1933 Act Registration No. 333-34844
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. 1 [ X ]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 1 [ X ]
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>
The Mellon Private Asset Management(SM)
Family of Mutual Funds
COMBINED PROSPECTUS
MPAM Funds Trust
Prospectus _______ 2000
SUBJECT TO COMPLETION. PRELIMINARY PROSPECTUS DATED July 7, 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.
[LOGO] Mellon Private Asset Management(SM)
<PAGE>
CONTENTS
THE FUNDS
MPAM LARGE CAP STOCK FUND.................................................3
MPAM INCOME STOCK FUND....................................................7
MPAM MID CAP STOCK FUND..................................................11
MPAM SMALL CAP STOCK FUND................................................15
MPAM INTERNATIONAL FUND..................................................19
MPAM EMERGING MARKETS FUND...............................................23
MPAM BOND FUND...........................................................26
MPAM INTERMEDIATE BOND FUND..............................................31
MPAM SHORT-TERM U.S. GOVERNMENT SECURITIES FUND..........................36
MPAM NATIONAL INTERMEDIATE MUNICIPAL BOND FUND...........................41
MPAM NATIONAL SHORT-TERM MUNICIPAL BOND FUND.............................45
MPAM PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND.......................48
MPAM BALANCED FUND.......................................................53
MANAGEMENT...............................................................60
YOUR INVESTMENT
ACCOUNT POLICIES AND SERVICES............................................63
DISTRIBUTIONS AND TAXES..................................................66
FOR MORE INFORMATION................................................Back Cover
2
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THE FUNDS
The funds are designed primarily for Mellon Private Asset
Management(SERVICEMARK) (MPAM(SERVICEMARK)) 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. "Mellon Private Asset
Management" and "MPAM" are service marks of Mellon Financial Corporation.
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.
MPAM LARGE CAP STOCK FUND
GOAL/APPROACH
The fund seeks investment returns (consisting of capital appreciation and
income) that are consistently superior to those of 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 normally
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.
Consistency of returns and stability of the fund's share price compared to the
S&P 500 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, based on fundamental analysis, the investment adviser generally selects
the most attractive of the higher 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 program 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. The investment adviser reviews each of
the screens on a regular basis, and maintains the flexibility to adapt the
screening criteria to changes in market conditions.
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.
3
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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.
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 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, even if earnings do increase. 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
investment adviser believes is their full market value, either because the
market fails to recognize the stock's intrinsic worth, or the portfolio manager
misgauged that worth. They also may decline in price even though in theory they
are already underpriced. While investments in value stocks may limit downside
risk over time, they may produce smaller gains than riskier stocks.
PERFORMANCE OF SIMILAR COMMON TRUST FUND
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 at right is that of a predecessor common
trust fund (CTF) that, in all material respects, had the same investment
objective, policies, guidelines, and restrictions as the fund, and is for
periods before the effective date of this prospectus. Before the fund's
commencement of operations, substantially all of the assets of the predecessor
CTF (and those of another CTF) will be transferred to the fund. The performance
presented has been adjusted to reflect the fund's fees and expenses, by
subtracting from the actual performance of the CTF the estimated expenses of the
fund as set forth in the summary of "Expenses" on page 5. 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 at right 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 (%)
4
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[BAR CHART]
0.30 35.96 7.47 12.33 -1.32 37.64 25.61 33.40 27.16 18.60
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Q4 '98 +22.58%
Worst Quarter: Q3 '90 -13.48%
The year-to-date total return as of __/__/00 was ____%.
Average annual total return as of 12/31/99
Predecessor CTF 1 Year 5 Years 10 Years
MPAM Large Cap Stock Fund 18.60% 28.32% 18.91%
S&P 500 21.04% 28.56% 18.21%
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Because annual fund operating expenses
are paid out of fund assets, their effect is included in the share price. The
fund has no sales charge (load) or Rule 12b-1 distribution fees.
Fee Table
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Investment advisory fees 0.65%
Other expenses 0.17%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.82%
EXPENSE EXAMPLE
1 Year 3 Years
$84 $262
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.
5
<PAGE>
CONCEPTS TO UNDERSTAND
INVESTMENT ADVISORY: the fee paid to the investment adviser for managing the
fund's portfolio.
OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal
year, including an administration fee of 0.146% (based on the estimated assets
of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing
or arranging for fund accounting, transfer agency, and certain other fund
administration services, and miscellaneous items such as custody and
professional service fees.
6
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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 normally invests at
least 65% of its total assets in dividend-paying stocks. 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 convertible bonds,
preferred stocks, fixed-income securities, American Depositary Receipts (ADRs)
and money market instruments.
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, based on fundamental analysis, the investment adviser generally selects
the most attractive of the higher 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 program 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. The investment adviser reviews each of
the screens on a regular basis, and maintains the flexibility to adapt the
screening criteria to changes in market conditions.
