tax
rate increases and tax base expansions enacted in fiscal 1991 for the General
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Fund, produced tax revenue gains averaging 4.1% per year during the period.
Total revenues during this same period increased at a 4.7% average rate.
Intergovernmental revenue recorded the largest percentage gain during this
period, averaging 8.1%. A large portion of the increase for intergovernmental
revenue occurred in fiscal 1996 when an accounting change in the General Fund
resulted in food stamp coupon revenue received from the federal government being
recorded as income to the Commonwealth. Expenditures and other uses during the
fiscal 1993 through fiscal 1997 period rose at a 3.8% rate, led by an average
13.8% annual increase for protection of persons and property program costs. This
high rate of increase reflects the costs to acquire, staff and operate expanded
prison facilities to house a larger prison population. Public health and welfare
program costs expanded an average 5.4% annually during this period, the second
largest rate of increase for program categories. Assets for the governmental
fund types at the end of fiscal 1997 were $6,575.2 million, an increase of
$782.6 million over the previous fiscal year, while liabilities declined by
$132.0 million to $3,674.3 million. At the close of fiscal 1997, the fund
balance for the governmental fund types totaled $2,900.9 million, an increase of
$914.6 million.
General Fund: Financial Condition/Results of Operations.
Five Year Overview (GAAP Basis). For the five year period fiscal 1992
through fiscal 1997, total revenues and other sources rose at a 4.7% average
annual rate while total expenditures and other uses grew by 6.0% annually.
During the five year period from fiscal 1993 through fiscal 1997, revenues
and other sources increased by an average 4.7% annually. Tax revenues during
this same period increased by an annual average of 4.1%. Intergovernmental
revenues, at an 8.5% annual average rate of increase, were the revenue source
with the largest rate of growth over the five-year period. An accounting change
in fiscal 1996 that made food stamp coupon revenue from the federal government
an item of intergovernmental revenue is largely responsible for this increase.
Expenditures and other uses during the fiscal 1993 through fiscal 1997
period rose at an average annual rate of 4.9%. Program costs for protection of
persons and property increased an average 13.8% annually, the largest growth
rate of all programs. Its high rate of increase reflects the costs to acquire,
staff and operate expanded prison facilities to house a larger prison
population. Public health and welfare program cost increased at a 5.7% annual
average rate during the period. Efforts to control costs for various social
programs and the presence of favorable economic conditions have helped restrain
these costs.
Fiscal 1995 Financial Results (GAAP Basis). Revenues and other sources
totaled $23.772 billion, an increase of $1.135 billion (5.0%) over the prior
fiscal year. The greatest increase was $817.9 million in taxes which represents
a 5.6% increase over taxes in the prior fiscal year. Expenditures and other uses
rose by $1.364 billion to $23.821 billion, an increase over the prior fiscal
year of 6.1 percent. Consequently, an operating deficit of $49.8 million was
recorded for the fiscal year and led to a decline in fund balance to $688.3
million at June 30, 1995. Two items predominately contributed to the fund
balance decline. First, a more comprehensive procedure was used for fiscal 1995
to compute the liabilities for certain public welfare programs leading to an
increase for the year-end accruals. Second, a change to the methodology used to
calculate the year-end accrual for corporate tax payables increased the tax
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refund liability by $72 million for the 1995 fiscal year when compared to the
previous fiscal year.
Fiscal 1995 Financial Results (Budgetary Basis). Commonwealth revenues for
the 1995 fiscal year were above estimate and exceeded fiscal year expenditures
and encumbrances. Fiscal 1995 was the fourth consecutive fiscal year the
Commonwealth reported an increase in the fiscal year-end unappropriated balance.
Prior to reserves for transfer to the Tax Stabilization Reserve Fund, the fiscal
1995 closing unappropriated surplus was $540.0 million, an increase of $204.2
million over the fiscal 1994 closing unappropriated surplus prior to transfers.
Commonwealth revenues were $459.4 million, 2.9%, above the estimate of revenues
used at the time the budget was enacted. Corporation taxes contributed $329.4
million of the additional receipts due largely to higher receipts from the
corporate net income tax. Sales and use tax revenues also showed strong
year-over-year growth that produced above-estimate revenue collections. Sales
and use tax revenues were $5.527 billion, $128.8 million above the enacted
budget estimate and 7.9% over fiscal 1994 collections. Personal income tax
receipts for fiscal 1995 were slightly above the budgeted estimate. The higher
than estimated revenues from tax sources were due to faster economic growth in
the national and state economy than had been projected when the budget was
adopted. The higher rate of economic growth for the nation and the state gave
rise to increases in employment, income and sales that were higher than expected
and translated into above-estimate tax revenues.
Fiscal 1996 Financial Results (GAAP Basis): For fiscal 1996 the fund
balance was drawn down $53.1 million from the balance at the end of fiscal 1995
to $635.2 million. A planned draw down of the budgetary unappropriated surplus
during fiscal 1996 contributed to expenditures and other uses exceeding revenues
and other sources by $28.0 million. Consequently, the unreserved fund balance
declined by $61.1 million, reducing the balance to $381.8 million at the end of
fiscal 1996. Total revenues and other sources increased by 8.7% for the fiscal
year led by a 24.2% increase in intergovernmental revenues.
Fiscal 1996 Financial Results (Budgetary Basis): Commonwealth revenues for
the fiscal year were above estimate and exceeded fiscal year expenditures and
encumbrances. Prior to reserves for transfer to the Tax Stabilization Reserve
Fund, the fiscal 1996 closing unappropriated surplus was $183.8 million, $65.5
million above estimate. Commonwealth revenues (prior to tax refunds) for the
fiscal year increased by $113.9 million over the prior fiscal year to $16.339
billion representing a growth rate of 0.7%. Tax rate reductions and other tax
law changes substantially reduced the amount and rate of revenue growth for the
fiscal year. Sales and use tax revenues were $5.682 billion or 2.8% over fiscal
1995 collections. Personal income tax receipts for fiscal 1996 totaled $5.374
billion, or 5.7% over collections for fiscal 1995. Included in that increase was
$67 million in net receipts from a tax amnesty program that was available for a
portion of the 1996 fiscal year. Some portion of the tax amnesty receipts
represent normal collections of delinquent taxes. The tax amnesty program is not
expected to be repeated.
Funds held in reserve at the end of fiscal 1995 for transfer to the Tax
Stabilization Reserve Fund totaled $111.0 million. The Tax Stabilization Reserve
Fund was anticipated to have an available balance of $182.8 million at June 30,
1996, representing approximately 1.1% of general fund annual commonwealth
revenues.
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Fiscal 1997 Financial Results (GAAP Basis): For fiscal 1997, assets
increased $563.4 million and liabilities declined $166.3 million to produce a
$729.7 million increase in fund balance at June 30, 1997. The fund balance
increase during fiscal 1997 has brought a restoration of an
undesignated-unreserved balance. The $187.3 million undesignated-unreserved
balance is the first recorded since fiscal 1994 and is the largest amount since
fiscal 1987. Total revenues and other sources rose 3.5% for fiscal 1997. An
increase of 5.5% in tax revenue aided by an improving state economy was
partially offset by a $175.2 million decline in intergovernmental revenues.
Expenditures and other uses increased by 1.0% for the fiscal year. As in
the past several fiscal years, expenditure increases were led by protection of
persons and property program costs. Fiscal 1997 costs for this program rose by
4.7%, the largest increase for a program, but well below the 17.1% average
annual increase that occurred over the four fiscal years prior to fiscal 1997.
General government program costs for fiscal 1997 declined by 14.3% from the
fiscal year earlier. A reduction in estimated expenditures for maintaining the
Commonwealth's self-insured worker's compensation program is largely responsible
for the decline.
Fiscal 1997 Financial Results (Budgetary Basis): The unappropriated
balance of commonwealth revenues increased during the 1997 fiscal year by $432.9
million. Higher than estimated revenues and slightly lower expenditures than
budgeted caused the increase. The unappropriated balance rose from an adjusted
amount of $158.5 million at the beginning of fiscal 1997, to $591.4 million
(prior to reserves for transfer to the Tax Stabilization Reserve Fund) at the
close of the fiscal year. Transfers to the Tax Stabilization Reserve Fund for
fiscal 1997 operations were $88.7 million, representing the normal 15% of the
ending unappropriated balance, plus an additional $100 million authorized by the
General Assembly when it enacted the fiscal 1998 budget.
Commonwealth revenues (prior to tax refunds) during the fiscal year
totaled $17,320.6 million, $576.1 million (3.4%) above the estimate made at the
time the budget was enacted. Revenue from taxes was the largest contributor to
higher than estimated receipts. Tax revenue in fiscal 1997 grew 6.1% over tax
revenues in fiscal 1996. This rate of increase was not adjusted for legislated
tax reductions that affected receipts during both of those fiscal years and
therefor understates the actual underlying rate of tax revenue for the fiscal
year. Personal income collections were $236.3 million over estimate,
representing a 6.9% increase over fiscal 1996 receipts. Receipts of the sales
and use tax were $185.6 million over estimate, representing a 6.2% increase.
Collections of corporate taxes,, led by the capital stock and franchise and the
gross receipts taxes, also exceeded their estimates for the fiscal year. Non-tax
revenues were $19.8 million (5.8%) over estimate mostly due to higher than
anticipated interest earnings.
Expenditures from commonwealth revenues (excluding pooled financing
expenditures) during fiscal 1997 totaled $16,347.7 million and were close to the
estimate made in February 1997 with the presentation of the Governor's fiscal
1998 budget request. Total expenditures represent an increase over fiscal 1996
expenditures of 1.7%. Supplemental appropriations for fiscal 1997 totaled $169.3
million. The largest supplemental appropriations included $100.1 million for
medical assistance costs due to implementation of managed medical care for a
portion of the medical assistance caseload, and an additional $50 million for
bond debt service for potential use to produce present value savings.
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Fiscal 1998 Budget: The budget for fiscal 1998 was enacted in May 1997.
Commonwealth revenues for the fiscal year at that time were estimated to be
$17.435 billion before reserves for tax refunds. That estimate represented an
increase over estimated fiscal 1997 commonwealth revenues of 1.0 percent.
Although actual fiscal 1997 revenues exceeded the estimate, the adopted fiscal
1998 budget revenue estimate was not changed and represents a 0.7 percent
increase over actual fiscal 1997 revenues.
Commonwealth Debt. Current constitutional provisions permit Pennsylvania
to issue the following types of debt: (i) debt to suppress insurrection or
rehabilitate areas affected by disaster, (ii) electorate approved debt, (iii)
debt for capital projects subject to an aggregate debt limit of 1.75 times the
annual average tax revenues of the preceding five fiscal years, (iv) tax
anticipation notes payable in the fiscal year of issuance. All debt except tax
anticipation notes must be amortized in substantial and regular amounts.
General obligation for non-highway purposes debt totaled $4.047 billion at
June 30, 1997. Over the 10-year period ended June 30, 1997, total outstanding
general obligation debt for non-highway purposes increased at an annual rate of
3.3%. All outstanding general obligation bonds of the Commonwealth are rated AA-
by Standard and Poor's Ratings Group, Al by Moody's Investors Service Inc., and
AA- by Fitch IBCA, Inc. Ratings Group. The ratings reflect only the views of the
rating agencies.
Pennsylvania engages in short-term borrowing to fund expenses within a
fiscal year through the sale of tax anticipation notes which must mature within
the fiscal year of issuance. The principal amount issued, when added to that
already outstanding, may not exceed an aggregate 200 of the revenues estimated
to accrue to the appropriate fund in the fiscal year. The Commonwealth is not
permitted to fund deficits between fiscal years with any form of debt. All
year-end deficit balances must be funded within the succeeding fiscal year's
budget. Pennsylvania issued a total of $550.0 million of tax anticipation notes
for the account of the General Fund in fiscal 1997, all of which matured on June
30, 1997, to be paid from fiscal 1997 General Fund receipts.
Pending the issuance of bonds, Pennsylvania may issue bond anticipation
notes subject to the applicable statutory and constitutional limitations
generally imposed on bonds. The term of such borrowings may not exceed three
years. As of December 31, 1997, there were $46.4 million of bond anticipation
notes outstanding.
State-related Obligations. Certain state-created agencies have statutory
authorization to incur debt for which no legislation providing for state
appropriations to pay debt service thereon is required. The debt of these
agencies is supported by assets of, or revenues derived from, the various
projects financed, and the debt of such agencies is not an obligation of
Pennsylvania although some of the agencies are indirectly dependent on
Commonwealth appropriations. The following agencies had debt currently
outstanding as of December 31, 1997: Delaware River Joint Toll Bridge Commission
($52.7 million), Delaware River Port Authority ($512.3 million), Pennsylvania
Economic Development Financing Authority ($1.081 billion), Pennsylvania Energy
Development Authority ($72.8 million), Pennsylvania Higher Education Assistance
Agency ($1.584 billion), Pennsylvania Higher Educational Facilities Authority
($2.777 billion), Pennsylvania Industrial Development Authority ($402.1
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million), Pennsylvania Infrastructure Investment Authority ($196.4 million),
Pennsylvania Turnpike Commission ($1.178 billion), Philadelphia Regional Port
Authority ($59.5 million), and the State Public School Building Authority
($310.5 million). In addition, the Governor is statutorily required to place in
the budget of the Commonwealth an amount sufficient to make up any deficiency in
the capital reserve fund created for, or to avoid default on, bonds issued by
the Pennsylvania Housing Finance Agency ($2.631 billion of revenue bonds as of
December 31, 1997), and an amount of funds sufficient to alleviate any
deficiency that may arise in the debt service reserve fund for bonds issued by
The Hospitals and Higher Education Facilities Authority of Philadelphia ($1.19
million of the loan principal was outstanding as of June 30, 1997).
Litigation. Certain litigation is pending against the Commonwealth that
could adversely affect the ability of the Commonwealth to pay debt service on
its obligations, including suits relating to the following matters: (a)
Approximately 3,500 tort suits are pending against the Commonwealth pursuant to
the General Assembly's 1978 approval of a limited waiver of sovereign immunity
which permits recovery of damages for any loss up to $250,000 per person and
$1,000,000 per accident ($27 million was appropriated from the Motor License
Fund for fiscal 1998); (b) The ACLU filed suit in April 1990 in federal court
demanding additional funding for child welfare services (no estimates of
potential liability are available), which the Commonwealth is seeking to have
dismissed based on, among other things, the settlement in a similar Commonwealth
Court action that provided for more funding in fiscal 1991 as well as a
commitment to pay to counties $30.0 million over 5 years. In January 1992, the
district court denied the ACLU's motion for class certification, but that ruling
was overturned by the Third Circuit and the parties have resumed discovery; (c)
In 1987, the Supreme Court of Pennsylvania held that the statutory scheme for
county funding of the judicial system was in conflict with the Pennsylvania
Constitution but stayed judgment pending enactment by the legislature of funding
consistent with the opinion. The legislature has yet to consider legislation
implementing the judgment; (d) In November 1990, the ACLU brought a class action
suit on behalf of the inmates in thirteen Commonwealth correctional institutions
challenging confinement conditions and including a variety of other allegations.
In 1995, the parties agreed to a three-year court monitored settlement which
will expire in January 1998; (e) Actions have been filed in both state and
federal court by an association of rural and small schools and several
individual school districts and parents challenging the constitutionality of the
Commonwealth's system for funding local school districts. The federal case has
been stayed pending resolution of the state case. The state trial was held in
January 1997, and the record remains open. There is no available estimate of
potential liability; and (f) Several banks have filed suit against the
Commonwealth contesting the constitutionality of a 1989 law imposing a bank
shares tax on banking institutions. After the Commonwealth Court ruled in favor
of the Commonwealth, finding no constitutional deficiencies, Fidelity Bank, the
Commonwealth, and certain intervenor banks filed Notices of Appeal to the
Pennsylvania Supreme Court on August 5, 1994. Pursuant to a Settlement
Agreement, dated as of April 21, 1995, the Commonwealth agreed to enter a credit
in favor of Fidelity in the amount of $4,100,000 in settlement of the
constitutional and non-constitutional issues including interest. Pursuant to a
separate Settlement Agreement, dated as of April 21, 1995, the Commonwealth
settled with the intervening banks, referred to as "New Banks." As part of the
settlement, the Commonwealth agreed neither to assesses nor attempt to recoup
any new bank tax credits which had been granted or taken by any of the
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intervening banks. Although the described settlements have quantified the
Commonwealth's exposure to Fidelity and the intervening banks, other banks have
filed protective Petitions, and one or more of these banks may pursue new
constitutional challenges in the Commonwealth Court; however, the Commonwealth
Court has previously examined and confirmed the Act's constitutionality; (g) On
November 11, 1993, the Commonwealth of Pennsylvania, Department of
Transportation and Envirotest/Synterra Partners ("Envirotest"), a partnership,
entered into a "Contract for Centralized Emissions Inspection Facilities."
Thereafter, Envirotest acquired certain land and constructed approximately 85
automobile emissions inspection facilities throughout various regions of the
Commonwealth. By Act of the General Assembly in October 1994 (Act No. 1994-95),
the program was suspended and the Department of Transportation was prohibited
from expending funds to implement the program. Envirotest sued, and on December
15, 1995, Envirotest Systems Corporation, Envirotest Partners (successor to
Envirotest/Synterra Partners) and the Commonwealth of Pennsylvania entered into
a Settlement Agreement pursuant to which Envirotest will receive $145 million by
installment payments through 1998; and (h) In November 1995, the Commonwealth
and the Governor, along with the City of Philadelphia and its Mayor, were joined
as additional respondents in an enforcement action commenced in Commonwealth
Court in 1973 by the Pennsylvania Human Relations Commission against the School
District of Philadelphia pursuant to the Pennsylvania Human Relations Act. The
enforcement action was pursued to remedy unintentional conditions of segregation
in the public schools of Philadelphia. The Commonwealth and the City were joined
in the "remedial phase" of the proceeding to determine their liability, if any,
and to pay additional costs necessary to remedy the unlawful conditions found to
exist in the Philadelphia public schools. After trial, Judge Smith issued an
Opinion and Order, granting in relevant part, judgment in favor of the School
District of Philadelphia and ASPIRA and against the Commonwealth and Governor.
The Commonwealth appealed and requested the Supreme Court to enter judgments in
favor of the Commonwealth and the Governor on all claims. Briefs have been
filed, and the matter is awaiting argument before the Supreme Court.
Philadelphia. The City of Philadelphia is the largest city in the
Commonwealth, with an estimated population of 1,585,577 people according to the
1990 Census. Philadelphia functions both as a city of the first class and as a
county for the purpose of administering various governmental programs.
Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority ("PICA") to assist first class cities in
remedying fiscal emergencies was enacted by the General Assembly and approved by
the Governor in June 1991. PICA is designed to provide assistance through the
issuance of funding debt to liquidate budget deficits and to make factual
findings and recommendations to the assisted city concerning its budgetary and
fiscal affairs. An intergovernmental cooperation agreement between Philadelphia
and PICA was approved by City Council and the PICA Board and signed by the Mayor
in January, 1992. At this time, Philadelphia is operating under a five year
fiscal plan approved by PICA on May 20, 1997.
PICA has issued $1,761,710,000 of its Special Tax Revenue Bonds. This
financial assistance has included the refunding of certain general obligation
bonds to fund capital projects and to liquidate the Cumulative General Fund
balance deficit as of June 30, 1992, of $224.9 million. The audited General Fund
balance as of June 30, 1997, showed a surplus of approximately $128.8 million.
A-8
<PAGE>
APPENDIX B
MUNICIPAL BOND, MUNICIPAL NOTE, BOND, NOTE AND COMMERCIAL PAPER RATINGS
S&P
Municipal Bond and Bond Ratings
- -------------------------------
AAA An obligation rated `AAA' has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated `AA' differs from the highest rated issues only in
small degree. The obligors capacity to meet its financial commitment on
the obligation is very strong.
A An obligation rated `A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to
meet its financial commitment on the obligation is still strong.
BBB An obligation rated `BBB' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
The ratings from `AA' to `BBB' may be modified by the addition of a plus (+) or
a minus (-) sign to show relative standing within the major rating categories
Municipal Note and Note Ratings
- -------------------------------
SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse finance and economic changes over the term of the
notes.
Commercial Paper Ratings
- ------------------------
An S&P commercial paper rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
A-1 This designation 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.
B-1
<PAGE>
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
issuers designated `A-1.'
A-3 Issues carrying this designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
MOODY'S
Municipal Bond and Bond Ratings
- -------------------------------
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and generally are referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in
the future.
Baa Bonds which are rated Baa are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within each generic rating classification from Aa through Baa.
The modifier 1 indicates a ranking for the security in the higher end of a
rating category; the modifier 2 indicates a midrange ranking; and the
modifier 3 indicates a ranking in the lower end of a rating category.
B-2
<PAGE>
Municipal Note, Note and Other Short-Term Obligations
- -----------------------------------------------------
There are four rating categories for short-term obligations that define an
investment grade situation. These are designated Moody's Investment Grade as MIG
1 (best quality) through MIG 4 (adequate quality). Short-term obligations of
speculative quality are designated SG.
In the case of variable rate demand obligations (VRDOs), a two component
rating is assigned. The first element represents an evaluation of the degree of
risk associated with scheduled principal and interest payments, and the other
represents an evaluation of the degree of risk associated with the demand
feature. The short-term rating assigned to the demand feature of VRDOs is
designated as VMIG. When either the long- or short-term aspect of a VRDO is not
rated, that piece is designated NR, e.g., Aaa/NR or NR/VMIG 1.
MIG 1/
VMIG 1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG-2/
MIG 2 This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3/
VMIG 3 This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well
established.
MIG 4/
VMIG 4 This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is
specific risk.
Commercial Paper Rating
- -----------------------
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
Prime-1 Issuers rated Prime-1 (or supporting institutions) 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:
1. Leading market positions in well-established industries.
2. High rates of return on funds employed.
B-3
<PAGE>
3. Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
4. Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
5. Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) 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 agree. Earnings trends and coverage ratios, while
sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternative liquidity is
maintained.
FITCH IBCA, INC. ("FITCH")
Municipal Bond and Bond Ratings
- -------------------------------
AAA Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated `AAA'. Because bonds rated in
the `AAA' and `AA' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated `F-1+'.
A Bonds considered to be investment grade and of high credit quality, The
obligor's ability to pay interest an repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to
be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds and,
therefore, impair timely payment. The likelihood that the ratings of these
B-4
<PAGE>
bonds will fall below investment grade is higher than for bonds with
higher ratings
+/- Plus and minus signs are used with a rating symbol to indicate the
relative position of a credit within the rating category.