RUSSELL 1000 VALUE INDEX: is an unmanaged, market-capitalization-weighted index
that measures the performance of those of the 1,000 largest U.S. companies based
on total market capitalization that have lower price-to-book ratios and lower
forecasted growth values.
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.
The fund will hold fewer securities than the Russell 1000 Value 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 value and growth companies, the fund assumes the
risks of both, and may achieve more modest gains than funds that use only one
investment style. With value stocks, there is the risk that they may never reach
what the investment adviser believes is their full market value, either because
the market fails to recognize the stock's intrinsic worth, or the portfolio
manager misgauged that worth. They also may decline in price even though in
theory they are already underpriced. While investments in value stocks may limit
downside risk over time, they may produce smaller gains than riskier stocks.
Because 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, even if earnings do increase. Growth stocks also typically lack the
dividend yield that could cushion stock prices in market downturns.
OTHER POTENTIAL RISKS
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.
PERFORMANCE OF SIMILAR COMMON TRUST FUND
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 at right is that of a predecessor common trust fund (CTF) that, in all
material respects, had the same investment objective, policies, guidelines, and
restrictions as the fund, and is for periods before the effective date of this
prospectus. Before the fund's commencement of operations, substantially all of
the assets of the predecessor CTF (and those of another CTF) will be transferred
to the fund. The performance presented has been adjusted to reflect the fund's
fees and expenses, by subtracting from the actual performance of the CTF the
estimated expenses of the fund as set forth in the summary of "Expenses" on
page 9. 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.
Before June 1, 2000, the CTF sought to exceed the total return performance of
the S&P 500 over time. Beginning June 1, 2000, the CTF has sought to exceed the
total return performance of the Russell 1000 Value Index over time. The S&P 500
is an unmanaged index of 500 common stocks chosen to reflect the industries in
the U.S. economy. The Russell 1000 Value Index is an unmanaged, market-
capitalitzation-weighted index that measures the performance of those of the
1,000 largest U.S. companies based on total market capitalization that have
lower price-to-book ratios and lower forecasted growth values. The CTF changed
its benchmark due to the value orientation of the CTF and the Russell 1000 Value
Index.
The bar chart at right 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
8
<PAGE>
index of large-capitalization value 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]
-0.41 33.83 7.28 10.48 -1.15 37.26 23.34 35.27 23.38 5.55
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Q4 '98 +19.78%
Worst Quarter: Q3 '90 -12.31%
The year-to-date total return as of __/__/00 was ____%.
Average annual total return as of 12/31/99*
1 Year 5 Years 10 Years
Predecessor CTF 5.55% 24.43% 16.63%
Russell 1000 Value Index 7.35% 23.08% 15.57%
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Because annual fund operating expenses
are paid out of fund assets, their effect is included in the share price. The
fund has no sales charge (load) or Rule 12b-1 distribution fees.
Fee Table
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Investment advisory fees 0.65%
Other expenses 0.18%
TOTAL 0.83%
EXPENSE EXAMPLE
1 Year 3 Years
$85 $264
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
9
<PAGE>
kept them. Because actual return and expenses will be different, the example is
for comparison only.
CONCEPTS TO UNDERSTAND
INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the
fund's portfolio.
OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal
year, including an administration fee of 0.146% (based on the estimated assets
of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing
or arranging for fund accounting, transfer agency, and certain other fund
administration services, and miscellaneous items such as custody and
professional service fees.
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 those of the Standard & Poor's MidCap
400(REGISTERED) Index (S&P MidCap 400). 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 midsize domestic companies, whose market capitalizations generally range
between $500 million and $5 billion. The fund may purchase securities of
companies 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 S&P MidCap 400 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, based on fundamental analysis, the investment adviser generally selects
the most attractive of the higher 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 MidCap 400.
CONCEPTS TO UNDERSTAND
SMALL AND MID-CAP COMPANIES: new and often entrepreneurial companies. Small and
mid-cap companies can, if successful, grow faster than larger-cap companies and
typically use any profits for expansion rather than for paying dividends. Their
share prices are more volatile than those of larger companies. These companies
fail more often.
COMPUTER MODEL: a proprietary program 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. The investment adviser reviews each of
the screens on a regular basis, and maintains the flexibility to adapt the
screening criteria to changes in market conditions.
S&P MIDCAP 400: a market-capitalization-weighted index of 400
medium-capitalization stocks.
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 midsize companies carry additional risks because their operating
histories tend to be more limited, their earnings are less predictable, and
their share prices tend to be more volatile. The shares of smaller companies
tend to trade less frequently than those of larger, more established companies,
which can have an adverse effect on the pricing of smaller companies' securities
and on the fund's ability to sell them when the portfolio manager deems it
appropriate. These companies may have limited product lines, markets, and/or
financial resources. In addition, these companies may be dependent on a limited
management group. 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 S&P MidCap 400, 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.
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 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, even if earnings do increase. 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
investment adviser believes is their full market value, either because the
market fails to recognize the stock's intrinsic worth, or the portfolio manager
misgauged that worth. They also may decline in price even though in theory they
are already underpriced. While investments in value stocks may limit downside
risk over time, they may produce smaller gains than riskier stocks.
OTHER POTENTIAL RISKS
The fund may invest in securities of foreign issuers, which carry additional
risks such as changes in currency exchange rates, less liquidity, a lack of
comprehensive company information and political instability.
PERFORMANCE OF SIMILAR COMMON TRUST FUND
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 at right is that of a predecessor common trust fund (CTF) that, in all
material respects (except as discussed below), had the same investment
12
<PAGE>
objective, policies, guidelines, and restrictions as the fund, and is for
periods before the effective date of this prospectus. Before 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, by subtracting from the actual
performance of the CTF the estimated expenses of the fund as set forth in the
summary of "Expenses" on page 13. 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.
Before June 1, 2000, the CTF sought to maintain a portfolio of stocks of
companies with an average market capitalization of between $500 million and $3
billion, similar to the Russell 2500(TRADEMARK) Stock Index (the Russell 2500),
an unmanaged index based on the stocks of 3,000 large U.S. companies, as
determined by market capitalization, but excluding the 500 largest such
companies. Beginning June 1, 2000, the CTF has sought to maintain a portfolio of
stocks of companies with an average market capitalization of between $500
million and $5 billion, similar to the S&P MidCap 400, an unmanaged,
capitalization-weighted index of 400 medium-capitalization stocks. The change in
average market capitalization of companies held by the CTF was largely
reflective of changes in the market value of companies in the benchmark. The
weighted average capitalization of the Russell 2500 and the S&P MidCap 400 are
similar, as are their sector and industry weightings. The change by the CTF
reflected the view of its manager that the turnover of companies represented in
the S&P MidCap 400 was less volatile than that of the Russell 2500, and that the
S&P MidCap 400 was more familiar to investors.
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 MidCap 400. 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]
-8.40 54.07 17.04 15.57 -1.64 39.72 22.41 23.50 -5.63 10.82
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Q1 '91 +22.82%
Worst Quarter: Q3 '98 -21.74%
The year-to-date total return as of __/__/00 was ____%.
Average annual total return as of 12/31/99
1 Year 5 Years 10 Years
Predecessor CTF 10.82% 17.17% 15.28%
S&P MidCap 400 14.72% 23.05% 17.32%
13
<PAGE>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Because annual fund operating expenses
are paid out of fund assets, their effect is included in the share price. The
fund has no sales charge (load) or Rule 12b-1 distribution fees.
Fee table
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Investment advisory fees 0.75%
Other expenses 0.17%
TOTAL 0.92%
EXPENSE EXAMPLE
1 Year 3 Years
$95 $296
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
INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the
fund's portfolio.
OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal
year, including an administration fee of 0.146% (based on the estimated assets
of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing
or arranging for fund accounting, transfer agency, and certain other fund
administration services, and miscellaneous items such as custody and
professional service fees.
14
<PAGE>
MPAM SMALL CAP STOCK FUND
GOAL/APPROACH
The fund seeks total investment returns (consisting of capital appreciation and
income) that surpass those of 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 normally invests at least 65% of its
total assets in a blended portfolio of growth and value stocks of
small-capitalization companies, whose market capitalizations generally range
between $100 million and $2 billion. The fund may purchase securities of
companies 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.
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, based on fundamental analysis, the investment adviser generally selects
the most attractive of the higher 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 can, if successful, grow faster than larger-cap companies
and typically use any profits for expansion rather than for paying dividends.
Their share prices are more volatile than those of larger companies. Small
companies fail more often.
COMPUTER MODEL: a proprietary program 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. The investment adviser reviews each of
the screens on a regular basis, and maintains the flexibility to adapt the
screening criteria to changes in market conditions.
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 generally ranging between $50 million and $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 are less predictable, and their share prices
tend to be more volatile. The shares of smaller companies tend to trade less
frequently than those of larger, more established companies, which can have an
adverse effect on the pricing of smaller companies' securities and on the fund's
ability to sell them when the portfolio manager deems it appropriate. These
companies may have limited product lines, markets, and/or financial resources.
In addition, these companies may be dependent on a limited management group. 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 very similar to the S&P SmallCap 600, 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.
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 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, even if earnings do increase. 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
investment adviser believes is their full market value, either because the
market fails to recognize the stock's intrinsic worth, or the portfolio manager
misgauged that worth. They also may decline in price even though in theory they
are already underpriced. 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 could produce higher
brokerage costs and taxable distributions and lower the fund's after-tax
performance accordingly.