Short-Term and Commercial Paper Ratings
- ---------------------------------------
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of up to three years, including commercial paper,
certificates of deposit, medium-term notes, and municipal and investment notes.
Although the credit analysis is similar to Fitch's bond rating analysis, the
short-term rating places greater emphasis than bond ratings on the existence of
liquidity necessary to meet the issuer's obligations in a timely manner.
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
`F-1+'.
F-2 Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as for issues assigned `F-1+' and `F-1' ratings.
DUFF & PHELPS INC. ("DUFF & PHELPS")
Long-Term Ratings
- -----------------
AAA Highest credit quality. The risks factors are negligible,
being only slightly more than for risk-free U.S. Treasury
debt.
AA+ High credit quality. Protection factors are strong. Risk
AA is modest but AA may vary slightly from time to time because
AA- of economic conditions.
A+ Protections factors are average but adequate. However, risk
A factors are more variable and greater in periods of economic
A- stress.
BBB+ Below-average protection factors but still considered sufficient for
BBB prudent BBB investment. Considerable variability in risk during economic
BBB- cycles.
B-5
<PAGE>
Short-Term and Commercial Paper Ratings
- ---------------------------------------
D-1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds,
is outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
D-1 Very high certainty of timely payment. Liquidity factors are excellent and
supported by good fundamental protection factors. Risk factors are minor.
D-1- High certainly of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very
small.
D-2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financial requirements, access to capital markets is good. Risk factors
are small.
D-3 Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
B-6
<PAGE>
MPAM FUNDS TRUST
PART C
OTHER INFORMATION
-----------------
Item 23. Exhibits
--------
(a) Declaration of Trust dated April 12, 2000, is filed herein.
(b) Bylaws. To be filed by amendment.
(c) Not Applicable.
(d) Investment Management Agreement. To be filed by amendment.
(e) Distribution Agreement. To be filed by amendment.
(f) Not Applicable.
(g) Custodian Agreement. To be filed by amendment.
(h) Transfer Agent Agreement. To be filed by amendment.
(i) Opinion and Consent of counsel. To be filed by amendment.
(j) Auditor's Consent. To be filed by amendment.
(k) Not Applicable.
(l) Initial Capital Agreements. To be filed by amendment.
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
(p) Code of Ethics is filed herein.
Item 24. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
Not Applicable.
Item 25. Indemnification
---------------
(a) The Trust shall indemnify each of its Trustees and officers (including
persons who serve at the Trust's request as directors, officers or trustees of
another organization in which the Trust has any interest as a shareholder,
creditor or otherwise) (hereinafter referred to as a "Covered Person") against
all liabilities and expenses, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and counsel
<PAGE>
fees reasonably incurred by any Covered Person in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
before any court or administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or otherwise or with which
such person may be or may have been threatened, while in office or thereafter,
by reason of being or having been such a Trustee or officer, except with respect
to any matter as to which such Covered Person shall have been finally
adjudicated in a decision on the merits in any such action, suit or other
proceeding not to have acted in good faith in the reasonable belief that such
Covered Person's action was in the best interests of the Trust and except that
no Covered Person shall be indemnified against any liability to the Trust or its
Shareholders to which such Covered 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 such Covered Person's office. Expenses,
including counsel fees so incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments, in compromise or as fines or
penalties), may be paid from time to time by the Trust in advance of the final
disposition or any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person to repay amounts so paid to
the Trust if it is ultimately determined that indemnification of such expenses
is not authorized under this Article, PROVIDED THAT (i) such Covered Person
shall provide security for his or her undertaking, (ii) the Trust shall be
insured against losses arising by reason of such Covered Person's failure to
fulfill his or her undertaking, or (iii) a majority of the Trustees who are
disinterested persons and who are not Interested Persons (as that term is
defined in the Investment Company Act of 1940) (provided that a majority of such
Trustees then in office act on the matter), or independent legal counsel in a
written opinion, shall determine, based on a review of readily available facts
(but not a full trial-type inquiry), that there is reason to believe such
Covered Person ultimately will be entitled to indemnification.
(b) As to any matter disposed of (whether by a compromise payment, pursuant to
a consent decree or otherwise) without an adjudication in a decision on the
merits by a court, or by any other body before which the proceeding was brought,
that such Covered Person either (i) did not act in good faith in the reasonable
belief that such Covered Person's action was in the best interests of the Trust
or (ii) is liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office, indemnification shall
be provided if (i) approved as in the best interest of the Trust, after notice
that it involves such indemnification, by at least a majority of the Trustees
who are disinterested persons and are not Interested Persons (provided that a
majority of such Trustees then in office act on the matter), upon a
determination, based upon a review of readily available facts (but not a full
trial-type inquiry) that such Covered Person acted in good faith in the
reasonable belief that such Covered Person's action was in the best interests of
the Trust and is not liable to the Trust or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office, or (ii) there
has been obtained an opinion in writing of independent legal counsel, based upon
a review of readily available facts (but not a full trial-type inquiry) to the
effect that such Covered Person appears to have acted in good faith in the
reasonable belief that such Covered Person's action was in the best interests of
the Trust and that such indemnification would not protect such Covered Person
against any liability to the Trust to which such Covered 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 office. Any
approval pursuant to this Section shall not prevent the recovery from any
Covered Person of any amount paid to such Covered Person in accordance with this
Section as indemnification if such Covered Person is subsequently adjudicated by
a court of competent jurisdiction not to have acted in good faith in the
reasonable belief that such Covered Person's action was in the best interests of
the Trust or to have been liable to the Trust or its shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office.
(c) The right of indemnification hereby provided shall not be exclusive of or
affect any other rights to which any such Covered Person may be entitled. As
used in this Article 10, the term "Covered Person" shall include such person's
heirs, executors and administrators, and a "disinterested person" is a person
against whom none of the actions, suits or other proceedings in question or
another action, suit, or other proceeding on the same or similar grounds is then
or has been pending. Nothing contained in this Article shall affect any rights
to indemnification to which personnel of the Trust, other than Trustees and
officers, and other persons may be entitled by contract or otherwise under law,
C-2
<PAGE>
nor the power of the Trust to purchase and maintain liability insurance on
behalf of such person.
(d) Notwithstanding any provisions in the Declaration of Trust and these
By-Laws pertaining to indemnification, all such provisions are limited by the
following undertaking set forth in the rules promulgated by the Securities and
Exchange Commission:
In the event that a claim for indemnification is asserted by a Trustee,
officer or controlling person of the Trust in connection with the registered
securities of the Trust, the Trust will not make such indemnification unless (i)
the Trust has submitted, before a court or other body, the question of whether
the person to be indemnified was liable by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of duties, and has obtained a
final decision on the merits that such person was not liable by reason of such
conduct or (ii) in the absence of such decision, the Trust shall have obtained a
reasonable determination, based upon review of the facts, that such person was
not liable by virtue of such conduct, by (a) the vote of a majority of Trustees
who are neither interested persons as such term is defined in the Investment
Company Act of 1940, nor parties to the proceeding or (b) an independent legal
counsel in a written opinion.
The Trust will not advance attorneys' fees or other expenses incurred by
the person to be indemnified unless (i) the Trust shall have received an
undertaking by or on behalf of such person to repay the advance unless it is
ultimately determined that such person is entitled to indemnification and (ii)
one of the following conditions shall have occurred: (a) such person shall
provide security for his undertaking, (b) the Trust shall be insured against
losses arising by reason of any lawful advances or (c) a majority of the
disinterested, non-party Trustees of the Trust, or an independent legal counsel
in a written opinion, shall have determined that based on a review of readily
available facts there is reason to believe that such person ultimately will be
found entitled to indemnification.
Item 26. Business and Other Connections of the Investment Adviser
--------------------------------------------------------
MPAM Advisers is a division of the Dreyfus Corporation ("Dreyfus"), a
wholly-owned subsidiary of Mellon Financial Corporation. Dreyfus and subsidiary
companies comprise a financial service organization whose business consists
primarily of providing investment management services as the investment adviser,
manager and distributor for sponsored investment companies registered under the
Investment Company Act of 1940 and as an investment adviser to institutional and
individual accounts. Dreyfus also serves as sub-investment adviser to and/or
administrator of other investment companies. Dreyfus Service Corporation, a
wholly-owned subsidiary of Dreyfus, serves primarily as a registered
broker-dealer of shares of investment companies sponsored by Dreyfus and of
other investment companies for which Dreyfus acts as investment adviser,
sub-investment adviser or administrator. Dreyfus Management, Inc., another
wholly-owned subsidiary, provides investment management services to various
pension plans, institutions and individuals.
<TABLE>
<CAPTION>
Officers and Directors of Investment Adviser
- --------------------------------------------
Name and Position
With Dreyfus Other Businesses Position Held Dates
- ------------ ---------------- ------------- -----
<S> <C> <C> <C>
CHRISTOPHER M. CONDRON Franklin Portfolio Associates, Director 1/97 - Present
Chairman of the Board LLC*
and Chief Executive
Officer
TBCAM Holdings, Inc.* Director 10/97 - Present
President 10/97 - 6/98
Chairman 10/97 - 6/98
C-3
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
- ------------ ---------------- ------------- -----
<S> <C> <C> <C>
The Boston Company Asset Director 1/98 - Present
Management, LLC* Chairman 1/98 - 6/98
President 1/98 - 6/98
The Boston Company Asset President 9/95 - 1/98
Management, Inc.* Chairman 4/95 - 1/98
Director 4/95 - 1/98
Franklin Portfolio Holdings, Director 1/97 - Present
Inc.*
Certus Asset Advisors Corp.** Director 6/95 - Present
Mellon Capital Management Director 5/95 - Present
Corporation***
Mellon Bond Associates, Executive Committee 1/98 - Present
LLP+ Member
Mellon Bond Associates+ Trustee 5/95 - 1/98
Mellon Equity Associates, LLP+ Executive 1/98 - Present
Committee Member
Mellon Equity Associates+ Trustee 5/95 - 1/98
Boston Safe Advisors, Inc.* Director 5/95 - Present
President 5/95 - Present
Mellon Bank, N.A. + Director 1/99 - Present
Chief Operating
Officer 3/98 - Present
President 3/98 - Present
Vice Chairman 11/94 - 3/98
Mellon Financial Corporation+ Chief Operating
Officer 1/99 - Present
President 1/99 - Present
Director 1/98 - Present
Vice Chairman 11/94 - 1/99
Founders Asset Management, LLC**** Chairman 12/97 - Present
Director 12/97 - Present
The Boston Company, Inc.* Vice Chairman 1/94 - Present
Director 5/93 - Present
Laurel Capital Advisors, LLP+ Executive Committee 1/98 - 8/98
Member
C-4
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
- ------------ ---------------- ------------- -----
<S> <C> <C> <C>
CHRISTOPHER M. CONDRON Laurel Capital Advisors+ Trustee 10/93 - 1/98
Chairman and Chief
Executive Officer Boston Safe Deposit and Director 5/93 - Present
(Continued) Trust Company*
The Boston Company Financial President 6/89 - 1/97
Strategies, Inc. * Director 6/89 - 1/97
MANDELL L. BERMAN Self-Employed Real Estate 11/74 - Present
Director 29100 Northwestern Highway Consultant,
Suite 370 Residential
Southfield, MI 48034 Builder and
Private Investor
BURTON C. BORGELT DeVlieg Bullard, Inc. Director 1/93 - Present
Director 1 Gorham Island
Westport, CT 06880
Mellon Financial Director 6/91 - Present
Corporation+
Mellon Bank, N.A. + Director 6/91 - Present
Dentsply International, Inc. Director 2/81 - Present
570 West College Avenue
York, PA
Quill Corporation Director 3/93 - Present
Lincolnshire, IL
STEPHEN R. BYERS Dreyfus Service Senior Vice 3/00 - Present
Director of Corporation++ President
Investments
Gruntal & Co., LLC Executive Vice
New York, NY President 5/97 - 11/99
Partner 5/97 - 11/99
Executive Committee
Member 5/97 - 11/99
Board of Directors
Member 5/97 - 11/99
Treasurer 5/97 - 11/99
Chief Financial
Officer 5/97 - 6/99
STEPHEN E. CANTER Dreyfus Investment Chairman of the
President, Chief Advisors, Inc.++ Board 1/97 - Present
Operating Director 5/95 - Present
Officer, Chief President 5/95 - Present
Investment
Officer, and Director
Newton Management Limited Director 2/99 - Present
London, England
Mellon Bond Associates, Executive 1/99 - Present
LLP+ Committee Member
C-5
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
- ------------ ---------------- ------------- -----
<S> <C> <C> <C>
Mellon Equity Associates, Executive Committee 1/99 - Present
LLP+ Member
Franklin Portfolio Associates, Director 2/99 - Present
LLC*
Franklin Portfolio Holdings, Director 2/99 - Present
Inc.*
STEPHEN E. CANTER The Boston Company Asset Director 2/99 - Present
President, Chief Management, LLC*
Operating Officer,
Chief Investment TBCAM Holdings, Inc.* Director 2/99 - Present
Officer, and Director
(Continued)
Mellon Capital Management Director 1/99 - Present
Corporation***
Founders Asset Management, Member, Board of 12/97 - Present
LLC**** Managers
Acting Chief 7/98 - 12/98
Executive Officer
The Dreyfus Trust Director 6/95 - Present
Company+++ Chairman 1/99 - Present
President 1/99 - Present
Chief Executive 1/99 - Present
Officer
THOMAS F. EGGERS Dreyfus Service Corporation++ Chief Executive 3/00 - Present
Vice Chairman - Officer and
Institutional Chairman of the
And Director Board 4/96 - 3/00
Executive Vice 9/96 - Present
President
Director
Founders Asset Management, Member, Board of 2/99 - Present
LLC**** Managers
Dreyfus Investment Advisors, Director 1/00 - Present
Inc.
Dreyfus Service Organization, Director 3/99 - Present
Inc.++
Dreyfus Insurance Agency of Director 3/99 - Present
Massachusetts, Inc. +++
Dreyfus Brokerage Director 11/97 - 6/98
Services, Inc.
401 North Maple Avenue
Beverly Hills, CA.
C-6
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
- ------------ ---------------- ------------- -----
<S> <C> <C> <C>
STEVEN G. ELLIOTT Mellon Financial Corporation+ Senior Vice Chairman 1/99 - Present
Director Chief Financial Officer 1/90 - Present
Vice Chairman 6/92 - 1/99
Treasurer 1/90 - 5/98
Mellon Bank, N.A.+ Senior Vice Chairman 3/98 - Present
Vice Chairman 6/92 - 3/98
Chief Financial Officer 1/90 - Present
Mellon EFT Services Corporation Director 10/98 - Present
Mellon Bank Center, 8th
Floor
1735 Market Street
Philadelphia, PA 19103
Mellon Financial Services Director 1/96 - Present
Corporation #1 Vice President 1/96 - Present
Mellon Bank Center, 8th
Floor
1735 Market Street
Philadelphia, PA 19103
STEVEN G. ELLIOTT Boston Group Holdings, Inc.* Vice President 5/93 - Present
Director (Continued)
APT Holdings Corporation Treasurer 12/87 - Present
Pike Creek Operations Center
4500 New Linden Hill Road
Wilmington, DE 19808
Allomon Corporation Director 12/87 - Present
Two Mellon Bank Center
Pittsburgh, PA 15259
Collection Services Corporation Controller 10/90 - 2/99
500 Grant Street Director 9/88 - 2/99
Pittsburgh, PA 15258 Vice President 9/88 - 2/99
Treasurer 9/88 - 2/99
Mellon Financial Company+ Principal Exec.Officer 1/88 - Present
Chief Executive Officer 8/87 - Present
Director 8/87 - Present
President 8/87 - Present
Mellon Overseas Investments Director 4/88 - Present
Corporation+
Mellon Financial Services Treasurer 12/87 - Present
Corporation # 5+
Mellon Financial Markets, Director 1/99 - Present
Inc.+
C-7
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
- ------------ ---------------- ------------- -----
<S> <C> <C> <C>
Mellon Financial Services Director 1/99 - Present
Corporation #17
Fort Lee, NJ
Mellon Mortgage Company Director 1/99 - Present
Houston, TX
Mellon Ventures, Inc. + Director 1/99 - Present
LAWRENCE S. KASH Dreyfus Investment Director 4/97 - 12/99
Vice Chairman Advisors, Inc.++
Dreyfus Brokerage Chairman 11/97 - 2/99
Services, Inc. Chief Executive 11/97 - 2/98
401 North Maple Ave. Officer
Beverly Hills, CA
Dreyfus Service Corporation++ Director 1/95 - 2/99
President 9/96 - 3/99
Dreyfus Precious Metals, Inc.+++ Director 3/96 - 12/98
President 10/96 - 12/98
Dreyfus Service Organization, Director 12/94 - 3/99
Inc.++ President 1/97 - 3/99
Seven Six Seven Agency, Inc. ++ Director 1/97 - 4/99
LAWRENCE S. KASH Dreyfus Insurance Agency Chairman 5/97 - 3/99
Vice Chairman of Massachusetts, Inc.++++ President 5/97 - 3/99
(Continued) Director 5/97 - 3/99
The Dreyfus Trust Company+++ Chairman 1/97 - 1/99
President 2/97 - 1/99
Chief Executive Officer 2/97 - 1/99
Director 12/94 - Present
The Dreyfus Consumer Chairman 5/97 - 6/99
Credit President 5/97 - 6/99
Corporation++ Director 12/94 - 6/99
Founders Asset Management, Member, Board of 12/97 - 12/99
LLC**** Managers
The Boston Company Advisors, Inc. Chairman 12/95 - 1/99
Wilmington, DE Chief Executive 12/95 - 1/99
Officer
President 12/95 - 1/99
The Boston Company, Inc.* Director 5/93 - 1/99
President 5/93 - 1/99
C-8
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
- ------------ ---------------- ------------- -----
<S> <C> <C> <C>
Mellon Bank, N.A.+ Executive Vice 6/92 - Present
President
Laurel Capital Advisors, LLP+ Chairman 1/98 - 8/98
Executive Committee 1/98 - 8/98
Member
Chief Executive 1/98 - 8/98
Officer
President 1/98 - 8/98
Laurel Capital Advisors, Inc.+ Trustee 12/91 - 1/98
Chairman 9/93 - 1/98
President and CEO 12/91 - 1/98
Boston Group Holdings, Inc.* Director 5/93 - Present
President 5/93 - Present
Boston Safe Deposit & Trust Co.+ Director 6/93 - 1/99
Executive Vice 6/93 - 4/98
President
MARTIN G. MCGUINN Mellon Financial Corporation+ Chairman 1/99 - Present
Director Chief Executive Officer 1/99 - Present
Director 1/98 - Present
Vice Chairman 1/90 - 1/99
Mellon Bank, N. A. + Chairman 3/98 - Present
Chief Executive 3/98 - Present
Officer 1/98 - Present
Director 1/90 - 3/98
Vice Chairman
Mellon Leasing Corporation+ Vice Chairman 12/96 - Present
Mellon Bank (DE) National Director 4/89 - 12/98
Association
Wilmington, DE
MARTIN G. MCGUINN Mellon Bank (MD) National Director 1/96 - 4/98
Director Association
(Continued) Rockville, Maryland
J. DAVID OFFICER Dreyfus Service Corporation++ President 3/00 - Present
Vice Chairman Executive Vice President 5/98 - 3/00
And Director Director 3/99 - Present
Dreyfus Service Organization, Director 3/99 - Present
Inc.++
Dreyfus Insurance Agency Director 5/98 - Present
of Massachusetts, Inc.++++
C-9
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
- ------------ ---------------- ------------- -----
<S> <C> <C> <C>
Dreyfus Brokerage Chairman 3/99 - Present
Services, Inc.
401 North Maple Avenue
Beverly Hills, CA
Seven Six Seven Agency, Inc.++ Director 10/98 - Present
Mellon Residential Director 4/97 - Present
Funding Corp. +
Mellon Trust of Florida, N.A Director 8/97 - Present
2875 Northeast 191st Street
North Miami Beach, FL 33180
Mellon Bank, NA+ Executive Vice 7/96 - Present
President
The Boston Company, Inc.* Vice Chairman 1/97 - Present
Director 7/96 - Present
Mellon Preferred Capital Director 11/96 - 1/99
Corporation*
RECO, Inc.* President 11/96 - Present
Director 11/96 - Present
The Boston Company President 8/96 - 6/99
Financial Services, Inc.* Director 8/96 - 6/99
Boston Safe Deposit and Director 7/96 - Present
Trust Company* President 7/96 - 1/99
Mellon Trust of New York Director 6/96 - Present
1301 Avenue of the Americas
New York, NY 10019
Mellon Trust of California Director 6/96 - Present
400 South Hope Street
Suite 400
Los Angeles, CA 90071
Mellon United National Bank Director 3/98 - Present
1399 SW 1st Ave., Suite 400
Miami, Florida
Boston Group Holdings, Inc.* Director 12/97 - Present
J. DAVID OFFICER Dreyfus Financial Director 9/96 - Present
Vice Chairman and Services Corp. +
Director (Continued)
Dreyfus Investment Services Director 4/96 - Present
Corporation+
C-10
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
- ------------ ---------------- ------------- -----
<S> <C> <C> <C>
RICHARD W. SABO Founders Asset Management President 12/98 - Present
Director LLC**** Chief Executive 12/98 - Present
Officer
Prudential Securities Senior Vice 07/91 - 11/98
New York, NY President
Regional Director 07/91 - 11/98
RICHARD F. SYRON Thermo Electron President 6/99 - Present
Director 81 Wyman Street Chief Executive 6/99 - Present
Waltham, MA 02454-9046 Officer
American Stock Exchange Chairman 4/94 - 6/99
86 Trinity Place Chief Executive 4/94 - 6/99
New York, NY 10006 Officer
RONALD P. O'HANLEY Franklin Portfolio Director 3/97 - Present
Vice Chairman Holdings, Inc.*
Franklin Portfolio Director 3/97 - Present
Associates, LLC*
Boston Safe Deposit and Trust Executive Committee 1/99 - Present
Company* Member
Director 1/99 - Present
The Boston Company, Inc.* Executive Committee 1/99 - Present
Member 1/99 - Present
Director
Buck Consultants, Inc.++ Director 7/97 - Present
Newton Asset Management LTD Executive 10/98 - Present
(UK) Committee
London, England Member 10/98 - Present
Director
Mellon Asset Management Non-Resident 11/98 - Present
(Japan) Co., LTD Director
Tokyo, Japan
TBCAM Holdings, Inc.* Director 10/97 - Present
The Boston Company Asset Director 1/98 - Present
Management, LLC*
Boston Safe Advisors, Inc.* Chairman 6/97 - Present
Director 2/97 - Present
Pareto Partners Partner Representative 5/97 - Present
271 Regent Street
London, England W1R 8PP
C-11
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
- ------------ ---------------- ------------- -----
<S> <C> <C> <C>
RONALD P. O'HANLEY Mellon Capital Management Director 2/97 -Present
Vice Chairman Corporation***
(Continued)
Certus Asset Advisors Corp.** Director 2/97 - Present
Mellon Bond Associates; LLP+ Trustee 1/98 - Present
Chairman 1/98 - Present
Mellon Equity Associates; LLP+ Trustee 1/98 - Present
Chairman 1/98 - Present
Mellon-France Corporation+ Director 3/97 - Present
Laurel Capital Advisors+ Trustee 3/97 - Present
MARK N. JACOBS Dreyfus Investment Director 4/97 - Present
General Counsel, Advisors, Inc.++ Secretary 10/77 - 7/98
Vice President, and
Secretary The Dreyfus Trust Director 3/96 - Present
Company+++
The TruePenny President 10/98 - Present
Corporation++ Director 3/96 - Present
Dreyfus Service Director 3/97 - 3/99
Organization, Inc.++
WILLIAM H. MARESCA The Dreyfus Trust Chief Financial 3/99 - Present
Controller Company+++ Officer 9/98 - Present
Treasurer 3/97 - Present
Director
Dreyfus Service Chief Financial 12/98 - Present
Corporation++ Officer
Dreyfus Consumer Credit Treasurer 10/98 - Present
Corp. ++
Dreyfus Investment Treasurer 10/98 - Present
Advisors, Inc. ++
Dreyfus-Lincoln, Inc. Vice President 10/98 - Present
4500 New Linden Hill Road
Wilmington, DE 19808
The TruePenny Vice President 10/98 - Present
Corporation++
Dreyfus Precious Metals, Treasurer 10/98 - 12/98
Inc. +++
The Trotwood Corporation++ Vice President 10/98 - Present
Trotwood Hunters Vice President 10/98 - Present
Corporation++
Trotwood Hunters Site A Vice President 10/98 - Present
Corp. ++
C-12
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
- ------------ ---------------- ------------- -----
<S> <C> <C> <C>
Dreyfus Transfer, Inc. Chief Financial 5/98 - Present
One American Express Officer
Plaza,
Providence, RI 02903
Dreyfus Service Treasurer 3/99 - Present
Organization, Inc.++ Assistant 3/93 - 3/99
Treasurer
WILLIAM H. MARESCA Dreyfus Insurance Agency of Assistant Treasurer 5/98 - Present
Controller Massachusetts, Inc.++++
(Continued)
WILLIAM T. SANDALLS, JR. Dreyfus Transfer, Inc. Chairman 2/97 - Present
Executive Vice One American Express Plaza,
President Providence, RI 02903
Dreyfus Service Director 1/96 - Present
Corporation++ Executive Vice 2/97 - Present
President 2/97 - 12/98
Chief Financial
Officer
Dreyfus Investment Director 1/96 - Present
Advisors, Inc.++ Treasurer 1/96 - 10/98
Dreyfus-Lincoln, Inc. Director 12/96 - Present
4500 New Linden Hill Road President 1/97 - Present
Wilmington, DE 19808
Seven Six Seven Agency, Director 1/96 - 10/98
Inc.++ Treasurer 10/96 - 10/98
The Dreyfus Consumer Director 1/96 - Present
Credit Corp.++ Vice President 1/96 - Present
Treasurer 1/97 - 10/98
The Dreyfus Trust Company Director 1/96 - Present
+++
Dreyfus Service Treasurer 10/96 - 3/99
Organization,
Inc.++
Dreyfus Insurance Agency of Director 5/97 - 3/99
Massachusetts, Inc.++++ Treasurer 5/97 - 3/99
Executive Vice 5/97 - 3/99
President
DIANE P. DURNIN Dreyfus Service Senior Vice 5/95 - 3/99
Vice President - Corporation++ President -
Product Marketing and
Development Advertising
Division
PATRICE M. KOZLOWSKI NONE
Vice President -
Corporate
Communications
C-13
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
- ------------ ---------------- ------------- -----
<S> <C> <C> <C>
MARY BETH LEIBIG NONE
Vice President -
Human Resources
THEODORE A. SCHACHAR Dreyfus Service Vice President - Tax 10/96 - Present
Vice President - Tax Corporation++
The Dreyfus Consumer Chairman 6/99 - Present
Credit Corporation++ President 6/99 - Present
Dreyfus Investment Vice President - Tax 10/96 - Present
Advisors, Inc.++
Dreyfus Precious Metals, Vice President - Tax 10/96 - 12/98
Inc. +++
THEODORE A. SCHACHAR Dreyfus Service Vice President - Tax 10/96 - Present
Vice President - Tax Organization, Inc.++
(Continued)
WENDY STRUTT None
Vice President
RICHARD TERRES None
Vice President
RAYMOND J. VAN COTT Mellon Financial Vice President 7/98 - Present
Vice-President - Corporation+
Information Systems
Computer Sciences Vice President 1/96 - 7/98
Corporation
El Segundo, CA
JAMES BITETTO The TruePenny Secretary 9/98 - Present
ASSISTANT SECRETARY Corporation++
Dreyfus Service Assistant Secretary 8/98 - Present
Corporation++
Dreyfus Investment Assistant Secretary 7/98 - Present
Advisors, Inc.++
Dreyfus Service Assistant Secretary 7/98 - Present
Organization, Inc.++
STEVEN F. NEWMAN Dreyfus Transfer, Inc. Vice President 2/97 - Present
Assistant Secretary One American Express Plaza Director 2/97 - Present
Providence, RI 02903 Secretary 2/97 - Present
Dreyfus Service Secretary 7/98 - Present
Organization, Inc.++ Assistant Secretary 5/98 - 7/98
</TABLE>
- ----------------------------------
* The address of the business so indicated is One Boston Place, Boston,
Massachusetts 02108.
** The address of the business so indicated is One Bush Street, Suite 450,
San Francisco, California 94104.
C-14
<PAGE>
*** The address of the business so indicated is 595 Market Street, Suite 3000,
San Francisco, California 94105.
**** The address of the business so indicated is 2930 East Third Avenue,
Denver, Colorado 80206.
+ The address of the business so indicated is One Mellon Bank Center,
Pittsburgh, Pennsylvania 15258.
++ The address of the business so indicated is 200 Park Avenue, New York, New
York 10166.
+++ The address of the business so indicated is 144 Glenn Curtiss Boulevard,
Uniondale, New York 11556-0144.
++++ The address of the business so indicated is 53 State Street, Boston,
Massachusetts 02109.
Item 27. Principal Underwriters
(a) Other investment companies for which Registrant's principal
underwriter (exclusive distributor) acts as principal underwriter or exclusive
distributor:
1) Comstock Partners Funds, Inc.
2) Dreyfus A Bonds Plus, Inc.
3) Dreyfus Appreciation Fund, Inc.
4) Dreyfus Asset Allocation Fund, Inc.
5) Dreyfus Balanced Fund, Inc.
6) Dreyfus BASIC GNMA Fund
7) Dreyfus BASIC Money Market Fund, Inc.
8) Dreyfus BASIC Municipal Fund, Inc.
9) Dreyfus BASIC U.S. Government Money Market Fund
10) Dreyfus California Intermediate Municipal Bond Fund
11) Dreyfus California Tax Exempt Bond Fund, Inc.
12) Dreyfus California Tax Exempt Money Market Fund
13) Dreyfus Cash Management
14) Dreyfus Cash Management Plus, Inc.
15) Dreyfus Connecticut Intermediate Municipal Bond Fund
16) Dreyfus Connecticut Municipal Money Market Fund, Inc.
17) Dreyfus Florida Intermediate Municipal Bond Fund
18) Dreyfus Florida Municipal Money Market Fund
19) The Dreyfus Fund Incorporated
20) Dreyfus Global Bond Fund, Inc.
21) Dreyfus Global Growth Fund
22) Dreyfus GNMA Fund, Inc.
23) Dreyfus Government Cash Management Funds
24) Dreyfus Growth and Income Fund, Inc.
25) Dreyfus Growth and Value Funds, Inc.
26) Dreyfus Growth Opportunity Fund, Inc.
27) Dreyfus Debt and Equity Funds
28) Dreyfus Index Funds, Inc.
29) Dreyfus Institutional Money Market Fund
30) Dreyfus Institutional Preferred Money Market Fund
31) Dreyfus Institutional Short Term Treasury Fund
32) Dreyfus Insured Municipal Bond Fund, Inc.
33) Dreyfus Intermediate Municipal Bond Fund, Inc.
34) Dreyfus International Funds, Inc.
35) Dreyfus Investment Grade Bond Funds, Inc.
36) Dreyfus Investment Portfolios
37) The Dreyfus/Laurel Funds, Inc.
38) The Dreyfus/Laurel Funds Trust
39) The Dreyfus/Laurel Tax-Free Municipal Funds
40) Dreyfus LifeTime Portfolios, Inc.
41) Dreyfus Liquid Assets, Inc.
42) Dreyfus Massachusetts Intermediate Municipal Bond Fund
C-15
<PAGE>
43) Dreyfus Massachusetts Municipal Money Market Fund
44) Dreyfus Massachusetts Tax Exempt Bond Fund
45) Dreyfus MidCap Index Fund
46) Dreyfus Money Market Instruments,Inc.
47) Dreyfus Municipal Bond Fund, Inc.
48) Dreyfus Municipal Cash Management Plus
49) Dreyfus Municipal Money Market Fund, Inc.
50) Dreyfus New Jersey Intermediate Municipal Bond Fund
51) Dreyfus New Jersey Municipal Bond Fund, Inc.
52) Dreyfus New Jersey Municipal Money Market Fund, Inc.
53) Dreyfus New Leaders Fund, Inc.
54) Dreyfus New York Insured Tax Exempt Bond Fund
55) Dreyfus New York Municipal Cash Management
56) Dreyfus New York Tax Exempt Bond Fund, Inc.
57) Dreyfus New York Tax Exempt Intermediate Bond Fund
58) Dreyfus New York Tax Exempt Money Market Fund
59) Dreyfus U.S. Treasury Intermediate Term Fund
60) Dreyfus U.S. Treasury Long Term Fund
61) Dreyfus 100% U.S. Treasury Money Market Fund
62) Dreyfus U.S. Treasury Short Term Fund
63) Dreyfus Pennsylvania Intermediate Municipal Bond Fund
64) Dreyfus Pennsylvania Municipal Money Market Fund
65) Dreyfus Premier California Municipal Bond Fund
66) Dreyfus Premier Equity Funds, Inc.
67) Dreyfus Premier International Funds, Inc.
68) Dreyfus Premier GNMA Fund
69) Dreyfus Premier Worldwide Growth Fund, Inc.
70) Dreyfus Premier Municipal Bond Fund
71) Dreyfus Premier New York Municipal Bond Fund
72) Dreyfus Premier State Municipal Bond Fund
73) Dreyfus Premier Value Equity Funds
74) Dreyfus Short-Intermediate Government Fund
75) Dreyfus Short-Intermediate Municipal Bond Fund
76) The Dreyfus Socially Responsible Growth Fund, Inc.
77) Dreyfus Stock Index Fund
78) Dreyfus Tax Exempt Cash Management
79) The Dreyfus Premier Third Century Fund, Inc.
80) Dreyfus Treasury Cash Management
81) Dreyfus Treasury Prime Cash Management
82) Dreyfus Variable Investment Fund
83) Dreyfus Worldwide Dollar Money Market Fund, Inc.
84) Founders Funds, Inc.
85) General California Municipal Bond Fund, Inc.
86) General California Municipal Money Market Fund
87) General Government Securities Money Market Funds, Inc.
88) General Money Market Fund, Inc.
89) General Municipal Bond Fund, Inc.
90) General Municipal Money Market Funds, Inc.
91) General New York Municipal Bond Fund, Inc.
92) General New York Municipal Money Market Fund
C-16
<PAGE>
(b)
Name and principal Positions and offices
business address with the Distributor Registrant
- ------------------ --------------------- ----------
Thomas F. Eggers * Chief Executive Officer None
and Chairman of the Board
J. David Officer * President and Director None
Stephen Burke * Executive Vice President None
Charles Cardona * Executive Vice President Executive
Vice
President
Anthony DeVivio ** Executive Vice President None
David K. Mossman ** Executive Vice President None
Jeffrey N. Nachman *** Executive Vice President None
and Chief Operations Officer
William T. Sandalls, Jr. * Executive Vice President None
and Director
Wilson Santos ** Executive Vice President and None
Director of Client Services
William H. Maresca * Chief Financial Officer None
Ken Bradle ** Senior Vice President None
Stephen R. Byers * Senior Vice President None
Frank J. Coates * Senior Vice President None
Joseph Connolly * Senior Vice President Vice
President
and
Treasurer
William Glenn * Senior Vice President None
Michael Millard ** Senior Vice President None
Mary Jean Mulligan ** Senior Vice President None
Bradley Skapyak * Senior Vice President None
Jane Knight * Chief Legal Officer and Secretary None
Stephen Storen * Chief Compliance Officer None
Jeffrey Cannizzaro * Vice President - Compliance None
Maria Georgopoulos * Vice President - None
Facilities Management
William Germenis Vice President - Compliance None
Walter T. Harris * Vice President None
Janice Hayles * Vice President None
Hal Marshall * Vice President - Compliance None
Paul Molloy * Vice President None
Theodore A. Schachar * Vice President - Tax None
James Windels * Vice President Assistant
Treasurer
James Bitetto * Assistant Secretary None
* Principal business address is 200 Park Avenue, New York, NY 10166.
** Principal business address is 144 Glenn Curtiss Blvd., Uniondale, NY
11556-0144.
*** Principal business address is 401 North Maple Avenue, Beverly Hills,
CA 90210.
Item 28. Location of Accounts and Records
1. Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
2. Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, Rhode Island 02940-9671
3. The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
C-17
<PAGE>
Item 29. MANAGEMENT SERVICES
Not Applicable.
Item 30. UNDERTAKINGS
None.
C-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York on the
13th day of April 2000.
MPAM FUNDS TRUST
BY: /s/ Jeff Prusnofsky
-------------------
Jeff Prusnofsky, Trustee
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Jeff Prusnofsky Trustee 4/13/00
- ------------------
Jeff Prusnofsky
<PAGE>
EXHIBIT INDEX
(a) Declaration of Trust dated April 12, 2000.
(p) Code of Ethics
MPAM FUNDS TRUST
DECLARATION OF TRUST
THIS DECLARATION OF TRUST, made at Boston, Massachusetts, this 14th
day of April, 2000, by the Trustee hereunder (hereinafter with any additional
and successor trustees referred to as the "Trustees") and by the holders of
shares of beneficial interest to be issued hereunder as hereinafter provided.
W I T N E S S E T H :
WHEREAS, the Trustees have agreed to manage all property coming into
their hands as trustees of a Massachusetts business trust in accordance with the
provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets, which they may from time to time acquire in
any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon
the following terms and conditions for the pro rata benefit of the holders from
time to time of Shares, whether or not certificated, in this Trust as
hereinafter set forth.
ARTICLE I
Name and Definitions
SECTION 1. NAME. This Trust shall be known as "MPAM FUNDS TRUST."
SECTION 2. DEFINITIONS. Whenever used herein, unless otherwise
required-by the context or specifically provided:
(a) The "1940 Act" refers to the Investment Company Act of 1940, and the
rules and regulations thereunder, all as amended from time to time;
(b) "By-Laws" shall mean the By-Laws of the Trust, as amended from time to
time;
(d) The term "class" or "class of Shares" refers to the division of Shares
representing any series into two or more classes as provided in Article III,
Section 1 hereof;
(d) The term "Commission" shall have the meaning provided in the 1940
Act;
(e) "Declaration of Trust" shall mean this Declaration of Trust, as
amended or restated from time to time;
<PAGE>
(a) The term "Manager" is defined in Article IV, Section 5;
(b) The term "Person" shall mean an individual or any corporation,
partnership, joint venture, trust or other enterprise;
(h) The term "series" or "series of Shares" refers to the one or more
separate investment portfolios of the Trust into which the assets and
liabilities of the Trust may be divided and the Shares of the Trust representing
the beneficial interest of Shareholders in such respective portfolios;
(i) "Shareholder" means a record owner of Shares of the Trust;
(j) "Shares" means the equal proportionate transferable units of interest
into which the beneficial interest in the Trust shall be divided from time to
time or, if more than one series or class of Shares is authorized by the
Trustees, the equal proportionate transferable units into which each series or
class of Shares shall be divided from time to time, and includes a fraction of a
Share as well as a whole Share; and
(k) The "Trust" refers to the Massachusetts business trust established by
this Declaration of Trust, as amended from time to time.
ARTICLE II
Purposes of Trust
This Trust is formed for the following purpose or purposes:
(a) to conduct, operate and carry on the business of an investment
company;
(b) to subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, lend, write options on, exchange,
distribute or otherwise dispose of and deal in and with securities of every
nature, kind, character, type and form, including, without limitation of the
generality of the foregoing, all types of stocks, shares, futures contracts,
bonds, debentures, notes, bills and other negotiable or non-negotiable
instruments, obligations, evidences of interest, certificates of interest,
certificates of participation, certificates, interests, evidences of ownership,
guarantees, warrants, options or evidences of indebtedness issued or created by
or guaranteed as to principal and interest by any state or local government or
any agency or instrumentality thereof, by the United States Government or any
agency, instrumentality, territory, district or possession thereof, by any
foreign government or any agency, instrumentality, territory, district or
possession thereof, by any corporation organized under the laws of any state,
the United States or any territory or possession thereof or under the laws of
any foreign country, bank certificates of deposit, bank time or demand deposits,
bankers' acceptances and commercial paper; to pay for the same in cash or by the
issue of stock, including treasury stock, bonds or notes of the Trust or
otherwise; and to exercise any and all rights, powers and privileges of
ownership or interest in respect of any and all such investments of every kind
and description, including, without limitation, the right to consent and
-2-
<PAGE>
otherwise act with respect thereto, with power to designate one or more persons,
firms, associations or corporations to exercise any of said rights, powers and
privileges in respect of any said instruments;
(c) to borrow money or otherwise obtain credit and to secure the same by
mortgaging, pledging or otherwise subjecting as security the assets of the
Trust;
(d) to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal in, Shares including
Shares in fractional denominations, and to apply to any such repurchase,
redemption, retirement, cancellation or acquisition of Shares any funds or other
assets of the appropriate series or class of Shares, whether capital or surplus
or otherwise, to the full extent now or hereafter permitted by the laws of The
Commonwealth of Massachusetts;
(e) to conduct its business, promote its purposes, and carry on its
operations in any and all of its branches and maintain offices both within and
without The Commonwealth of Massachusetts, in any and all States of the United
States of America, in the District of Columbia, and in any other parts of the
world; and
(f) to do all and everything necessary, suitable, convenient, or proper
for the conduct, promotion, and attainment of any of the businesses and purposes
herein specified or which at any time may be incidental thereto or may appear
conducive to or expedient for the accomplishment of any of such businesses and
purposes and which might be engaged in or carried on by a Trust organized under
the Massachusetts General Laws, and to have and exercise all of the powers
conferred by the laws of The Commonwealth of Massachusetts upon a Massachusetts
business trust.
The foregoing provisions of this Article II shall be construed both as
purposes and powers and each as an independent purpose and power.
ARTICLE III
Beneficial Interest
SECTION 1. SHARES OF BENEFICIAL INTEREST. The Shares of the Trust shall be
issued in one or more series as the Trustees may, without Shareholder approval,
authorize. Each series shall be preferred over all other series in respect of
the assets allocated to that series and shall represent a separate investment
portfolio of the Trust. The beneficial interest in each series at all times
shall be divided into Shares, with or without par value as the Trustees may from
time to time determine, each of which shall, except as provided in the following
sentence, represent an equal proportionate interest in the series with each
other Share of the same series, none having priority or preference over another.
The Trustees may, without Shareholder approval, divide Shares of any series into
two or more classes, Shares of each such class having such preferences and
special or relative rights and privileges (including conversion rights, if any)
as the Trustees may determine. The number of Shares authorized shall be
unlimited, and the Shares so authorized may be represented in part by fractional
shares. From time to time, the Trustees may divide or combine the Shares of any
series or class into a greater or lesser number without thereby changing the
proportionate beneficial interests in the series or class.
-3-
<PAGE>
SECTION 2. OWNERSHIP OF SHARES. The ownership of Shares will be recorded
in the books of the Trust or a transfer agent. The record books of the Trust or
any transfer agent, as the case may be, shall be conclusive as to who are the
holders of Shares of each series and class and as to the number of Shares of
each series and class held from time to time by each. No certificates certifying
the ownership of Shares need be issued except as the Trustees may otherwise
determine from time to time.
SECTION 3. ISSUANCE OF SHARES. The Trustees are authorized, from time to
time, to issue or authorize the issuance of Shares at not less than the par
value thereof, if any, and to fix the price or the minimum price or the
consideration (in cash and/or such other property, real or personal, tangible or
intangible, as from time to time they may determine) or minimum consideration
for such Shares. Anything herein to the contrary notwithstanding, the Trustees
may issue Shares pro rata to the Shareholders of a series at any time as a stock
dividend, except to the extent otherwise required or permitted by the
preferences and special or relative rights and privileges of any classes of
Shares of that series, and any stock dividend to the Shareholders of a
particular class of Shares shall be made to such Shareholders pro rata in
proportion to the number of Shares of such class held by each of them.
All consideration received by the Trust for the issue or sale of Shares of
each series, together with all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation thereof,
and any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall belong irrevocably to the series of Shares
with respect to which the same were received by the Trust for all purposes,
subject only to the rights of creditors and shall be so handled upon the books
of account of the Trust and are herein referred to as "assets of" such series.
Shares may be issued in fractional denominations to the same extent as
whole Shares, and Shares in fractional denominations shall be Shares having
proportionately to the respective fractions represented thereby all the rights
of whole Shares, including, without limitation, the right to vote, the right to
receive dividends and distributions, and the right to participate upon
liquidation of the Trust or of a particular series of Shares.
SECTION 4. NO PREEMPTIVE RIGHTS; DERIVATIVE SUITS. Shareholders shall have
no preemptive or other right to subscribe for any additional Shares or other
securities issued by the Trust. No action may be brought by a Shareholder on
behalf of the Trust or a series unless a prior demand regarding such matter has
been made on the Trustees and the Shareholders of the Trust or such series.
SECTION 5. STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY. Shares
shall be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder by virtue of having become a Shareholder shall be
held to have expressly assented and agreed to the terms hereof and to have
become a party hereto. The death of a Shareholder during the continuance of the
Trust shall not operate to terminate the same nor entitle the representative of
any deceased Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but only to the rights of said
decedent under this Trust. Ownership of Shares shall not entitle the Shareholder
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to any title in or to the whole or any part of the Trust property or right to
call for a partition or division of the same or for an accounting, nor shall the
ownership of Shares constitute the Shareholders partners. Neither the Trust nor
the Trustees, nor any officer, employee or agent of the Trust shall have any
power to bind any Shareholder or Trustee personally or to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever other
than such as the Shareholder at any time personally may agree to pay by way of
subscription for any Shares or otherwise. Every note, bond, contract or other
undertaking issued by or on behalf of the Trust shall include a recitation
limiting the obligation represented thereby to the Trust and its assets or the
assets of a particular series (but the omission of such a recitation shall not
operate to bind any Shareholder or Trustee personally).
ARTICLE IV
Trustees
SECTION 1. ELECTION. A Trustee may be elected either by the Trustees or
the Shareholders. The Trustees named herein shall serve until the first meeting
of the Shareholders or until the election and qualification of their successors.
Prior to the first meeting of Shareholders the initial Trustees hereunder may
elect additional Trustees to serve until such meeting and until their successors
are elected and qualified. The Trustees also at any time may elect Trustees to
fill vacancies in the number of Trustees. The number of Trustees shall be fixed
from time to time by the Trustees and, at or after the commencement of the
investment business of the Trust, shall be not less than three. Each Trustee,
whether referred to hereinafter or hereafter becoming a Trustee, shall serve as
a Trustee during the lifetime of this Trust, until such Trustee dies, resigns,
retires, or is removed, or, if sooner, until the next meeting of Shareholders
called for the purpose of electing Trustees and the election and qualification
of his successor. Subject to Section 16(a) of the 1940 Act, the Trustees may
elect their own successors and, pursuant to this Section, may appoint Trustees
to fill vacancies.
SECTION 2. POWERS. The Trustees shall have all powers necessary or
desirable to carry out the purposes of the Trust, including, without limitation,
the powers referred to in Article II hereof. Without limiting the generality of
the foregoing, the Trustees may adopt By-Laws not inconsistent with this
Declaration of Trust providing for the conduct of the business of the Trust and
may amend and repeal them to the extent that they do not reserve that right to
the Shareholders; they may fill vacancies in their number, including vacancies
resulting from increases in their own number, and may elect and remove such
officers and employ, appoint and terminate such employees or agents as they
consider appropriate; they may appoint from their own number and terminate any
one or more committees; they may employ one or more custodians of the assets of
the Trust and may authorize such custodians to employ subcustodians and to
deposit all or any part of such assets in a system or systems for the central
handling of securities, retain a transfer agent and a Shareholder servicing
agent, or both, provide for the distribution of Shares through a principal
underwriter or otherwise, set record dates, and in general delegate such
authority as they consider desirable (including, without limitation, the
authority to purchase and sell securities and to invest funds, to determine the
net income of the Trust for any period, the value of the total assets of the
Trust and the net asset value of each Share, and to execute such deeds,
agreements or other instruments either in the name of the Trust or the names of
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the Trustees or as their attorney or attorneys or otherwise as the Trustees from
time to time may deem expedient) to any officer of the Trust, committee of the
Trustees, any such employee, agent, custodian or underwriter or to any Manager.
Without limiting the generality of the foregoing, the Trustees shall have
full power and authority:
(a) To invest and reinvest cash and to hold cash uninvested;
(b) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(c) To hold any security or property in a form not indicating any trust
whether in bearer, unregistered or other negotiable form or in the name of the
Trust or a custodian, subcustodian or other depository or a nominee or nominees
or otherwise;
(d) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or concern, and to pay calls or subscriptions
with respect to any security held in the Trust;
(e) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;
(f) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including, but not limited to,
claims for taxes;
(g) Subject to the provisions of Article III, Section 3, to allocate
assets, liabilities, income and expenses of the Trust to a particular series of
Shares or to apportion the same among two or more series, provided that any
liabilities or expenses incurred by a particular series of Shares shall be
payable solely out of the assets of that series; and to the extent necessary or
appropriate to give effect to the preferences and special or relative rights and
privileges of any classes of Shares, to allocate assets, liabilities, income and
expenses of a series to a particular class of Shares of that series or to
apportion the same among two or more classes of Shares of that series;
(h) To enter into joint ventures, general or limited partnerships and any
other combinations or associations;
(i) To purchase and pay for entirely out of Trust property such insurance
as they may deem necessary or appropriate for the conduct of the business,
including, without limitation, insurance policies insuring the assets of the
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Trust and payment of distributions and principal on its portfolio investments,
and insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers or Managers, principal underwriters, or independent
contractors of the Trust individually against all claims and liabilities of
every nature arising by reason of holding, being or having held any such office
or position, or by reason of any action alleged to have been taken or omitted by
any such person as Shareholder, Trustee, officer, employee, agent, investment
adviser or Manager, principal underwriter, or independent contractor, including
any action taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such person against
such liability; and
(j) To pay pensions for faithful service, as deemed appropriate by the
Trustees, and to adopt, establish and carry out pension, profit-sharing, share
bonus, share purchase, savings, thrift and other retirement, incentive and
benefit plans, trusts and provisions, including the purchasing of life insurance
and annuity contracts as a means of providing such retirement and other
benefits, for any or all of the Trustees, officers, employees and agents of the
Trust.
Further, without limiting the generality of the foregoing, the Trustees
shall have full power and authority to incur and pay out of the principal or
income of the Trust such expenses and liabilities as may be deemed by the
Trustees to be necessary or proper for the purposes of the Trust; PROVIDED,
HOWEVER, that all expenses and liabilities incurred by or arising in connection
with a particular series of Shares, as determined by the Trustees, shall be
payable solely out of the assets of that series.
Any determination made in good faith and, so far as accounting matters are
involved, in accordance with generally accepted accounting principles by or
pursuant to the authority granted by the Trustees, as to:
the amount of the assets, debts, obligations or liabilities of the Trust
or a particular series or class of Shares; the amount of any reserves or
charges set up and the propriety thereof; the time of or purpose for
creating such reserves or charges; the use, alteration or cancellation of
any reserves or charges (whether or not any debt, obligation or liability
for which such reserves or charges shall have been created shall have been
paid or discharged or shall be then or thereafter required to be paid or
discharged); the price or closing bid or asked price of any investment
owned or held by the Trust or a particular series; the market value of any
investment or fair value of any other asset of the Trust or a particular
series; the number of Shares outstanding; the estimated expense to the
Trust or a particular series in connection with purchases of its Shares;
the ability to liquidate investments in an orderly fashion; and the extent
to which it is practicable to deliver a cross-section of the portfolio of
the Trust or a particular series in payment for any such Shares; or any
other matters relating to the issue, sale, purchase and/or other
acquisition or disposition of investments or Shares of the Trust or a
particular series,
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shall be final and conclusive, and shall be binding upon the Trust or such
series and its Shareholders, past, present and future. Shares are issued and
sold on the condition and understanding that any and all such determinations
shall be binding as aforesaid.
SECTION 3. MEETINGS. At any meeting of the Trustees, a majority of the
Trustees then in office shall constitute a quorum. Any meeting may be adjourned
from time to time by a majority of the votes cast upon the question, whether or
not a quorum is present, and the meeting may be held as adjourned without
further notice.
When a quorum is present at any meeting, a majority of the Trustees
present may take any action, except when a larger vote is required by this
Declaration of Trust, the By-Laws or the 1940 Act.
Any action required or permitted to be taken at any meeting of the
Trustees or of any committee thereof may be taken without a meeting, if a
written consent to such action is signed by a majority of the Trustees or
members of any such committee then in office, as the case may be, and such
written consent is filed with the minutes of proceedings of the Trustees or any
such committee.
The Trustees or any committee designated by the Trustees may participate
in a meeting of the Trustees or such committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
SECTION 4. OWNERSHIP OF ASSETS OF THE TRUST. Title to all of the assets of
each series of Shares of the Trust at all times shall be considered as vested in
the Trustees.
SECTION 5. INVESTMENT ADVICE AND MANAGEMENT SERVICES. The Trustees shall
not in any way be bound or limited by any present or future law or custom in
regard to investments by trustees. The Trustees from time to time may enter into
a written contract or contracts with any person or persons (herein called the
"Manager"), including any firm, corporation, trust or association in which any
Trustee or Shareholder may be interested, to act as investment advisers and/or
managers of the Trust and to provide such investment advice and/or management as
the Trustees from time to time may consider necessary for the proper management
of the assets of the Trust, including, without limitation, authority to
determine from time to time what investments shall be purchased, held, sold or
exchanged and what portion, if any, of the assets of the Trust shall be held
uninvested and to make changes in the Trust's investments. Any such contract
shall be subject to the requirements of the 1940 Act with respect to its
continuance in effect, its termination and the method of authorization and
approval of such contract, or any amendment thereto or renewal thereof.
Any Trustee or any organization with which any Trustee may be associated
also may act as broker for the Trust in making purchases and sales of securities
for or to the Trust for its investment portfolio, and may charge and receive
from the Trust the usual and customary commission for such service. Any
organization with which a Trustee may be associated in acting as broker for the
Trust shall be responsible only for the proper execution of transactions in
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accordance with the instructions of the Trust and shall be subject to no further
liability of any sort whatever.
The Manager, or any affiliate thereof, also may be a distributor for the
sale of Shares by separate contract or may be a person controlled by or
affiliated with any Trustee or any distributor or a person in which any Trustee
or any distributor is interested financially, subject only to applicable
provisions of law. Nothing herein contained shall operate to prevent any
Manager, who also acts as such a distributor, from also receiving compensation
for services rendered as such distributor.
SECTION 6. REMOVAL AND RESIGNATION OF TRUSTEES. The Trustees or the
Shareholders (by vote of 66-2/3% of the outstanding Shares entitled to vote
thereon) may remove at any time any Trustee with or without cause, and any
Trustee may resign at any time as Trustee, without penalty by written notice to
the Trust.
ARTICLE V
Shareholders' Voting Powers and Meetings
SECTION 1. VOTING POWERS. The Shareholders shall have power to vote only
(i) for the election of Trustees as provided in Article IV, Section 1, of this
Declaration of Trust; PROVIDED, HOWEVER, that no meeting of Shareholders is
required to be called for the purpose of electing Trustees unless and until such
time as less than a majority of the Trustees have been elected by the
Shareholders, (ii) for the removal of Trustees as provided in Article IV,
Section 6, (iii) with respect to any Manager as provided in Article IV, Section
5, (iv) with respect to any amendment of this Declaration of Trust as provided
in Article IX, Section 8, (v) with respect to the termination of the Trust or a
series of Shares as provided in Article IX, Section 5, and (vi) with respect to
such additional matters relating to the Trust as may be required by law, by this
Declaration of Trust, or the By-Laws of the Trust or any registration of the
Trust with the Commission or any state, or as the Trustees may consider
desirable. Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote (except that in the election of Trustees said vote
may be cast for as many persons as there are Trustees to be elected), and each
fractional Share shall be entitled to a proportionate fractional vote.
Notwithstanding any other provision of this Declaration of Trust, on any matter
submitted to a vote of Shareholders, all Shares of the Trust then entitled to
vote shall be voted in the aggregate as a single class without regard to series
or classes of Shares, except (i) when required by the 1940 Act or when the
Trustees shall have determined that the matter affects one or more series or
classes differently Shares shall be voted by individual series or class and (ii)
when the Trustees have determined that the matter affects only the interests of
one or more series or classes then only Shareholders of such series or classes
shall be entitled to vote thereon. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two or more persons shall be valid if
executed by any one of them, unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them. A
proxy purporting to be executed by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger. Whenever no Shares of any series or
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class are issued and outstanding, the Trustees may exercise with respect to such
series or class all rights of Shareholders and may take any action required by
law, this Declaration of Trust or any By-Laws of the Trust to be taken by
Shareholders.
SECTION 2. MEETINGS. Meetings of the Shareholders may be called by the
Trustees or such other person or persons as may be specified in the By-Laws and
shall be called by the Trustees upon the written request of Shareholders owning
at least thirty percent (30%) of the outstanding Shares entitled to vote.
Shareholders shall be entitled to at least ten days' prior notice of any
meeting.
SECTION 3. QUORUM AND REQUIRED VOTE. Thirty percent (30%) of the
outstanding Shares shall be a quorum for the transaction of business at a
Shareholders' meeting, except that where any provision of law or of this
Declaration of Trust permits or requires that holders of any series or class
shall vote as a series or class, then thirty percent (30%) of the aggregate
number of Shares of that series or class entitled to vote shall be necessary to
constitute a quorum for the transaction of business by that series or class. Any
lesser number, however, shall be sufficient for adjournment and any adjourned
session or sessions may be held within 90 days after the date set for the
original meeting without the necessity of further notice. Except when a larger
vote is required by any provision of this Declaration of Trust or the By-Laws of
the Trust and subject to any applicable requirements of law, a majority of the
Shares voted shall decide any question and a plurality shall elect a Trustee,
provided that where any provision of law or of this Declaration of Trust permits
or requires that the holders of any series or class shall vote as a series or
class, then a majority of the Shares of that series or class voted on the matter
(or a plurality with respect to the election of a Trustee) shall decide that
matter insofar as that series or class is concerned.
SECTION 4. ACTION BY WRITTEN CONSENT. Any action required or permitted to
be taken at any meeting may be taken without a meeting if a consent in writing,
setting forth such action, is signed by a majority of Shareholders entitled to
vote on the subject matter thereof (or such larger proportion thereof as shall
be required by any express provision of this Declaration of Trust) and such
consent is filed with the records of the Trust.
SECTION 5. ADDITIONAL PROVISIONS. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
Distributions and Redemptions
SECTION 1. DISTRIBUTIONS. The Trustees shall distribute periodically to
the Shareholders of each series of Shares an amount approximately equal to the
net income of that series, determined by the Trustees or as they may authorize
and as herein provided. Distributions of income may be made in one or more
payments, which shall be in Shares, cash or otherwise, and on a date or dates
and as of a record date or dates determined by the Trustees. At any time and
from time to time in their discretion, the Trustees also may cause to be
distributed to the Shareholders of any one or more series as of a record date or
dates determined by the Trustees, in Shares, cash or otherwise, all or part of
any gains realized on the sale or disposition of the assets of the series or all
or part of any other principal of the Trust attributable to the series. Each
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distribution pursuant to this Section 1 shall be made ratably according to the
number of Shares of the series held by the several Shareholders on the record
date for such distribution, except to the extent otherwise required or permitted
by the preferences and special or relative rights and privileges of any classes
of Shares of that series, and any distribution to the Shareholders of a
particular class of Shares shall be made to such Shareholders pro rata in
proportion to the number of Shares of such class held by each of them. No
distribution need be made on Shares purchased pursuant to orders received, or
for which payment is made, after such time or times as the Trustees may
determine.
SECTION 6. DETERMINATION OF NET INCOME. In determining the net income of
each series or class of Shares for any period, there shall be deducted from
income for that period (a) such portion of all charges, taxes, expenses and
liabilities due or accrued as the Trustees shall consider properly chargeable
and fairly applicable to income for that period or any earlier period and (b)
whatever reasonable reserves the Trustees shall consider advisable for possible
future charges, taxes, expenses and liabilities which the Trustees shall
consider properly chargeable and fairly applicable to income for that period or
any earlier period. The net income of each series or class for any period may be
adjusted for amounts included on account of net income in the net asset value of
Shares issued or redeemed or repurchased during that period. In determining the
net income of a series or class for a period ending on a date other than the end
of its fiscal year, income may be estimated as the Trustees shall deem fair.
Gains on the sale or disposition of assets shall not be treated as income, and
losses shall not be charged against income unless appropriate under applicable
accounting principles, except in the exercise of the discretionary powers of the
Trustees. Any amount contributed to the Trust which is received as income
pursuant to a decree of any court of competent jurisdiction shall be applied as
required by the said decree.
SECTION 7. REDEMPTIONS. Any Shareholder shall be entitled to require the
Trust to redeem and the Trust shall be obligated to redeem at the option of such
Shareholder all or any part of the Shares owned by said Shareholder, at the
redemption price, pursuant to the method, upon the terms and subject to the
conditions hereinafter set forth:
(a) Certificates for Shares, if issued, shall be presented for redemption
in proper form for transfer to the Trust or the agent of the Trust appointed for
such purpose, and these shall be presented with a written request that the Trust
redeem all or any part of the Shares represented thereby.
(b) The redemption price per Share shall be the net asset value per Share
when next determined by the Trust at such time or times as the Trustees shall
designate, following the time of presentation of certificates for Shares, if
issued, and an appropriate request for redemption, or such other time as the
Trustees may designate in accordance with any provision of the 1940 Act, as
determined by the Trustees, less any applicable charge or fee imposed from time
to time as determined by the Trustees.
(c) Net asset value of each series or class of Shares (for the purpose of
issuance of Shares as well as redemptions thereof) shall be determined by
dividing:
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(i) the total value of the assets of such series or class determined as
provided in paragraph (d) below less, to the extent determined by or
pursuant to the direction of the Trustees in accordance with generally
accepted accounting principles, all debts, obligations and liabilities of
such series or class (which debts, obligations and liabilities shall
include, without limitation of the generality of the foregoing, any and
all debts, obligations, liabilities, or claims, of any and every kind and
nature, fixed, accrued and otherwise, including the estimated accrued
expenses of management and supervision, administration and distribution
and any reserves or charges for any or all of the foregoing, whether for
taxes, expenses or otherwise, and the price of Shares redeemed but not
paid for) but excluding the Trust's liability upon its Shares and its
surplus, by
(ii) the total number of Shares of such series or class outstanding.
The Trustees are empowered, in their absolute discretion, to establish
other methods for determining such net asset value whenever such other methods
are deemed by them to be necessary to enable the Trust to comply with applicable
law, or are deemed by them to be desirable, provided they are not inconsistent
with any provision of the 1940 Act.
(d) In determining for the purposes of this Declaration of Trust the total
value of the assets of each series or class of Shares at any time, investments
and any other assets of such series or class shall be valued in such manner as
may be determined from time to time by or pursuant to the order of the Trustees.
(e) Payment of the redemption price by the Trust may be made either in
cash or in securities or other assets at the time owned by the Trust or partly
in cash and partly in securities or other assets at the time owned by the Trust.
The value of any part of such payment to be made in securities or other assets
of the Trust shall be the value employed in determining the redemption price.
Payment of the redemption price shall be made on or before the seventh day
following the day on which the Shares are properly presented for redemption
hereunder, except that delivery of any securities included in any such payment
shall be made as promptly as any necessary transfers on the books of the issuers
whose securities are to be delivered may be made, and except as postponement of
the date of payment may be permissible under the 1940 Act.
Pursuant to resolution of the Trustees, the Trust may deduct from the
payment made for any Shares redeemed a liquidating charge not in excess of an
amount determined by the Trustees from time to time.
(f) The right of any holder of Shares redeemed by the Trust as provided in
this Article VI to receive dividends or distributions thereon and all other
rights of such Shareholder with respect to such Shares shall terminate at the
time as of which the redemption price of such Shares is determined, except the
right of such Shareholder to receive (i) the redemption price of such Shares
from the Trust in accordance with the provisions hereof, and (ii) any dividend
or distribution to which such Shareholder previously had become entitled as the
record holder of such Shares on the record date for such dividend or
distribution.
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(g) Redemption of Shares by the Trust is conditional upon the Trust having
funds or other assets legally available therefor.
(h) The Trust, either directly or through an agent, may repurchase its
Shares, out of funds legally available therefor, upon such terms and conditions
and for such consideration as the Trustees shall deem advisable, by agreement
with the owner at a price not exceeding the net asset value per Share as
determined by or pursuant to the order of the Trustees at such time or times as
the Trustees shall designate, less any applicable charge, if and as fixed by the
Trustees from time to time, and to take all other steps deemed necessary or
advisable in connection therewith.
(i) Shares purchased or redeemed by the Trust shall be canceled or held by
the Trust for reissue, as the Trustees from time to time may determine.
(j) The obligations set forth in this Article VI may be suspended or
postponed, (1) for any period (i) during which the New York Stock Exchange is
closed other than for customary weekend and holiday closings, or (ii) during
which trading on the New York Stock Exchange is restricted, (2) for any period
during which an emergency exists as a result of which (i) the disposal by the
Trust of investments owned by it is not reasonably practicable, or (ii) it is
not reasonably practicable for the Trust fairly to determine the value of its
net assets, or (3) for such other periods as the Commission or any successor
governmental authority by order may permit.
Notwithstanding any other provision of this Section 3 of Article VI, if
certificates representing such Shares have been issued, the redemption or
repurchase price need not be paid by the Trust until such certificates are
presented in proper form for transfer to the Trust or the agent of the Trust
appointed for such purpose; however, the redemption or repurchase shall be
effective, in accordance with the resolution of the Trustees, regardless of
whether or not such presentation has been made.
SECTION 8. REDEMPTIONS AT THE OPTION OF THE TRUST.
The Trust shall have the right at its option and at any time to redeem
Shares of any Shareholder at the net asset value thereof as determined in
accordance with Section 3 of Article VI of this Declaration of Trust: (i) if at
such time such Shareholder owns fewer Shares than, or Shares having an aggregate
net asset value of less than, an amount determined from time to time by the
Trustees; or (ii) to the extent that such Shareholder owns Shares of a
particular series or class of Shares equal to or in excess of a percentage of
the outstanding Shares of that series or class determined from time to time by
the Trustees; or (iii) to the extent that such Shareholder owns Shares of the
Trust representing a percentage equal to or in excess of such percentage of the
aggregate number of outstanding Shares of the Trust or the aggregate net asset
value of the Trust determined from time to time by the Trustees.
SECTION 9. DIVIDENDS, DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES. No
dividend or distribution (including, without limitation, any distribution paid
upon termination of the Trust or of any series) with respect to, nor any
redemption or repurchase of, the Shares of any series shall be effected by the
Trust other than from the assets of such series.
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ARTICLE VII
Compensation and Limitation of Liability of Trustees
SECTION 1. COMPENSATION. The Trustees shall be entitled to reasonable
compensation from the Trust and may fix the amount of their compensation.
SECTION 2. LIMITATION OF LIABILITY. The Trustees shall not be responsible
or liable in any event for any neglect or wrongdoing of any officer, agent,
employee or Manager of the Trust, nor shall any Trustee be responsible for the
act or omission of any other Trustee, but nothing herein contained shall protect
any Trustee against any liability to which he or she 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.
Every note, bond, contract, instrument, certificate, share, or undertaking
and every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust, shall be
deemed conclusively to have been executed or done only in their or his or her
capacity as Trustees or Trustee, and such Trustees or Trustee shall not be
personally liable thereon.
ARTICLE VIII
Indemnification
SECTION 1. INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND AGENTS.
Each person who is or was a Trustee, officer, employee or agent of the Trust or
who serves or has served at the Trust's request as a director, officer or
trustee of another entity in which the Trust has or had any interest as a
shareholder, creditor or otherwise shall be entitled to indemnification out of
the assets of the Trust to the extent provided in, and subject to the provisions
of, the By-Laws, provided that no indemnification shall be granted by the Trust
in contravention of the 1940 Act.
SECTION 2. MERGED CORPORATIONS. For the purposes of this Article VIII
references to "the Trust" include any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees or agents as well as the resulting
or surviving entity; so that any person who is or was a director, officer,
employee or agent of such a constituent corporation or is or was serving at the
request of such a constituent corporation as a trustee, director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise shall stand in the same position under the provisions of this
Article VIII with respect to the resulting or surviving entity as he or she
would have with respect to such a constituent corporation if its separate
existence had continued.
SECTION 3. SHAREHOLDERS. In case any Shareholder or former Shareholder
shall be held to be personally liable solely by reason of his or her being or
having been a Shareholder and not because of his or her acts or omissions or for
some other reason, the Shareholder or former Shareholder (or his or her heirs,
executors, administrators or other legal representatives or in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled out of the assets of the particular series of Shares of which he or she
-14-
<PAGE>
is or was a Shareholder to be held harmless from and indemnified against all
losses and expenses arising from such liability. Upon request, the Trust shall
cause its counsel to assume the defense of any claim which, if successful, would
result in an obligation of the Trust to indemnify the Shareholder as aforesaid.
ARTICLE IX
Status of the Trust and Other General Provisions
SECTION 1. TRUST NOT A PARTNERSHIP. It is hereby expressly declared that a
trust and not a partnership is created hereby. Neither the Trust nor the
Trustees, nor any officer, employee or agent of the Trust shall have any power
to bind personally either the Trust's Trustees or officers or any Shareholders.
All persons extending credit to, contracting with or having any claim against
the Trust or a particular series of Shares shall look only to the assets of the
Trust or the assets of that particular series for payment under such credit,
contract or claim; and neither the Shareholders nor the Trustees, nor any of the
Trust's officers, employees or agents, whether past, present or future, shall be
personally liable therefor. Nothing in this Declaration of Trust shall protect
any Trustee against any liability to which such Trustee otherwise would be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of
Trustee hereunder.
SECTION 2. TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR SURETY.
The exercise by the Trustees of their powers and discretion hereunder under the
circumstances then prevailing, shall be binding upon everyone interested. A
Trustee shall be liable for his or her own willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee, and for nothing else, and shall not be liable for errors of
judgment or mistakes of fact or law. The Trustees may take advice of counsel or
other experts with respect to the meaning and operation of this Declaration of
Trust, and subject to the provisions of Section 1 of this Article IX shall be
under no liability for any act or omission in accordance with such advice or for
failing to follow such advice. The Trustees shall not be required to give any
bond as such, nor any surety if a bond is required.
SECTION 3. LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees pursuant hereto
or to see to the application of any payments made or property transferred to the
Trust or upon its order.
SECTION 4. TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE. All
persons extending credit to, contracting with or having any claim against the
Trust or a particular series of Shares shall look only to the assets of the
Trust or the assets of that particular series of Shares for payment under such
credit, contract or claim; and neither the Shareholders nor the Trustees, nor
any of the Trust's officers, employees or agents, whether past, present or
future, shall be personally liable therefor.
SECTION 5. TERMINATION OF TRUST. Unless terminated as provided herein, the
Trust shall continue without limitation of time. The Trust may be terminated at
any time by vote of Shareholders holding at least a majority of the Shares of
each series entitled to vote or by the Trustees by written notice to the
Shareholders. Any series of Shares may be terminated at any time by vote of
-15-
<PAGE>
Shareholders holding at least a majority of the Shares of such series entitled
to vote or by the Trustees by written notice to the Shareholders of such series.
Upon termination of the Trust or of any one or more series of Shares,
after paying or otherwise providing for all charges, taxes, expenses and
liabilities, whether due or accrued or anticipated as may be determined by the
Trustees, the Trust shall reduce, in accordance with such procedures as the
Trustees consider appropriate, the remaining assets to distributable form in
cash or shares or other securities, or any combination thereof, and distribute
the proceeds to the Shareholders of the series involved, ratably according to
the number of Shares of such series held by the several Shareholders of such
series on the date of termination, except to the extent otherwise required or
permitted by the preferences and special or relative rights and privileges of
any classes of Shares of that series, provided that any distribution to the
Shareholders of a particular class of Shares shall be made to such Shareholders
pro rata in proportion to the number of Shares of such class held by each of
them.
SECTION 6. FILING OF COPIES, REFERENCES, HEADINGS. The original or a copy
of this instrument and of each amendment hereto and of each Declaration of Trust
supplemental hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. A copy of this instrument and of each such
amendment and supplemental Declaration of Trust shall be filed by the Trust with
the Secretary of State of The Commonwealth of Massachusetts and the Boston City
Clerk, as well as any other governmental office where such filing may from time
to time be required. Anyone dealing with the Trust may rely on a certificate by
an officer of the Trust as to whether or not any such amendments or supplemental
Declarations of Trust have been made and as to matters in connection with the
Trust hereunder; and, with the same effect as if it were the original, may rely
on a copy certified by an officer of the Trust to be a copy of this instrument
or of any such amendment or supplemental Declaration of Trust. In this
instrument or in any such amendment or supplemental Declaration of Trust,
references to this instrument, and all expressions like "herein," "hereof," and
"hereunder," shall be deemed to refer to this instrument as amended or affected
by any such amendment or supplemental Declaration of Trust. Headings are placed
herein for convenience of reference only and in case of any conflict, the text
of this instrument, rather than the headings, shall control. This instrument may
be executed in any number of counterparts each of which shall be deemed an
original.
SECTION 7. APPLICABLE LAW. The Trust set forth in this instrument is made
in The Commonwealth of Massachusetts, and it is created under and is to be
governed by and construed and administered according to the laws of said
Commonwealth. The Trust shall be of the type commonly called a Massachusetts
business trust, and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust.
SECTION 8. AMENDMENTS. This Declaration of Trust may be amended at any
time by an instrument in writing signed by a majority of the then Trustees when
authorized so to do by a vote of Shareholders holding a majority of the Shares
outstanding and entitled to vote, except that an amendment which shall affect
the holders of one or more series or class of Shares but not the holders of all
outstanding series or classes of Shares shall be authorized by vote of the
Shareholders holding a majority of the Shares entitled to vote of the series or
classes affected and no vote of Shareholders of a series or class not affected
-16-
<PAGE>
shall be required. Amendments having the purpose of changing the name of the
Trust or of supplying any omission, curing any ambiguity or curing, correcting
or supplementing any defective or inconsistent provision contained herein shall
not require authorization by Shareholder vote. Notwithstanding any other
provision hereof, until such time as the Registration Statement filed with the
Commission and covering the first public offering of securities of the Trust or
any series thereof shall have become effective, this Declaration may be
terminated or amended in any respect by the affirmative vote of a majority of
the Trustees or by an instrument signed by a majority of the Trustees.
-17-
<PAGE>
IN WITNESS WHEREOF, the undersigned Trustee has hereunto set his hand and
seal for himself and his assigns as of the day and year first above written.
/s/Jeff Prusnofsky
-------------------------------
Jeff Prusnofsky,
as Trustee and not Individually
200 Park Avenue, 8th Floor West
New York, New York 10166
ADDRESS OF TRUST:
200 Park Avenue, 8th Floor
New York, New York 10166
ADDRESS OF RESIDENT AGENT:
Philip J. Fina, Esq.
Kirkpatrick & Lockhart LLP
One International Place
Boston, Massachusetts 02110-2637
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK )
On this 12th day of April, 2000, before me personally came the above-named
Trustee of the Fund, to me known, and known to me to be the person described in
and who executed the foregoing instrument, and who duly acknowledged to me that
he had executed the same.
/s/ Judy Nieves
--------------------------------
Notary Public
Notary Public, State of New York
My Commission Expires: 12/27/00
-18-
CONFIDENTIAL INFORMATION AND
SECURITIES TRADING POLICY
<PAGE>
CONTENTS
- ---------------------------------- Page
INTRODUCTION ................................................ 1
PART I
APPLICABLE TO ALL ASSOCIATES
SECTION ONE
CONFIDENTIAL INFORMATION.................... 2
-Types of Confidential Information.......... 2
-Rules for Protecting Confidential
Information................................ 3
-Supplemental Procedures.................... 4
SECTION TWO
INSIDER TRADING AND TIPPING................. 5
-Legal Prohibitions......................... 5
-Mellon's Policy............................ 6
SECTION THREE
RESTRICTIONS ON THE FLOW OF INFORMATION
WITHIN MELLON (THE "CHINESE WALL").......... 7
-Rules for Maintaining the Chinese Wall..... 7
-Reporting Receipt of Material
Nonpublic Information...................... 8
-Functions "Above the Wall"................. 9
-Supplemental Procedures.................... 9
SECTION FOUR
RESTRICTIONS ON TRANSACTIONS IN MELLON
SECURITIES................................. 10
-Beneficial Ownership...................... 11
SECTION FIVE
RESTRICTIONS ON TRANSACTIONS IN OTHER
SECURITIES................................. 12
SECTION SIX
CLASSIFICATION OF ASSOCIATES............... 14
-Insider Risk Associate.................... 14
-Investment Associate...................... 15
-Other Associate........................... 15
PART II
APPLICABLE TO INSIDER
RISK ASSOCIATES ONLY ........................................... 16
-Prohibition on Investments in
Securities of Financial Services
Organizations............................. 16
-Conflict of Interest...................... 17
-Preclearance for Personal Securities
Transactions.............................. 17
-Personal Securities Transactions Reports.. 19
-Confidential Treatment.................... 19
<PAGE>
PART III
APPLICABLE TO INVESTMENT
ASSOCIATES ONLY ........................................... 20
-Special Standards of Conduct for
Investment Associates..................... 20
-Preclearance for Personal Securities
Transactions.............................. 21
-Personal Securities Transactions Reports.. 23
-Confidential Treatment.................... 24
PART IV
APPLICABLE TO OTHER
ASSOCIATES ONLY ........................................... 25
-Preclearance for Personal Securities
Transactions.............................. 25
-Personal Securities Transactions Reports.. 25
-Restrictions on Transactions in Other
Securities................................ 25
-Confidential Treatment.................... 26
PART V
APPLICABLE TO NONMANAGEMENT
BOARD MEMBERS ........................................... 27
-Nonmanagement Board Member................ 27
-Standards of Conduct for Nonmanagement
Board Member.............................. 27
-Preclearance for Personal Securities
Transactions.............................. 28
-Personal Securities Transactions Reports.. 29
-Confidential Treatment.................... 29
GLOSSARY Definitions............................... 30
INDEX OF EXHIBITS .......................................... 33
<PAGE>
INTRODUCTION
- ----------------------------------
Mellon Bank Corporation ("Mellon") and its associates, and
the registered investment companies for which The Dreyfus
Corporation ("Dreyfus") and/or Mellon serves as investment
adviser, sub-investment adviser or administrator, are
subject to certain laws and regulations governing the use
of confidential information and personal securities
trading. Mellon has developed this Confidential Information
and Securities Trading Policy (the "Policy") to establish
specific standards to promote compliance with applicable
laws. Further, the Policy is intended to protect Mellon's
business secrets and proprietary information as well as
that of its customers and any entity for which it acts in a
fiduciary capacity.
The Policy set forth procedures and limitations which
govern the personal securities transactions of every Mellon
associate and certain other individuals associated with the
registered investment companies for which Dreyfus and/or
Mellon serves as investment adviser, sub-investment adviser
or administrator. The Policy is designed to reinforce
Mellon's reputation for integrity by avoiding even the
appearance of impropriety in the conduct of Mellon's
business.
Associates should be aware that they may be held personally
liable for any improper or illegal acts committed during
the course of their employment, and that "ignorance of the
law" is not a defense. Associates may be subject to civil
penalties such as fines, regulatory sanctions including
suspensions, as well as criminal penalties.
Associates outside the United States are also subject to
applicable laws of foreign jurisdictions, which may differ
substantially from U.S. law and which may subject such
associates to additional requirements. Such associates must
comply with applicable requirements of pertinent foreign
laws as well as with the provisions of the Policy. To the
extent any particular portion of the Policy is inconsistent
with foreign law, associates should consult the General
Counsel or the Manager of Corporate Compliance.
Any provision of this Policy may be waived or exempted at
the discretion of the Manager of Corporate Compliance. Any
such waiver or exemption will be evidenced in writing and
maintained in the Risk Management and Compliance
Department.
Associates must read the Policies and MUST
COMPLY with them. Failure to comply with
the provisions of the Policies may result
in the imposition of serious sanctions,
including but not limited to disgorgement
of profits, dismissal, substantial personal
liability and referral to law enforcement
agencies or other regulatory agencies.
Associates should retain the Policies in
their records for future reference. Any
questions regarding the Policies should be
referred to the Manager of Corporate
Compliance or his/her designee.
1
<PAGE>
PART I - APPLICABLE TO ALL ASSOCIATES
- ----------------------------------
SECTION ONE
CONFIDENTIAL INFORMATION
As an associate you may receive information about Mellon,
its customers and other parties that, for various reasons,
should be treated as confidential. All associates are
expected to strictly comply with measures necessary to
preserve the confidentiality of information.
TYPES OF CONFIDENTIAL INFORMATION - Although it is
impossible to provide an exhaustive list of information
that should remain confidential, the following are examples
of the general types of confidential information that
associates might receive in the ordinary course of carrying
out their job responsibilities.
o INFORMATION OBTAINED FROM BUSINESS RELATIONS - An associate
might receive confidential information regarding customers
or other parties with whom Mellon has business
relationships. If released, such information could have
a significant effect on their operations, their business
reputations or the market price of their securities.
Disclosing such information could expose both the
associate and Mellon to liability for damages.
o MELLON FINANCIAL INFORMATION - An associate might receive
financial information regarding Mellon before such
information has been disclosed to the public. It is the
policy of Mellon to disclose all material corporate
information to the public in such a manner that all those
who are interested in Mellon and its securities have equal
access to the information. Disclosing such information
to unauthorized persons could subject both the associate
and Mellon to liability under the federal securities
laws.
o MELLON PROPRIETARY INFORMATION - Certain nonfinancial
information developed by Mellon - such as business plans,
customer lists, methods of doing business, computer
software, source codes, databases and related
documentation - constitutes valuable Mellon proprietary
information. Disclosure of such information to
unauthorized persons could harm, or reduce a benefit to,
Mellon and could result in liability for both the associate
and Mellon.
o MELLON EXAMINATION INFORMATION - Banks and certain other
Mellon subsidiaries are periodically examined by regulatory
agencies. Certain reports made by those regulatory agencies
are the property of those agencies and are strictly
confidential. Giving information from these reports to
anyone not officially connected with Mellon is a criminal
offense.
o PORTFOLIO MANAGEMENT INFORMATION - Portfolio management
information relating to investment accounts or funds
managed by Mellon or Dreyfus, including investment
decisions or strategies developed for the benefit of
investment companies advised by Dreyfus, is for the
benefit of such account or fund. Disclosure or
exploitation of such information by an associate in an
unauthorized manner may cause detriment to such accounts
or funds and may subject the associate to liability under
the federal securities laws.
2
<PAGE>
RULES FOR PROTECTING CONFIDENTIAL INFORMATION - The
following are some basic rules to follow to protect
confidential information.
o LIMITED COMMUNICATION TO OUTSIDERS - Confidential
information should not be communicated to anyone outside
Mellon, except to the extent they need to know the
information in order to provide necessary services to
Mellon.
o LIMITED COMMUNICATION TO INSIDERS - Confidential
information should not be communicated to other associates,
except to the extent they need to know the information to
fulfill their job responsibilities and their knowledge of
the information is not likely to result in misuse or a
conflict of interest. In this regard, Mellon has
established specific restrictions with respect to
material nonpublic information in order to separate and
insulate different functional areas and personnel within
Mellon. Please refer to Section Three, "Restrictions on
The Flow of Information Within Mellon" (The "Chinese
Wall").
o CORPORATE USE ONLY - Confidential information should be
used only for Corporate purposes. Under no circumstances
may an associate use it, directly or indirectly, for
personal gain or for the benefit of any outside party who
is not entitled to such information.
o OTHER CUSTOMERS - Where appropriate, customers should be
made aware that associates will not disclose to them other
customers' confidential information or use the confidential
information of one customer for the benefit of another.
o NOTIFICATION OF CONFIDENTIALITY - When confidential
information is communicated to any person, either inside or
outside Mellon, they should be informed of the
information's confidential nature and the limitations on
its further communication.
o PREVENTION OF EAVESDROPPING - Confidential matters should
not be discussed in public or in places, such as in
building lobbies, restaurants or elevators, where
unauthorized persons may overhear. Precautions, such as
locking materials in desk drawers overnight, stamping
material "Confidential" and delivering materials in sealed
envelopes, should be taken with written materials to
ensure they are not read by unauthorized persons.
o DATA PROTECTION - Data stored on personal computers and
diskettes should be properly secured to ensure they are not
accessed by unauthorized persons. Access to computer files
should be granted only on a need-to-know basis. At a
minimum, associates should comply with applicable Mellon
policies on electronic data security.
3
<PAGE>
o CONFIDENTIALITY AGREEMENTS - Confidentiality agreements to
which Mellon is a party must be complied with in addition
to, but not in lieu of, this Policy. Confidentiality
agreements that deviate from commonly used forms should be
reviewed in advance by the Legal Department.
o CONTACT WITH THE PUBLIC - All contacts with institutional
shareholders or securities analysts about Mellon must be
made through the Investor Relations Division of the Finance
Department. All contacts with the media and all
speeches or other public statements made on behalf of
Mellon or about Mellon's businesses must be cleared in
advance by Corporate Affairs. In speeches and
statements not made on behalf of Mellon, care should be
taken to avoid any implication that Mellon endorses the
views expressed.
SUPPLEMENTAL PROCEDURES - Mellon entities, departments,
divisions and groups should establish their own
supplemental procedures for protecting confidential
information, as appropriate. These procedures may include:
o establishing records retention and destruction policies;
o using code names;
o limiting the staffing of confidential matters (for example,
limiting the size of working groups and the use of
temporary employees, messengers and word processors); and
o requiring written confidentiality agreements from certain
associates.
ANY SUPPLEMENTAL PROCEDURES SHOULD BE USED ONLY TO PROTECT
CONFIDENTIAL INFORMATION AND NOT TO CIRCUMVENT APPROPRIATE
REPORTING AND RECORDKEEPING REQUIREMENTS.
4
<PAGE>
SECTION TWO
INSIDER TRADING AND TIPPING
LEGAL PROHIBITIONS - Federal securities laws generally
prohibit the trading of securities while in possession of
"material nonpublic" information regarding the issuer of
those securities (insider trading). Any person who passes
along the material nonpublic information upon which a trade
is based (tipping) may also be liable.
"MATERIAL" - Information is material if there is a
substantial likelihood that a reasonable investor would
consider it important in deciding whether to buy, sell or
hold securities. Obviously, information that would affect
the market price of a security would be material. Examples
of information that might be material include:
o a proposal or agreement for a merger, acquisition or
divestiture, or for the sale or purchase of substantial
assets;
o tender offers, which are often material for the party
making the tender offer as well as for the issuer of the
securities for which the tender offer is made;
o dividend declarations or changes;
o extraordinary borrowings or liquidity problems;
o defaults under agreements or actions by creditors,
customers or suppliers relating to a company's credit
standing;
o earnings and other financial information, such as large or
unusual write-offs, write-downs, profits or losses;
o pending discoveries or developments, such as new products,
sources of materials, patents, processes, inventions or
discoveries of mineral deposits;
o a proposal or agreement concerning a financial
restructuring;
o a proposal to issue or redeem securities, or a development
with respect to a pending issuance or redemption of
securities;
o a significant expansion or contraction of operations;
o information about major contracts or increases or
decreases in orders;
o the institution of, or a development in, litigation or a
regulatory proceeding;
o developments regarding a company's senior management;
o information about a company received from a director of
that company; and
o information regarding a company's possible noncompliance
with environmental protection laws.
This list is not exhaustive. All relevant circumstances
must be considered when determining whether an item of
information is material.
5
<PAGE>
"NONPUBLIC" - Information about a company is nonpublic if
it is not generally available to the investing public.
Information received under circumstances indicating that it
is not yet in general circulation and which may be
attributable, directly or indirectly, to the company or its
insiders is likely to be deemed nonpublic information.
If an associate can refer to some public source to show
that the information is generally available (that is,
available not from inside sources only) and that enough
time has passed to allow wide dissemination of the
information, the information is likely to be deemed public.
While information appearing in widely accessible sources -
such as newspapers - becomes public very soon after
publication, information appearing in less accessible
sources - such as regulatory filings may take up to several
days to be deemed public. Similarly, highly complex
information might take longer to become public than would
information that is easily understood by the average
investor.
MELLON'S POLICY - Associates who possess material nonpublic
information about a company - whether that company is
Mellon, another Mellon entity, a Mellon customer or
supplier, or other company - may not trade in that
company's securities, either for their own accounts or for
any account over which they exercise investment discretion.
In addition, associates may not recommend trading in those
securities and may not pass the information along to
others, except to associates who need to know the
information in order to perform their job responsibilities
with Mellon. These prohibitions remain in effect until the
information has become public.
Associates who have investment responsibilities should take
appropriate steps to avoid receiving material nonpublic
information. Receiving such information could create severe
limitations on their ability to carry out their
responsibilities to Mellon's fiduciary
customers.
Associates managing the work of consultants and temporary
employees who have access to the types of confidential
information described in this Policy are responsible for
ensuring that consultants and temporary employees are aware
of Mellon's policy and the consequences of noncompliance.
Questions regarding Mellon's policy on material nonpublic
information, or specific information that might be subject
to it, should be referred to the General Counsel.
6
<PAGE>
SECTION THREE
RESTRICTIONS ON THE FLOW OF
INFORMATION WITHIN MELLON
(THE "CHINESE WALL")
As a diversified financial services organization, Mellon
faces unique challenges in complying with the prohibitions
on insider trading and tipping of material nonpublic
information and misuse of confidential information. This is
because one Mellon unit might have material nonpublic
information about a company while other Mellon units may
have a desire, or even a fiduciary duty, to buy or sell
that company's securities or recommend such purchases or
sales to customers. To engage in such broad-ranging
financial services activities without violating laws or
breaching Mellon's fiduciary duties, Mellon has established
a "Chinese Wall" policy applicable to all associates. The
"Chinese Wall" separates the Mellon units or individuals
that are likely to receive material nonpublic information
(Potential Insider Functions) from the Mellon units or
individuals that either trade in securities - for Mellon's
account or for the accounts of others - or provide
investment advice (Investment Functions).
EXAMPLES OF POTENTIAL INSIDER FUNCTIONS - Potential Insider
Functions include, among others, certain commercial
lending, corporate finance, and credit policy areas.
Insider Risk Associates (see Section Six, "Insider Risk
Associates") should consider themselves to be in Potential
Insider Functions unless their particular job
responsibilities clearly indicate otherwise.
EXAMPLES OF INVESTMENT FUNCTIONS - Investment Functions
include, among others, securities sales and trading,
investment management and advisory services, investment
research and various trust or fiduciary functions.
RULES FOR MAINTAINING THE "CHINESE WALL" - Without the
prior approval of the General Counsel, material nonpublic
information obtained by anyone in a Potential Insider
Function should not be communicated to anyone in an
Investment Function. To reduce the risk of material
nonpublic information being communicated, communications
between these associates in these functions must be limited
to the maximum extent consistent with valid business needs.
PARTICULAR RULES -
o FILE RESTRICTIONS - Associates in Investment Functions must
not have access to commercial credit files, corporate
finance files, or any other Potential Insider Function
files that might contain material nonpublic information.
All such files that contain material nonpublic information
should be marked as "Confidential" and, if feasible,
segregated from nonconfidential files.
o ELECTRONIC DATA - Associates in Investment Functions must
not have access to personal computer or word processing
files of associates in Potential Insider Functions.
o MEETINGS - Associates in Investment Functions must not
attend meetings between customers and associates in
Potential Insider Functions unless appropriate steps have
been taken to ensure that material nonpublic information
will not be disclosed or discussed.
o COMMITTEE SERVICE - Without the prior approval of the
General Counsel, associates other than those "Above the
Wall" (see page 9) must not serve simultaneously on a
committee having responsibility for any Investment Function
and a committee having responsibility for any Potential
Insider Function.
7
<PAGE>
o INFORMATION REQUESTS - Requests for nonmaterial information
or public information across the "Chinese Wall" should be
made in writing to an appropriate associate in the
applicable area. Associates sending or receiving such a
request should resolve any questions regarding the
materiality or nonpublic nature of the requested
information by consulting their department head, who will
contact the General Counsel, as appropriate.
o INFORMATION BACKFLOW - Associates should take care to avoid
inadvertent backflow of information that may be interpreted
as the prohibited communication of material nonpublic
information. For example, the mere fact that someone in
a Potential Insider Function, such as a mergers and
acquisitions specialist, requests information from an
associate in an Investment Function could give the
latter person a clue as to possible material
developments affecting a customer.
o CUSTOMERS - Associates in Investment Functions must not
state or imply to customers that associates making
decisions or recommendations will have the benefit of
information from Mellon's Potential Insider Functions. When
appropriate, associates should inform customers of
Mellon's "Chinese Wall" policy.
o CONFLICTS OF INTEREST - Associates should not receive or
pass on any information that would create an undue risk of
Mellon or any associate having a conflict of interest or
breaching a fiduciary obligation.
REPORTING RECEIPT OF MATERIAL NONPUBLIC INFORMATION -
Associates in Investment Functions who receive any
suspected material nonpublic information must report such
receipt promptly to their department or entity head. A
department or entity head who receives information believed
to be material and nonpublic should report the matter
promptly to the General Counsel. If the General Counsel
determines that the information is material and nonpublic,
the affected department or entity will:
o immediately SUSPEND ALL TRADING in the securities of the
issuer to which the information applies, as well as all
recommendations with respect to such securities. The
suspension will remain in effect as long as the information
remains both material and nonpublic.
o NOTIFY THE GENERAL COUNSEL before resuming transactions
or recommendations in the affected securities. The
General Counsel will advise as to possible further
steps, including ascertaining the validity and nonpublic
nature of the information with the issuer of the
securities; requesting the issuer of the securities, or
other appropriate parties, to disseminate the
information promptly to the public if the information is
valid and nonpublic; and publishing the information.
In certain circumstances, the department or entity head may
be able to demonstrate conclusively that the receipt of the
material nonpublic information has been confined to an
individual or small group of individuals and that measures
other than those described above will comparably reduce the
likelihood of trading on the basis of the information.
These measures might include temporarily relieving
individuals of responsibility for any Investment Functions
and preventing any contact between those individuals and
associates in Investment Functions. In these circumstances,
the department head, with the approval of the General
Counsel, may take those measures rather than the measures
described above.
8
<PAGE>
FUNCTIONS "ABOVE THE WALL" - Some functions at Mellon are
deemed to be "Above the Wall." For example, members of
senior management, Auditing, Risk Management and
Compliance, and the Legal Department will typically need to
have access to information on both sides of the "Chinese
Wall" to carry out their job responsibilities. These
individuals cannot rely on the procedural safeguards of the
"Chinese Wall" and, therefore, need to be particularly
careful to avoid any improper use or dissemination of
material nonpublic information.
SUPPLEMENTAL PROCEDURES - As appropriate, certain Mellon
departments or areas, such as Mellon Trust, should
establish their own procedures to reduce the possibility of
information being communicated to associates who should not
have access to that information.
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SECTION FOUR
RESTRICTIONS ON TRANSACTIONS
IN MELLON SECURITIES
Associates who engage in transactions involving Mellon
securities should be aware of their unique responsibilities
with respect to such transactions arising from the
employment relationship and should be sensitive to even the
appearance of impropriety.
The following restrictions apply to ALL transactions in
Mellon's publicly traded securities occurring in the
associate's own account and in all other accounts over
which the associate could be expected to exercise influence
or control (see provisions under "Beneficial Ownership"
below for a more complete discussion of the accounts to
which these restrictions apply). These restrictions are to
be followed in addition to any restrictions that apply to
particular officers or directors (such as restrictions
under Section 16 of the Securities Exchange Act of 1934).
o SHORT SALES - Short sales of Mellon securities by
associates are prohibited.
o SALES WITHIN 60 DAYS OF PURCHASE - Sales of Mellon
securities within 60 days of acquisition are prohibited.
For purposes of the 60-day holding period, securities will
be deemed to be equivalent if one is convertible into the
other, if one entails a right to purchase or sell the
other, or if the value of one is expressly dependent on the
value of the other (e.g., derivative securities).
In cases of extreme hardship, associates (other than senior
management) may obtain permission to dispose of Mellon
securities acquired within 60 days of the proposed
transaction, provided the transaction is pre-cleared with
the Manager of Corporate Compliance and any profits earned
are disgorged in accordance with procedures established by
senior management. The Manager of Corporate Compliance
reserves the right to suspend the 60-day holding period
restriction in the event of severe market disruption.
o MARGIN TRANSACTIONS - Purchases on margin of Mellon's
publicly traded securities by associates is prohibited.
Margining Mellon securities in connection with a cashless
exercise of an employee stock option through the Human
Resources Department is exempt from this restriction.
Further, Mellon securities may be used to collateralize
loans or the acquisition of securities other than those
issued by Mellon.
o OPTION TRANSACTIONS - Option transactions involving
Mellon's publicly traded securities are prohibited.
Transactions under Mellon's Long-Term Incentive Plan or
other associate option plans are exempt from this
restriction.
o MAJOR MELLON EVENTS - Associates who have knowledge of
major Mellon events that have not yet been announced are
prohibited from buying and selling Mellon's publicly traded
securities before such public announcements, even if the
associate believes the event does not constitute material
nonpublic information.
o MELLON BLACKOUT PERIOD - Associates are prohibited from
buying or selling Mellon's publicly traded securities
during a blackout period, which begins the 16th day of the
last month of each calendar quarter and ends three business
days after Mellon publicly announces the financial
results for that quarter. In cases of extreme hardship,
associates (other than senior management) may request
permission from the Manager of Corporate Compliance to
dispose of Mellon securities during the blackout period.
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BENEFICIAL OWNERSHIP - The provisions discussed above apply
to transactions in the associate's own name and to all
other accounts over which the associate could be expected
to exercise influence or control, including:
o accounts of a spouse, minor children or relatives to whom
substantial support is contributed;
o accounts of any other member of the associate's household
(e.g., a relative living in the same home);
o trust accounts for which the associate acts as trustee or
otherwise exercises any type of guidance or influence;
o Corporate accounts controlled, directly or indirectly, by
the associate;
o arrangements similar to trust accounts that are established
for bona fide financial purposes and benefit the associate;
and
o any other account for which the associate is the beneficial
owner (see Glossary for a more complete legal definition of
"beneficial owner").
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SECTION FIVE
RESTRICTIONS ON TRANSACTIONS
IN OTHER SECURITIES
Purchases or sales by an associate of the securities of
issuers with which Mellon does business, or other third
party issuers, could result in liability on the part of
such associate. Associates should be sensitive to even the
appearance of impropriety in connection with their personal
securities transactions. Associates should refer to the
provisions under "Beneficial Ownership" (Section Four,
"Restrictions on Transactions in Mellon Securities"), which
are equally applicable to the following provisions.
The Mellon Code of Conduct contains certain restrictions on
investments in parties that do business with Mellon.
Associates should refer to the Code of Conduct and comply
with such restrictions in addition to the restrictions and
reporting requirements set forth below.
The following restrictions apply to ALL securities
transactions by associates:
o CREDIT OR ADVISORY RELATIONSHIP - Associate may not buy or
sell securities of a company if they are considering
granting, renewing or denying any credit facility to
that company or acting as an adviser to that company
with respect to its securities. In addition, lending
associates who have assigned responsibilities in a
specific industry group are not permitted to trade
securities in that industry. This prohibition does not
apply to transactions in securities issued by open-end
investment companies.
o CUSTOMER TRANSACTIONS - Trading for customers and Mellon
accounts should always take precedence over associates'
transactions for their own or related accounts.
o FRONT RUNNING - Associates may not engage in "front
running," that is, the purchase or sale of securities for
their own accounts on the basis of their knowledge of
Mellon's trading positions or plans.
o INITIAL PUBLIC OFFERINGS - Mellon prohibits its associates
from acquiring any securities in an initial public offering
("IPO").
o MARGIN TRANSACTIONS - Margin trading is a highly leveraged
and relatively risky method of investing that can create
particular problems for financial services employees. For
this reason, all associates are urged to avoid margin
trading.
Prior to establishing a margin account, the associate must
obtain the written permission of the Manager of Corporate
Compliance. Any associate having a margin account prior to
the effective date of this Policy must notify the Manager
of Corporate Compliance of the existence of such account.
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All associates having margin accounts, other than described
below, must designate the Manager of Corporate Compliance
as an interested party on that account. Associates must
ensure that the Manager of Corporate Compliance promptly
receives copies of all trade confirmations and statements
relating to the account directly from the broker. If
requested by a brokerage firm, please contact the Manager
of Corporate Compliance to obtain a letter (sometimes
referred to as a "407 letter") granting permission to
maintain a margin account. Trade confirmations and
statements are not required on margin accounts established
at Dreyfus Investment Services Corporation for the sole
purpose of cashless exercises of employee stock options. In
addition, products may be offered by a broker/dealer that,
because of their characteristics, are considered margin
accounts but have been determined by the Manager of
Corporate Compliance to be outside the scope of this Policy
(e.g., a Cash Management Account which provides overdraft
protection for the customer). Any questions regarding the
establishment, use and reporting of margin accounts should
be directed to the Manager of Corporate Compliance.
Examples of an instruction letter to a broker are shown in
Exhibits B1 and B2.
o MATERIAL NONPUBLIC INFORMATION - Associates possessing
material nonpublic information regarding any issuer of
securities must refrain from purchasing or selling
securities of that issuer until the information becomes
public or is no longer considered material.
o NAKED OPTIONS, EXCESSIVE TRADING - Mellon discourages all
associates from engaging in short-term or speculative
trading, in trading naked options, in trading that could be
deemed excessive or in trading that could interfere with an
associate's job responsibilities.
o PRIVATE PLACEMENTS - Associates are prohibited from
acquiring any security in a private placement unless they
obtain the prior written approval of the Preclearance
Compliance Officer (applicable only to Investment
Associates), the Manager of Corporate Compliance and the
associate's department head. Approval must be given by all
appropriate aforementioned persons for the acquisition
to be considered approved. After receipt of the
necessary approvals and the acquisition, associates are
required to disclose that investment when they
participate in any subsequent consideration of an
investment in the issuer for an advised account. Final
decision to acquire such securities for an advised
account will be subject to independent review.
o SCALPING - Associates may not engage in "scalping," that
is, the purchase or sale of securities for their own or
Mellon's accounts on the basis of knowledge of customers'
trading positions or plans or Mellon's forthcoming
investment recommendations.
o SHORT-TERM TRADING - Associates are discouraged from
purchasing and selling, or from selling and purchasing, the
same (or equivalent) securities within 60 calendar days.
With respect to Investment Associates only, any profits
realized on such short-term trades must be disgorged in
accordance with procedures established by senior
management.
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SECTION SIX
CLASSIFICATION OF ASSOCIATES
Associates are engaged in a wide variety of activities for
Mellon. In light of the nature of their activities and the
impact of federal and state laws and the regulations
thereunder, the Policy imposes different requirements and
limitations on associates based on the nature of their
activities for Mellon. To assist the associates in
complying with the requirements and limitations imposed on
them in light of their activities, associates are
classified into one of three categories: Insider Risk
Associate, Investment Associate and Other Associate.
Appropriate requirements and limitations are specified in
the Policy based upon the associate's classification.
INSIDER RISK ASSOCIATE -
You are considered to be an Insider Risk Associate if you
are:
o employed in any of the following departments or functional
areas, however named, of a Mellon entity other than Dreyfus
(see Glossary for definition of "Dreyfus"):
- Auditing - International
- Capital Markets - Leasing
- Corporate Affairs - Legal
- Credit Policy - Mellon Business Credit
- Credit Recovery - Middle Market
- Credit Review - Portfolio and Funds
Management
- Domestic Corporate - Risk Management and
Banking Compliance
- Finance - Strategic Planning
- Institutional Banking - Wholesale, Administration
and Operations
o a member of the Mellon Senior Management Committee,
provided that those members of the Mellon Senior
Management Committee who have management responsibility
for fiduciary activities or who routinely have access to
information about customers' securities transactions are
considered to be Investment Associates and are subject
to those provisions of the Policy pertaining to
Investment Associates;
o employed by a broker/dealer subsidiary of a Mellon
entity other than Dreyfus;
o an associate in the Stock Transfer business unit and have
been specifically designated as an Insider Risk Associate
by the Manager of Corporate Compliance; or
o an associate specifically designated as an Insider Risk
Associate by the Manager of Corporate Compliance.
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INVESTMENT ASSOCIATE -
You are considered to be an Investment Associate if you
are:
o a member of Mellon's Senior Management Committee who, as
part of his/her usual duties, has management responsibility
for fiduciary activities or routinely has access to
information about customers' securities transactions;
o a Dreyfus associate;
o an associate of a Mellon entity registered under the
Investment Advisers Act of 1940;
o employed in the trust area of Mellon and:
- have the title of Vice President, First Vice President
or Senior Vice President; or
- have access to material, confidential information
regarding securities transactions by or on behalf of
Mellon customers; or
o an associate specifically designated as an Investment
Associate by the Manager of Corporate Compliance.
OTHER ASSOCIATE -
You are considered to be an Other Associate if you are an
associate of Mellon Bank Corporation or any of its direct
or indirect subsidiaries who is not either an Insider Risk
Associate or an Investment Associate.
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PART II - APPLICABLE TO INSIDER
RISK ASSOCIATES ONLY
- ----------------------------------
PROHIBITION ON INVESTMENTS IN SECURITIES OF FINANCIAL
SERVICES ORGANIZATIONS
You are prohibited from acquiring any security issued by a
financial services organization if you are:
o a member of the Mellon Senior Management Committee. For
purposes of this restriction only, this prohibition also
applies to those members of the Mellon Senior Management
Committee who are considered Investment Associates.
o employed in any of the following departments of a Mellon
entity other than Dreyfus (see Glossary for definition of
"Dreyfus"):
- Strategic Planning - Finance
- Institutional Banking - Legal
o an associate specifically designated by the Manager of
Corporate Compliance and informed that this prohibition is
applicable to you.
FINANCIAL SERVICES ORGANIZATIONS - The term "security
issued by a financial services organization" includes any
security issued by:
- Commercial Banks - Bank Holding Companies
(other than Mellon) (other than Mellon)
- Thrifts - Savings and Loan
Associations
- Insurance Companies - Broker/Dealers
- Investment Advisory - Transfer Agents
Companies
- Shareholder Servicing - Other Depository
Companies Institutions
The term "securities issued by a financial services
organization" DOES NOT INCLUDE securities issued by mutual
funds, variable annuities or insurance policies. Further,
for purposes of determining whether a company is a
financial services organization, subsidiaries and parent
companies are treated as separate issuers.
EFFECTIVE DATE - The foregoing restrictions will be
effective upon adoption of this Policy. Securities of
financial services organizations properly acquired before
the later of the effective date of this Policy or the date
of hire may be maintained or disposed of at the owner's
discretion.
Additional securities of a financial services organization
acquired through the reinvestment of the dividends paid by
such financial services organization through a dividend
reinvestment program (DRIP) are not subject to this
prohibition, provided your election to participate in the
DRIP predates the later of the effective date of this
Policy or date of hire. Optional cash purchases through a
DRIP are subject to this prohibition.
Within 30 days of the later of the effective date of this
Policy or date of becoming subject to this prohibition, all
holdings of securities of financial services organizations
must be disclosed in writing to the Manager of Corporate
Compliance. Periodically, you will be asked to file an
updated disclosure of all your holdings of securities of
financial services organizations.
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CONFLICT OF INTEREST - No Insider Risk Associate may engage
in or recommend any securities transaction that places, or
appears to place, his or her own interests above those of
any customer to whom investment services are rendered,
including mutual funds and managed accounts, or above the
interests of Mellon.
PRECLEARANCE FOR PERSONAL SECURITIES TRANSACTIONS - All
Insider Risk Associates must notify the Manager of
Corporate Compliance in writing and receive preclearance
before they engage in any purchase or sale of a security.
Insider Risk Associates should refer to the provisions
under "Beneficial Ownership" (Section Four, "Restrictions
on Transactions in Mellon Securities"), which are equally
applicable to these provisions.
EXEMPTIONS FROM REQUIREMENT TO PRECLEAR - Preclearance is
NOT required for the following transactions:
o purchases or sales of Exempt Securities (see Glossary);
o purchases or sales of municipal bonds;
o purchases or sales effected in any account over which an
associate has no direct or indirect control over the
investment decision-making process (e.g., nondiscretionary
trading accounts). Nondiscretionary trading accounts may
only be maintained, without being subject to preclearance
procedures, when the Manager of Corporate Compliance,
after a thorough review, is satisfied that the account
is truly nondiscretionary;
o transactions that are non-volitional on the part of an
associate (such as stock dividends);
o the sale of stock received upon the exercise of an
associate stock option if the sale is part of a "netting of
shares" or "cashless exercise" administered by the Human
Resources Department (for which the Human Resources
Department will forward information to the Manager of
Corporate Compliance);
o the automatic reinvestment of dividends under a DRIP
(preclearance is required for OPTIONAL cash purchases under
a DRIP);
o purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of securities, to
the extent such rights were acquired from such issuer;
o sales of rights acquired from an issuer, as described
above; and/or
o those situations where the Manager of Corporate Compliance
determines, after taking into consideration the particular
facts and circumstances, that prior approval is not
necessary.
REQUESTS FOR PRECLEARANCE - All requests for preclearance
for a securities transaction shall be submitted to the
Manager of Corporate Compliance by completing a
Preclearance Request Form (see Exhibit C1).
The Manager of Corporate Compliance will notify the Insider
Risk Associate whether the request is approved or denied,
without disclosing the reason for such approval or denial.
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Notifications may be given in writing or verbally by the
Manager of Corporate Compliance to the Insider Risk
Associate. A record of such notification will be maintained
by the Manager of Corporate Compliance. However, it shall
be the responsibility of the Insider Risk Associate to
obtain a written record of the Manager of Corporate
Compliance's notification within 24 hours of such
notification. The Insider Risk Associate should retain a
copy of this written record.
As there could be many reasons for preclearance being
granted or denied, Insider Risk Associates should not infer
from the preclearance response anything regarding the
security for which preclearance was requested.
Although making a preclearance request does not obligate an
Insider Risk Associate to do the transaction, it should be
noted that:
o preclearance authorization will expire at the end of the
third business day after it is received (the day
authorization is granted is considered the first business
day);
o preclearance requests should not be made for a transaction
that the Insider Risk Associate does not intend to make;
and
o Insider Risk Associates should not discuss with anyone
else, inside or outside Mellon, the response they received
to a preclearance request.
Every Insider Risk Associate must follow these procedures
or risk serious sanctions, including dismissal. If you have
any questions about these procedures you should consult the
Manager of Corporate Compliance. Interpretive issues that
arise under these procedures shall be decided by, and are
subject to the discretion of, the Manager of Corporate
Compliance.
RESTRICTED LIST - The Manager of Corporate Compliance will
maintain a list (the "Restricted List") of companies whose
securities are deemed appropriate for implementation of
trading restrictions for Insider Risk Associates.
Restricted List(s) will not be distributed outside of the
Risk Management and Compliance Department. From time to
time, such trading restrictions may be appropriate to
protect Mellon and its Insider Risk Associates from
potential violations, or the appearance of violations, of
securities laws. The inclusion of a company on the
Restricted List provides no indication of the advisability
of an investment in the company's securities or the
existence of material nonpublic information on the company.
Nevertheless, the contents of the Restricted List will be
treated as confidential information to avoid unwarranted
inferences.
To assist the Manager of Corporate Compliance in
identifying companies that may be appropriate for inclusion
on the Restricted List, the department heads of sections in
which Insider Risk Associates are employed will inform the
Manager of Corporate Compliance in writing of any companies
they believe should be included on the Restricted List,
based upon facts known or readily available to such
department heads. Although the reasons for inclusion on the
Restricted List may vary, they could typically include the
following:
o Mellon is involved as a lender, investor or adviser in a
merger, acquisition or financial restructuring involving
the company;
o Mellon is involved as a selling shareholder in a public
distribution of the company's securities;
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o Mellon is involved as an agent in the distribution of the
company's securities;
o Mellon has received material nonpublic information on the
company;
o Mellon is considering the exercise of significant
creditors' rights against the company; or
o The company is a Mellon borrower in Credit Recovery.
Department heads of sections in which Insider Risk
Associates are employed are also responsible for notifying
the Manager of Corporate Compliance in writing of any
change in circumstances making it appropriate to remove a
company from the Restricted List.
PERSONAL SECURITIES TRANSACTIONS REPORTS
o BROKERAGE ACCOUNTS - All Insider Risk Associates are
required to instruct their brokers to submit directly to
the Manager of Corporate Compliance copies of all trade
confirmations and statements relating to their account. An
example of an instruction letter to a broker is
contained in Exhibit B1.
o REPORT OF TRANSACTIONS IN MELLON SECURITIES - Insider Risk
Associates must also report in writing to the Manager of
Corporate Compliance within ten calendar days whenever they
purchase or sell Mellon securities if the transaction was
not through a brokerage account as described above.
Purchases and sales of Mellon securities include the
following:
DRIP OPTIONAL CASH PURCHASES - Optional cash purchases
under Mellon's Dividend Reinvestment and Common Stock
Purchase Plan (the "Mellon DRIP").
STOCK OPTIONS - The sale of stock received upon the
exercise of an associate stock option unless the sale is
part of a "netting of shares" or "cashless exercise"
administered by the Human Resources Department (for which
the Human Resources Department will forward information to
the Manager of Corporate Compliance).
It should be noted that the reinvestment of dividends under
the DRIP, changes in elections under Mellon's Retirement
Savings Plan, the receipt of stock under Mellon's
Restricted Stock Award Plan and the receipt or exercise of
options under Mellon's Long-Term Profit Incentive Plan are
not considered purchases or sales for the purpose of this
reporting requirement.
An example of a written report to the Manager of Corporate
Compliance is contained in Exhibit A.
CONFIDENTIAL TREATMENT
THE MANAGER OF CORPORATE COMPLIANCE WILL USE HIS OR HER
BEST EFFORTS TO ASSURE THAT ALL REQUESTS FOR PRECLEARANCE,
ALL PERSONAL SECURITIES TRANSACTION REPORTS AND ALL REPORTS
OF SECURITIES HOLDINGS ARE TREATED AS "PERSONAL AND
CONFIDENTIAL." HOWEVER, SUCH DOCUMENTS WILL BE AVAILABLE
FOR INSPECTION BY APPROPRIATE REGULATORY AGENCIES AND BY
OTHER PARTIES WITHIN AND OUTSIDE MELLON AS ARE NECESSARY TO
EVALUATE COMPLIANCE WITH OR SANCTIONS UNDER THIS POLICY.
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PART III - APPLICABLE TO
INVESTMENT ASSOCIATES ONLY
- ----------------------------------
Because of their particular responsibilities, Investment
Associates are subject to different preclearance and
personal securities reporting requirements as discussed
below.
SPECIAL STANDARDS OF CONDUCT FOR INVESTMENT ASSOCIATES
CONFLICT OF INTEREST - No Investment Associate may
recommend a securities transaction for a Mellon customer to
whom a fiduciary duty is owed, or for Mellon, without
disclosing any interest he or she has in such securities or
issuer (other than an interest in publicly traded
securities where the total investment is equal to or less
than $25,000), including:
o any direct or indirect beneficial ownership of any
securities of such issuer;
o any contemplated transaction by the Investment Associate
in such securities;
o any position with such issuer or its affiliates; and
o any present or proposed business relationship between such
issuer or its affiliates and the Investment Associate or
any party in which the Investment Associate has a
beneficial ownership interest (see "Beneficial Ownership"
in Section Four, "Restrictions On Transactions in Mellon
Securities").
PORTFOLIO INFORMATION - No Investment Associate may divulge
the current portfolio positions, or current or anticipated
portfolio transactions, programs or studies, of Mellon or
any Mellon customer to anyone unless it is properly within
his or her job responsibilities to do so.
MATERIAL NONPUBLIC INFORMATION - No Investment Associate
may engage in or recommend a securities transaction, for
his or her own benefit or for the benefit of others,
including Mellon or its customers, while in possession of
material nonpublic information regarding such securities.
No Investment Associate may communicate material nonpublic
information to others unless it is properly within his or
her job responsibilities to do so.
SHORT-TERM TRADING - Any Investment Associate who purchases
and sells, or sells and purchases, the same (or equivalent)
securities within any 60-calendar-day period is required to
disgorge all profits realized on such transaction in
accordance with procedures established by senior
management. For this purpose, securities will be deemed to
be equivalent if one is convertible into the other, if one
entails a right to purchase or sell the other, or if the
value of one is expressly dependent on the value of the
other (e.g., derivative securities).
ADDITIONAL RESTRICTIONS FOR DREYFUS ASSOCIATES AND
ASSOCIATES OF MELLON ENTITIES REGISTERED UNDER THE
INVESTMENT ADVISERS ACT OF 1940 ONLY ("40 Act
Associates")
o OUTSIDE ACTIVITIES - No 40 Act associate may serve on the
board of directors/trustees or as a general partner of any
publicly traded company (other than Mellon) without the
prior approval of the Manager of Corporate Compliance.
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o GIFTS - All 40 Act associates are prohibited from accepting
gifts from outside companies, or their representatives,
with an exception for gifts of (1) a DE MINIMIS value and
(2) an occasional meal, a ticket to a sporting event or the
theater, or comparable entertainment for the 40 Act
associate and, if appropriate, a guest, which is neither so
frequent nor extensive as to raise any question of
impropriety. A gift shall be considered DE MINIMIS if it
does not exceed an annual amount per person fixed
periodically by the National Association of Securities
Dealers, which is currently $100 per person.
o BLACKOUT PERIOD - 40 Act associates will not be given
clearance to execute a transaction in any security that is
being considered for purchase or sale by an affiliated
investment company, managed account or trust, for which
a pending buy or sell order for such affiliated account
is pending, and for two business days after the
transaction in such security for such affiliated account
has been effected. This provision does not apply to
transactions effected or contemplated by index funds.
In addition, portfolio managers for the investment
companies are prohibited from buying or selling a security
within seven calendar days before and after such investment
company trades in that security. Any violation of the
foregoing will require the violator to disgorge all profit
realized with respect to such transaction.
PRECLEARANCE FOR PERSONAL SECURITIES TRANSACTIONS - All
Investment Associates must notify the Preclearance
Compliance Officer (see Glossary) in writing and receive
preclearance BEFORE they engage in any purchase or sale
of a security.
EXEMPTIONS FROM REQUIREMENT TO PRECLEAR - Preclearance is
not required for the following transactions:
o purchases or sales of "Exempt Securities" (see Glossary);
o purchases or sales effected in any account over which an
associate has no direct or indirect control over the
investment decision-making process (i.e., nondiscretionary
trading accounts). Nondiscretionary trading accounts may
only be maintained, without being subject to preclearance
procedures, when the Preclearance Compliance Officer,
after a thorough review, is satisfied that the account
is truly nondiscretionary;
o transactions which are non-volitional on the part of an
associate (such as stock dividends);
o the sale of stock received upon the exercise of an
associate stock option if the sale is part of a "netting of
shares" or "cashless exercise" administered by the Human
Resources Department (for which the Human Resources
Department will forward information to the manager of
Corporate Compliance);
o purchases which are part of an automatic reinvestment of
dividends under a DRIP (Preclearance is required for
OPTIONAL cash purchases under a DRIP);
o purchases effected upon the exercise of rights issued by an
issuer PRO RATA to all holders of a class of securities, to
the extent such rights were acquired from such issuer;
o sales of rights acquired from an issuer, as described
above; and/or
o those situations where the Preclearance Compliance Officer
determines, after taking into consideration the particular
facts and circumstances, that prior approval is not
necessary.
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REQUESTS FOR PRECLEARANCE - All requests for preclearance
for a securities transaction shall be submitted to the
Preclearance Compliance Officer by completing a
Preclearance Request Form. (Investment Associates other
than Dreyfus associates are to use the Preclearance Request
Form shown as Exhibit C1. Dreyfus associates are to use the
Preclearance Request Form shown as Exhibit C2.)
The Preclearance Compliance Officer will notify the
Investment Associate whether the request is approved or
denied without disclosing the reason for such approval or
denial.
Notifications may be given in writing or verbally by the
Preclearance Compliance Officer to the Investment
Associate. A record of such notification will be maintained
by the Preclearance Compliance Officer. However, it shall
be the responsibility of the Investment Associate to obtain
a written record of the Preclearance Compliance Officer's
notification within 24 hours of such notification. The
Investment Associate should retain a copy of this written
record.
As there could be many reasons for preclearance being
granted or denied, Investment Associates should not infer
from the preclearance response anything regarding the
security for which preclearance was requested.
Although making a preclearance request does not obligate an
Investment Associate to do the transaction, it should be
noted that:
o preclearance authorization will expire at the end of the
day on which preclearance is given;
o preclearance requests should not be made for a transaction
that the Investment Associate does not intend to make; and
o Investment Associates should not discuss with anyone else,
inside or outside Mellon, the response the Investment
Associate received to a preclearance request.
Every Investment Associate must follow these procedures or
risk serious sanctions, including dismissal. If you have
any questions about these procedures, consult the
Preclearance Compliance Officer. Interpretive issues that
arise under these procedures shall be decided by, and are
subject to the discretion of, the Manager of Corporate
Compliance.
RESTRICTED LIST - Each Preclearance Compliance Officer will
maintain a list (the "Restricted List") of companies whose
securities are deemed appropriate for implementation of
trading restrictions for Investment Associates in their
area. From time to time, such trading restrictions may be
appropriate to protect Mellon and its Investment Associates
from potential violations, or the appearance of violations,
of securities laws. The inclusion of a company on the
Restricted List provides no indication of the advisability
of an investment in the company's securities or the
existence of material nonpublic information on the company.
Nevertheless, the contents of the Restricted List will be
treated as confidential information in order to avoid
unwarranted inferences.
In order to assist the Preclearance Compliance Officer in
identifying companies that may be appropriate for inclusion
on the Restricted List, the head of the
entity/department/area in which Investment Associates are
employed will inform the appropriate Preclearance
Compliance Officer in writing of any companies that they
believe should be included on the Restricted List based
upon facts known or readily available to such department
heads.
22
<PAGE>
PERSONAL SECURITIES TRANSACTIONS REPORTS
o BROKERAGE ACCOUNTS - All Investment Associates are required
to instruct their brokers to submit directly to the Manager
of Corporate Compliance copies of all trade confirmations
and statements relating to their account. Examples of
instruction letters to a broker are contained in Exhibits
B1 and B2.
o REPORT OF TRANSACTIONS IN MELLON SECURITIES - Investment
Associates must also report in writing to the Manager of
Corporate Compliance within ten calendar days whenever they
purchase or sell Mellon securities if the transaction was
not through a brokerage account as described above.
Purchases and sales of Mellon securities include the
following:
DRIP OPTIONAL CASH PURCHASES - Optional cash purchases
under Mellon's Dividend Reinvestment and Common Stock
Purchase Plan (the "Mellon DRIP").
STOCK OPTIONS - The sale of stock received upon the
exercise of an associate stock option unless the sale is
part of a "netting of shares" or "cashless exercise"
administered by the Human Resources Department (for which
the Human Resources Department will forward information to
the Manager of Corporate Compliance).
It should be noted that the reinvestment of dividends under
the DRIP, changes in elections under Mellon's Retirement
Savings Plan, the receipt of stock under Mellon's
Restricted Stock Award Plan, and the receipt or exercise of
options under Mellon's Long-Term Profit Incentive Plan are
not considered purchases or sales for the purpose of this
reporting requirement.
An example of a written report to the Manager of Corporate
Compliance is contained in Exhibit A.
o STATEMENT OF SECURITIES HOLDINGS - Within ten days of
receiving this Policy and on an annual basis thereafter,
all Investment Associates must submit to the Manager of
Corporate Compliance a statement of all securities in which
they presently have any direct or indirect beneficial
ownership other than Exempt Securities, as defined in
the Glossary. Investment Associates should refer to
"Beneficial Ownership" in Section Four, "Restrictions on
Transactions in Mellon Securities," which is also
applicable to Investment Associates. Such statements
should be in the format shown in Exhibit D. The annual
report must be submitted by January 31 and must report
all securities holdings other than Exempt Securities.
The annual statement of securities holdings contains an
acknowledgment that the Investment Associate has read
and complied with this Policy.
o SPECIAL REQUIREMENT WITH RESPECT TO AFFILIATED INVESTMENT
COMPANIES - The portfolio managers, research analysts and
other Investment Associates specifically designated by the
Manager of Corporate Compliance are required within ten
calendar days of receiving this Policy (and by no later
than ten calendar days after the end of each calendar
quarter) to report every transaction in the securities
issued by an affiliated investment company occurring in
an account in which the Investment Associate has a
beneficial ownership interest. The quarterly reporting
requirement may be satisfied by notifying the Manager of
Corporate Compliance of the name of the investment
company, account name and account number for which such
quarterly reports must be submitted.
23
<PAGE>
CONFIDENTIAL TREATMENT
THE PRECLEARANCE COMPLIANCE OFFICER WILL USE HIS OR HER
BEST EFFORTS TO ASSURE THAT ALL REQUESTS FOR PRECLEARANCE,
ALL PERSONAL SECURITIES TRANSACTION REPORTS AND ALL REPORTS
OF SECURITIES HOLDINGS ARE TREATED AS "PERSONAL AND
CONFIDENTIAL." HOWEVER, SUCH DOCUMENTS WILL BE AVAILABLE
FOR INSPECTION BY APPROPRIATE REGULATORY AGENCIES, AND BY
OTHER PARTIES WITHIN AND OUTSIDE MELLON AS ARE NECESSARY TO
EVALUATE COMPLIANCE WITH OR SANCTIONS UNDER THIS POLICY.
DOCUMENTS RECEIVED FROM DREYFUS ASSOCIATES ARE ALSO
AVAILABLE FOR INSPECTION BY THE BOARDS OF DIRECTORS OF
DREYFUS AND BY THE BOARDS OF DIRECTORS (OR TRUSTEES OR
MANAGING GENERAL PARTNERS, AS APPLICABLE) OF THE INVESTMENT
COMPANIES MANAGED OR ADMINISTERED BY DREYFUS.
24
<PAGE>
PART IV - APPLICABLE TO
OTHER ASSOCIATES ONLY
- ----------------------------------
PRECLEARANCE FOR PERSONAL SECURITIES TRANSACTIONS - Except
for private placements, Other Associates ARE PERMITTED to
engage in personal securities transactions without
obtaining prior approval from the Manager of Corporate
Compliance (for preclearance of private placements, use the
Preclearance Request Form shown as Exhibit C1.)
PERSONAL SECURITIES TRANSACTIONS REPORTS - Other Associates
are NOT required to report their personal securities
transactions OTHER THAN margin transactions and
transactions involving Mellon securities as discussed
below. Other Associates are required to instruct their
brokers to submit directly to the Manager of Corporate
Compliance copies of all confirmations and statements
pertaining to margin accounts. Examples of an instruction
letter to a broker are shown in Exhibit B1.
REPORT OF TRANSACTIONS IN MELLON SECURITIES - Other
Associates must report in writing to the Manager of
Corporate Compliance within ten calendar days whenever they
purchase or sell Mellon securities. Purchases and sales of
Mellon securities include the following:
o DRIP OPTIONAL CASH PURCHASES - Optional cash purchases
under Mellon's Dividend Reinvestment and Common Stock
Purchase Plan (the "Mellon DRIP").
o STOCK OPTIONS - The sale of stock received upon the
exercise of an associate stock option unless the sale is
part of a "netting of shares" or "cashless exercise"
administered by the Human Resources Department (for which
the Human Resources Department will forward information to
the Manager of Corporate Compliance).
It should be noted that the reinvestment of dividends under
the DRIP, changes in elections under Mellon's Retirement
Savings Plan, the receipt of stock under Mellon's
Restricted Stock Award Plan and the receipt or exercise of
options under Mellon's Long-Term Profit Incentive Plan are
not considered purchases or sales for the purpose of this
reporting requirement.
An example of a written report to the Manager of Corporate
Compliance is contained in Exhibit A.
RESTRICTIONS ON TRANSACTIONS IN OTHER SECURITIES
MARGIN TRANSACTIONS - Prior to establishing a margin
account, Other Associates must obtain the written
permission of the Manager of Corporate Compliance. Other
Associates having a margin account prior to the effective
date of this Policy must notify the Manager of Corporate
Compliance of the existence of such account.
25
<PAGE>
All associates having margin accounts, other than described
below, must designate the Manager of Corporate Compliance
as an interested party on each account. Associates must
ensure that the Manager of Corporate Compliance promptly
receives copies of all trade confirmations and statements
relating to the accounts directly from the broker. If
requested by a brokerage firm, please contact the Manager
of Corporate Compliance to obtain a letter (sometimes
referred to as a "407 letter") granting permission to
maintain a margin account. Trade confirmations and
statements are not required on margin accounts established
at Dreyfus Investment Services Corporation for the sole
purpose of cashless exercises of Mellon employee stock
options. In addition, products may be offered by a
broker/dealer that, because of their characteristics, are
considered margin accounts but have been determined by the
Manager of Corporate Compliance to be outside the scope of
this Policy (e.g., a Cash Management account which provides
overdraft protection for the customer). Any questions
regarding the establishment, use and reporting of margin
accounts should be directed to the Manager of Corporate
Compliance. An example of an instruction letter to a broker
is shown in Exhibit B1.
PRIVATE PLACEMENTS - Other Associates are prohibited from
acquiring any security in a private placement unless they
obtain the prior written approval of the Manager of
Corporate Compliance and the Associate's department head.
Approval must be given by both of the aforementioned
persons for the acquisition to be considered approved.
As there could be many reasons for preclearance being
granted or denied, Other Associates should not infer from
the preclearance response anything regarding the security
for which preclearance was requested.
Although making a preclearance request does not obligate an
Other Associate to do the transaction, it should be noted
that:
o preclearance authorization will expire at the end of the
third business day after it is received (the day
authorization is granted is considered the first business
day);
o preclearance requests should not be made for a transaction
that the Other Associate does not intend to make; and
o Other Associates should not discuss with anyone else,
inside or outside Mellon, the response they received to a
preclearance request.
Every Other Associate must follow these procedures or risk
serious sanctions, including dismissal. If you have any
questions about these procedures you should consult the
Manager of Corporate Compliance. Interpretive issues that
arise under these procedures shall be decided by, and are
subject to the discretion of, the Manager of Corporate
Compliance.
CONFIDENTIAL TREATMENT
THE MANAGER OF CORPORATE COMPLIANCE WILL USE HIS OR HER
BEST EFFORTS TO ASSURE THAT ALL REQUESTS FOR PRECLEARANCE,
ALL PERSONAL SECURITIES TRANSACTION REPORTS AND ALL REPORTS
OF SECURITIES HOLDINGS ARE TREATED AS "PERSONAL AND
CONFIDENTIAL." HOWEVER, SUCH DOCUMENTS WILL BE AVAILABLE
FOR INSPECTION BY APPROPRIATE REGULATORY AGENCIES AND OTHER
PARTIES WITHIN AND OUTSIDE MELLON AS ARE NECESSARY TO
EVALUATE COMPLIANCE WITH OR SANCTIONS UNDER THIS POLICY.
26
<PAGE>
PART V - APPLICABLE TO
NONMANAGEMENT BOARD MEMBER
- ----------------------------------
NONMANAGEMENT BOARD MEMBER -
You are considered to be a Nonmanagement Board Member if
you are:
o a director of Dreyfus who is not also an officer or
employee of Dreyfus ("Dreyfus Board Member"); or
o a director, trustee or managing general partner of any
investment company who is not also an officer or employee
of Dreyfus ("Mutual Fund Board Member").
The term "Independent" Mutual Fund Board Member means those
Mutual Fund Board Members who are NOT deemed "interested
persons" of an investment company, as defined by the
Investment Company Act of 1940, as amended.
STANDARDS OF CONDUCT FOR NONMANAGEMENT BOARD MEMBER
OUTSIDE ACTIVITIES - Nonmanagement Board Members are
prohibited from:
o accepting nomination or serving as a director, trustee or
managing general partner of an investment company not
advised by Dreyfus, WITHOUT the express prior approval of
the board of directors of Dreyfus and the board of
directors/trustees or managing general partners of the
pertinent Dreyfus-managed fund(s) for which a
Nonmanagement Board Member serves as a director, trustee
or managing general partner;
o accepting employment with or acting as a consultant to any
person acting as a registered investment adviser to an
investment company without the express prior approval of
the board of directors of Dreyfus;
o owning Mellon securities if the Nonmanagement Board Member
is an "Independent" Mutual Fund Board Member, (since that
would destroy his or her "independent" status); and/or
o buying or selling Mellon's publicly traded securities
during a blackout period, which begins the 16th day of the
last month of each calendar quarter and ends three business
days after Mellon publicly announces the financial results
for that quarter.
INSIDER TRADING AND TIPPING - The provisions set forth in
Section Two, "Insider Trading and Tipping," are applicable
to Nonmanagement Board Members.
27
<PAGE>
CONFLICT OF INTEREST - No Nonmanagement Board Member may
recommend a securities transaction for Mellon, Dreyfus or
any Dreyfus-managed fund without disclosing any interest he
or she has in such securities or issuer thereof (other than
an interest in publicly traded securities where the total
investment is less than or equal to $25,000), including:
o any direct or indirect beneficial ownership of any
securities of such issuer;
o any contemplated transaction by the Nonmanagement Board
Member in such securities;
o any position with such issuer or its affiliates; and
o any present or proposed business relationship between such
issuer or its affiliates and the Nonmanagement Board Member
or any party in which the Nonmanagement Board Member has a
beneficial ownership interest (see "Beneficial Ownership",
Section Four, "Restrictions on Transaction
in Mellon Securities").
PORTFOLIO INFORMATION - No Nonmanagement Board Member may
divulge the current portfolio positions, or current or
anticipated portfolio transactions, programs or studies, of
Mellon, Dreyfus or any Dreyfus-managed fund, to anyone
unless it is properly within his or her responsibilities as
a Nonmanagement Board Member to do so.
MATERIAL NONPUBLIC INFORMATION - No Nonmanagement Board
Member may engage in or recommend any securities
transaction, for his or her own benefit or for the benefit
of others, including Mellon, Dreyfus or any Dreyfus-managed
fund, while in possession of material nonpublic
information. No Nonmanagement Board Member may communicate
material nonpublic information to others unless it is
properly within his or her responsibilities as a
Nonmanagement Board Member to do so.
PRECLEARANCE FOR PERSONAL SECURITIES TRANSACTIONS -
Nonmanagement Board Members ARE PERMITTED to engage in
personal securities transactions without obtaining prior
approval from the Preclearance Compliance Officer.
28
<PAGE>
PERSONAL SECURITY TRANSACTIONS REPORTS -
o "INDEPENDENT" MUTUAL FUND BOARD MEMBERS - Any "Independent"
Mutual Fund Board Members, as defined above, who effects a
securities transaction where he or she knew, or in the
ordinary course of fulfilling his or her official duties
should have known, that during the 15-day period
immediately preceding or after the date of such
transaction, the same security was purchased or sold, or
was being considered for purchase or sale by Dreyfus
(including any investment company or other account
managed by Dreyfus), are required to report such
personal securities transaction. In the event a
personal securities transaction report is required, it
must be submitted to the Preclearance Compliance Officer
not later than ten days after the end of the calendar
quarter in which the transaction to which the report
relates was effected. The report must include the date
of the transaction, the title and number of shares or
principal amount of the security, the nature of the
transaction (e.g., purchase, sale or any other type of
acquisition or disposition), the price at which the
transaction was effected and the name of the broker or
other entity with or through whom the transaction was
effected. This reporting requirement can be satisfied
by sending a copy of the confirmation statement
regarding such transactions to the Preclearance
Compliance Officer within the time period specified.
Notwithstanding the foregoing, personal securities
transaction reports are NOT required with respect to any
securities transaction described in "Exemption from the
Requirement to Preclear" in Part III.
o DREYFUS BOARD MEMBERS AND "INTERESTED" MUTUAL FUND BOARD
MEMBERS - Dreyfus Board Members and Mutual Fund Board
Members who are "interested persons" of an investment
company, as defined by the Investment Company Act of 1940,
are required to report their personal securities
transactions. Personal securities transaction reports
are required with respect to any securities transaction
other than those described in "Exemptions from
Requirement to Preclear" on Page 21. Personal
securities transaction reports are required to be
submitted to the Preclearance Compliance Officer not
later than ten days after the end of the calendar
quarter in which the transaction to which the report
relates was effected. The report must include the date
of the transaction, the title and number of shares or
principal amount of the security, the nature of the
transaction (e.g., purchase, sale or any other type of
acquisition or disposition), the price at which the
transaction was effected and the name of the broker or
other entity with or through whom the transaction was
effected. This reporting requirement can be satisfied
by sending a copy of the confirmation statement
regarding such transactions to the Preclearance
Compliance Officer within the time period specified.
CONFIDENTIAL TREATMENT
THE PRECLEARANCE COMPLIANCE OFFICER WILL USE HIS OR HER
BEST EFFORTS TO ASSURE THAT ALL PERSONAL SECURITIES
TRANSACTION REPORTS ARE TREATED AS "PERSONAL AND
CONFIDENTIAL." HOWEVER, SUCH DOCUMENTS WILL BE AVAILABLE
FOR INSPECTION BY APPROPRIATE REGULATORY AGENCIES AND OTHER
PARTIES WITHIN AND OUTSIDE MELLON AS ARE NECESSARY TO
EVALUATE COMPLIANCE WITH OR SANCTIONS UNDER THIS POLICY.
29
<PAGE>
GLOSSARY
- ----------------------------------
DEFINITIONS
o APPROVAL - written consent or written notice of
nonobjection.
o ASSOCIATE - any employee of Mellon Bank Corporation or its
direct or indirect subsidiaries; does not include outside
consultants or temporary help.
o BENEFICIAL OWNERSHIP - securities owned of record or held
in the associate's name are generally considered to be
beneficially owned by the associate.
Securities held in the name of any other person are deemed
to be beneficially owned by the associate if by reason of
any contract, understanding, relationship, agreement or
other arrangement, the associate obtains therefrom benefits
substantially equivalent to those of ownership, including
the power to vote, or to direct the disposition of, such
securities. Beneficial ownership includes securities held
by others for the associate's benefit (regardless of record
ownership), e.g. securities held for the associate or
members of the associate's immediate family, defined below,
by agents, custodians, brokers, trustees, executors or
other administrators; securities owned by the associate,
but which have not been transferred into the associate's
name on the books of the company; securities which the
associate has pledged; or securities owned by a corporation
that should be regarded as the associate's personal holding
corporation. As a natural person, beneficial ownership is
deemed to include securities held in the name or for the
benefit of the associate's immediate family, which includes
the associate's spouse, the associate's minor children and
stepchildren and the associate's relatives or the relatives
of the associate's spouse who are sharing the associate's
home, unless because of countervailing circumstances, the
associate does not enjoy benefits substantially equivalent
to those of ownership. Benefits substantially equivalent to
ownership include, for example, application of the income
derived from such securities to maintain a common home,
meeting expenses that such person otherwise would meet from
other sources, and the ability to exercise a controlling
influence over the purchase, sale or voting of such
securities. An associate is also deemed the beneficial
owner of securities held in the name of some other person,
even though the associate does not obtain benefits of
ownership, if the associate can vest or revest title in
himself at once, or at some future time.
In addition, a person will be deemed the beneficial owner
of a security if he has the right to acquire beneficial
ownership of such security at any time (within 60 days)
including but not limited to any right to acquire: (1)
through the exercise of any option, warrant or right; (2)
through the conversion of a security; or (3) pursuant to
the power to revoke a trust, nondiscretionary account or
similar arrangement.
30
<PAGE>
With respect to ownership of securities held in trust,
beneficial ownership includes ownership of securities as a
trustee in instances where either the associate as trustee
or a member of the associate's "immediate family" has a
vested interest in the income or corpus of the trust, the
ownership by the associate of a vested beneficial interest
in the trust and the ownership of securities as a settlor
of a trust in which the associate as the settlor has the
power to revoke the trust without obtaining the consent of
the beneficiaries. Certain exemptions to these trust
beneficial ownership rules exist, including an exemption
for instances where beneficial ownership is imposed solely
by reason of the associate being settlor or beneficiary of
the securities held in trust and the ownership, acquisition
and disposition of such securities by the trust is made
without the associate's prior approval as settlor or
beneficiary. "Immediate family" of an associate as trustee
means the associate's son or daughter (including any
legally adopted children) or any descendant of either, the
associate's stepson or stepdaughter, the associate's father
or mother or any ancestor of either, the associate's
stepfather or stepmother and his spouse.
To the extent that stockholders of a company use it as a
personal trading or investment medium and the company has
no other substantial business, stockholders are regarded as
beneficial owners, to the extent of their respective
interests, of the stock thus invested or traded in. A
general partner in a partnership is considered to have
indirect beneficial ownership in the securities held by the
partnership to the extent of his pro rata interest in the
partnership. Indirect beneficial ownership is not, however,
considered to exist solely by reason of an indirect
interest in portfolio securities held by any holding
company registered under the Public Utility Holding Company
Act of 1935, a pension or retirement plan holding
securities of an issuer whose employees generally are
beneficiaries of the plan and a business trust with over 25
beneficiaries.
Any person who, directly or indirectly, creates or uses a
trust, proxy, power of attorney, pooling arrangement or any
other contract, arrangement or device with the purpose or
effect of divesting such person of beneficial ownership as
part of a plan or scheme to evade the reporting
requirements of the Securities Exchange Act of 1934 shall
be deemed the beneficial owner of such security.
The final determination of beneficial ownership is a
question to be determined in light of the facts of a
particular case. Thus, while the associate may include
security holdings of other members of his family, the
associate may nonetheless disclaim beneficial ownership of
such securities.
o "CHINESE WALL" POLICY - procedures designed to restrict the
flow of information within Mellon from units or individuals
who are likely to receive material nonpublic information to
units or individuals who trade in securities or provide
investment advice. (see pages 12-14).
o CORPORATION - Mellon Bank Corporation.
o DREYFUS - The Dreyfus Corporation and its subsidiaries.
o DREYFUS ASSOCIATE - any employee of Dreyfus; does not
include outside consultants or temporary help.
31
<PAGE>
o EXEMPT SECURITIES - Exempt Securities are defined as:
- securities issued or guaranteed by the United States
government or agencies or instrumentalities;
- bankers' acceptances;
- bank certificates of deposit and time deposits;
- commercial paper;
- repurchase agreements; and
- securities issued by open-end investment companies.
o GENERAL COUNSEL - General Counsel of Mellon Bank
Corporation or any person to whom relevant authority is
delegated by the General Counsel.
o INDEX FUND - an investment company which seeks to mirror
the performance of the general market by investing in the
same stocks (and in the same proportion) as a broad-based
market index.
o INITIAL PUBLIC OFFERING (IPO) - the first offering of a
company's securities to the public.
o INVESTMENT COMPANY - a company that issues securities that
represent an undivided interest in the net assets held by
the company. Mutual funds are investment companies that
issue and sell redeemable securities representing an
undivided interest in the net assets of the company.
o MANAGER OF CORPORATE COMPLIANCE - - the associate within
the Risk Management and Compliance Department of Mellon
Bank Corporation who is responsible for administering the
Confidential Information and Securities Trading Policy, or
any person to whom relevant authority is delegated by the
Manager of Corporate Compliance.
o MELLON - Mellon Bank Corporation and all of its direct and
indirect subsidiaries.
o NAKED OPTION - an option sold by the investor which
obligates him or her to sell a security which he or she
does not own.
o NONDISCRETIONARY TRADING ACCOUNT - an account over which
the associated person has no direct or indirect control
over the investment decision-making process.
o OPTION - a security which gives the investor the right but
not the obligation to buy or sell a specific security at a
specified price within a specified time.
o PRECLEARANCE COMPLIANCE OFFICER - a person designated by
the Manager of Corporate Compliance, to administer, among
other things, associates' preclearance request for a
specific business unit.
o PRIVATE PLACEMENT - an offering of securities that is
exempt from registration under the Securities Act of 1933
because it does not constitute a public offering.
o SENIOR MANAGEMENT COMMITTEE - the Senior Management
Committee of Mellon Bank Corporation.
o SHORT SALE - the sale of a security that is not owned by
the seller at the time of the trade.
32
<PAGE>
INDEX OF EXHIBITS
- ----------------------------------
EXHIBIT A SAMPLE REPORT TO MANAGER OF CORPORATE COMPLIANCE
EXHIBIT B SAMPLE INSTRUCTION LETTER TO BROKER
EXHIBIT C PRECLEARANCE REQUEST FORM
EXHIBIT D PERSONAL SECURITIES HOLDINGS FORM
33
<PAGE>
EXHIBIT A
SAMPLE REPORT TO MANAGER OF CORPORATE COMPLIANCE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MELLON INTEROFFICE
MEMORANDUM
Date: From: Associate
To: Manager, Corporate Compliance Dept:
Aim #:
Aim #: 151-4342 Phone:
Fax:
- --------------------------------------------------------------------------------
RE: REPORT OF SECURITIES TRADE
Type of Associate: _____________ Insider Risk
_____________ Investment
_____________ Other
Type of Security: _____________ Mellon Bank Corporation
_____________ Mellon Bank Corporation -
optional cash
purchases under Dividend
Reinvestment
and Common Stock Purchase Plan
_____________ Mellon Bank Corporation -
exercise of an employee stock
option
Attached is a copy of the confirmation slip for a securities trade I
engaged in on _____________________, 19xx.
or
On _____________________, 19xx, I (purchased/sold)_________________
shares of ___________________________ through (broker). I will
arrange to have a copy of the confirmation slip for this trade
delivered to you as soon as possible.
- --------------------------------------------------------------------------------
34
<PAGE>
EXHIBIT B1
- ----------------------------------
FOR NON-DREYFUS ASSOCIATES
- --------------------------------------------------------------------------------
Date
Broker ABC
Street Address
City, State ZIP
Re: John Smith & Mary Smith
Account No. xxxxxxxxxxxxx
In connection with my existing brokerage accounts at your firm
noted above, please be advised that the Risk Management and
Compliance Department of Mellon Bank should be noted as an
"Interested Party" with respect to my accounts. They should,
therefore, be sent copies of all trade confirmations and
account statements relating to my account.
Please send the requested documentation ensuring the account
holder's name appears on all correspondence to:
Manager, Corporate Compliance
Mellon Bank
P.O. Box 3130
Pittsburgh, PA 15230-3130
Thank you for your cooperation in this request.
Sincerely yours,
Associate
cc: Manager, Corporate Compliance (151-4342)
- --------------------------------------------------------------------------------
35
<PAGE>
EXHIBIT B2
- ----------------------------------
FOR DREYFUS ASSOCIATES
- --------------------------------------------------------------------------------
Date
Broker ABC
Street Address
City, State ZIP
Re: John Smith & Mary Smith
Account No. xxxxxxxxxxxxx
In connection with my existing brokerage accounts at your firm
noted above, please be advised that the Risk Management and
Compliance Department of Dreyfus Corporation should be noted as
an "Interested Party" with respect to my accounts. They should,
therefore, be sent copies of all trade confirmations and
account statements relating to my account.
Please send the requested documentation ensuring the account
holder's name appears on all correspondence to:
Compliance Officer at The Dreyfus Corporation
200 Park Avenue
Legal Department
New York, NY 10166
Thank you for your cooperation in this request.
Sincerely yours,
Associate
cc: Dreyfus Compliance
- --------------------------------------------------------------------------------
36
<PAGE>
EXHIBIT C1
- ----------------------------------
PRECLEARANCE REQUEST FORM NON DREYFUS ASSOCIATES
________________________________________________________________________________
To: Manager, Corporate Compliance 151-4342 (All Insider and Other Associates)
DESIGNATED PRECLEARANCE COMPLIANCE OFFICER (ALL INVESTMENT ASSOCIATES
EXCLUDING DREYFUS)
- --------------------------------------------------------------------------------
Associate Name: Title: Date:
Phone #: AIM #: Social Security #: Department:
- --------------------------------------------------------------------------------
________________________________________________________________________________
ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
Account Name: Account Number: Name of Broker/Bank:
- --------------------------------------------------------------------------------
Relationship to registered owner(s) (if other than associate)
- --------------------------------------------------------------------------------
I hereby request approval to execute the following trade in the above account:
________________________________________________________________________________
TRANSACTION DETAIL
- --------------------------------------------------------------------------------
Buy: Sell: Security/Contract: No. of Shares:
- --------------------------------------------------------------------------------
If sale, Margin Initial Public Private
date acquired: Transaction: Offering: Placement:
Yes Yes Yes
- --------------------------------------------------------------------------------
________________________________________________________________________________
DISCLOSURE STATEMENT
- --------------------------------------------------------------------------------
I hereby represent that, to the best of my knowledge, neither I nor the
registered account holder is (1) attempting to benefit personally from any
existing business relationship between the issuer and Mellon or any
Mellon-related fund or affiliate; (2) engaging in any manipulative or deceptive
trading activity; (3) in possession of any material non-public information
concerning the security to which this request relates.
Associate Signature: Date:
- --------------------------------------------------------------------------------
________________________________________________________________________________
COMPLIANCE OFFICER USE ONLY
- --------------------------------------------------------------------------------
Approved: Disapproved: Authorized Date:
Signatory:
- --------------------------------------------------------------------------------
Comments:
- --------------------------------------------------------------------------------
Note: This preclearance will lapse at the end of the day on _________________,
19___.
IF YOU DECIDE NOT TO EFFECT THE TRADE, PLEASE NOTIFY ME.
- --------------------------------------------------------------------------------
Date: By:
- --------------------------------------------------------------------------------
37
<PAGE>
EXHIBIT C2
- ----------------------------------
PRECLEARANCE REQUEST FORM DREYFUS ASSOCIATES ONLY
________________________________________________________________________________
To: Dreyfus Compliance Officer
- --------------------------------------------------------------------------------
Associate Name: Title: Date:
Phone #: AIM #: Social Security #: Department:
- --------------------------------------------------------------------------------
________________________________________________________________________________
ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
Account Name: Account Number: Name of Broker/Bank:
- --------------------------------------------------------------------------------
Relationship to registered owner(s) (if other than associate)
- --------------------------------------------------------------------------------
I hereby request approval to execute the following trade in the above account:
________________________________________________________________________________
TRANSACTION DETAIL
- --------------------------------------------------------------------------------
Buy: Sell: Security/Contract: Symbol:
- --------------------------------------------------------------------------------
Amount: Currnt Market If sale, date Margin
Price acquired: Transaction:
- --------------------------------------------------------------------------------
Is this a New Issue? If this a Private Placement?
Yes No Yes No
- --------------------------------------------------------------------------------
Reason for Transaction, identify source:
- --------------------------------------------------------------------------------
________________________________________________________________________________
DISCLOSURE STATEMENT
- --------------------------------------------------------------------------------
I hereby represent that, to the best of my knowledge, neither I nor the
registered account holder is (1) attempting to benefit personally from any
existing business relationship between the issuer and Mellon or any
Mellon-related fund or affiliate; (2) engaging in any manipulative or deceptive
trading activity; (3) in possession of any material non-public information
concerning the security to which this request relates.
Associate Signature: Date:
- --------------------------------------------------------------------------------
________________________________________________________________________________
COMPLIANCE OFFICER USE ONLY
- --------------------------------------------------------------------------------
Approved: Disapproved: Authorized Date:
Signatory:
- --------------------------------------------------------------------------------
Comments:
- --------------------------------------------------------------------------------
Note: This preclearance will lapse at the end of the day on _________________,
19___.
IF YOU DECIDE NOT TO EFFECT THE TRADE, PLEASE NOTIFY ME.
- --------------------------------------------------------------------------------
Date: By:
- --------------------------------------------------------------------------------
38
<PAGE>
EXHIBIT D1
- ----------------------------------
Return to: Manager, Corporate Compliance
Mellon Bank
P.O. Box 3130
Pittsburgh, PA 15230-3130
STATEMENT OF SECURITY HOLDINGS
As of _____________________
1. List of all securities in which you, your immediate family, any other
member of your immediate household, or any trust or estate of
which you or your spouse is a trustee or fiduciary or beneficiary,
or of which your minor child is a beneficiary, or any person for
whom you direct or effect transactions under a power of attorney
or otherwise, maintain a beneficial ownership - (see Glossary in
Policy). If none, write NONE. Securities issued or guaranteed by
the U.S. government or its agencies or instrumentalities, bankers'
acceptances, bank certificates of deposit and time deposits,
commercial paper, repurchase agreements and shares of registered
investment companies need NOT be listed. IF YOUR LIST IS
EXTENSIVE, PLEASE ATTACH A COPY OF THE MOST RECENT STATEMENT FROM
YOUR BROKER(S), RATHER THAN LIST THEM ON THIS FORM.
- --------------------------------------------------------------------------------
NAME OF SECURITY TYPE OF SECURITY AMOUNT OF SHARES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. List the names and addresses of any broker/dealers holding accounts in
which you have a beneficial interest, including the name of your
registered representative (if applicable), the account registration and
the relevant account numbers. If none, write NONE.
- --------------------------------------------------------------------------------
BROKER/ ADDRESS NAME OF ACCOUNT ACCOUNT
DEALER REGISTERED REGISTRATION NUMBER(S)
REPRESENTATIVE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I certify that the statements made by me on this form are true, complete and
correct to the best of my knowledge and belief, and are made in good faith. I
acknowledge I have read, understood and complied with the Confidential
Information and Securities Trading Policy.
- --------------------------------------------------------------------------------
Date: Printed Name:
- --------------------------------------------------------------------------------
Signature:
- --------------------------------------------------------------------------------
39
<PAGE>
EXHIBIT D2
- ----------------------------------
Return to: Compliance Officer at the Dreyfus Corporation
200 Park Avenue
Legal Department
New York, NY 10166
STATEMENT OF SECURITY HOLDINGS
As of _____________________
1. List of all securities in which you, your immediate family, any other
member of your immediate household, or any trust or estate of
which you or your spouse is a trustee or fiduciary or beneficiary,
or of which your minor child is a beneficiary, or any person for
whom you direct or effect transactions under a power of attorney
or otherwise, maintain a beneficial interest. If none, write
NONE. Securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities, bankers' acceptances, bank
certificates of deposit and time deposits, commercial paper,
repurchase agreements and shares of registered investment
companies need NOT be listed. IF YOUR LIST IS EXTENSIVE, PLEASE
ATTACH A COPY OF THE MOST RECENT STATEMENT FROM YOUR BROKER(S),
RATHER THAN LIST THEM ON THIS FORM.
- --------------------------------------------------------------------------------
NAME OF SECURITY TYPE OF SECURITY AMOUNT OF SHARES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. List the names and addresses of any broker/dealers holding accounts in
which you have a beneficial interest, including the name of your
registered representative (if applicable), the account registration and
the relevant account numbers. If none, write NONE.
- --------------------------------------------------------------------------------
BROKER/ ADDRESS NAME OF ACCOUNT ACCOUNT
DEALER REGISTERED REGISTRATION NUMBER(S)
REPRESENTATIVE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I certify that the statements made by me on this form are true, complete and
correct to the best of my knowledge and belief, and are made in good faith. I
acknowledge I have read, understood and complied with the Confidential
Information and Securities Trading Policy.
- --------------------------------------------------------------------------------
Date: Printed Name:
- --------------------------------------------------------------------------------
Signature:
- --------------------------------------------------------------------------------
40