OTHER POTENTIAL RISKS
The fund may invest in securities of foreign issuers, which carry additional
risks such as changes in currency exchange rates, less liquidity, a lack of
comprehensive company information and political instability.
16
<PAGE>
PERFORMANCE OF SIMILAR COMMON TRUST FUND
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 at right is that of a predecessor common trust fund (CTF) that, in all
material respects, had the same investment objective, policies, guidelines, and
restrictions as the fund, and is for periods before the effective date of this
prospectus. Before 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,
by subtracting from the actual performance of the CTF the estimated expenses of
the fund as set forth in the summary of "Expenses" on page 17 (net of certain
fund expenses that will be borne by Mellon Bank, N.A. or the investment
adviser). 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 at right 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, an 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]
0.94 31.18
1998 1999
Best Quarter: Q4 '99 +26.95%
Worst Quarter: Q3 '98 -22.71%
The year-to-date total return as of __/__/00 was ____%.
Average annual total return as of 12/31/99
1 Year Since Inception
(1/1/98)
Predecessor CTF 31.18% 15.07%
S&P SmallCap 600 12.40% 5.33%
17
<PAGE>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Because annual fund operating expenses
are paid out of fund assets, their effect is included in the share price. The
fund has no sales charge (load) or Rule 12b-1 distribution fees.
Fee Table
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Investment Advisory fees 0.85%
Other expenses 0.22%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.07%
Less: Fee waiver and/or expense reimbursement* 0.02%
EQUALS: NET EXPENSES 1.05%
*Pursuant to a contractual arrangement with the fund, Mellon Bank, N.A. has
agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the
total annual operating expenses of the fund are limited to the net expenses of
the fund, as shown above.
EXPENSE EXAMPLE
1 Year 3 Years
$108 $336
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
INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the
fund's portfolio.
OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal
year, including an administration fee of 0.146% (based on the estimated assets
of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing
or arranging for fund accounting, transfer agency, and certain other fund
administration services, and miscellaneous items such as custody and
professional service fees.
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 normally invests at least 65%
of its total assets in equity securities of foreign issuers. The fund also
primarily invests in companies 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 will
invest in companies in at least ten foreign countries, and limit 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 investment adviser 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 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 investment adviser'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 that their prices may
decline. 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.
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 small and mid-sized
companies carry additional risks because their operating histories tend to be
more limited, their earnings are less predictable, and their share prices tend
to be more volatile. The shares of smaller companies tend to trade less
frequently than those of larger, more established companies, which can have an
adverse effect on the pricing of smaller companies' securities and on the fund's
ability to sell them when the portfolio manager deems it appropriate. These
companies may have limited product lines, markets, and/or financial resources.
In addition, these companies may be dependent on a limited management group.
Under adverse market conditions, the fund could invest some or all of its assets
in the securities of U.S. issuers or 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, 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 highly sensitive to changes in their underlying instruments.
A small investment in certain derivatives could have a potentially large impact
on the fund's performance.
PERFORMANCE OF SIMILAR COMMON TRUST FUND
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 at right is that of a predecessor common trust fund (CTF) that, in all
material respects, had the same investment objective, policies, guidelines, and
restrictions as the fund, and is for periods before the effective date of this
prospectus. Before the fund's commencement of operations, substantially all of
the assets of the predecessor CTF (and those of another CTF) will be transferred
to the fund. The performance presented has been adjusted to reflect the fund's
fees and expenses, by subtracting from the actual performance of the CTF the
estimated expenses of the fund as set forth in the summary of "Expenses" on page
21 (net of certain fund expenses that will be borne by Mellon Bank, N.A. or the
investment adviser). 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.
20
<PAGE>
The bar chart at right shows you the predecessor CTF's performance for its first
full calendar year of operations. 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.
Year-by-year total return as of 12/31 each year (%)
[BAR CHART]
25.94%
1999
Best Quarter: Q4 '99 +8.78%
Worst Quarter: Q1 '99 +0.68%
The year-to-date total return as of __/__/00 was ____%.
Average annual total return as of 12/31/99
Inception Date 1 Year Since Inception
Predecessor CTF (7/15/98) 25.94% 6.44%
MSCI EAFE(REGISTERED) Index (7/1/98) 26.96% 19.98%
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Because annual fund operating expenses
are paid out of fund assets, their effect is included in the share price. The
fund has no sales charge (load) or Rule 12b-1 distribution fees.
Fee table
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Investment advisory fees 0.85%
Other expenses 0.25%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.10%
Less: Fee waiver and/or expense reimbursement* 0.05%
EQUALS: NET EXPENSES 1.05%
*Pursuant to a contractual arrangement with the fund, Mellon Bank, N.A. has
agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the
total annual operating expenses of the fund are limited to the net expenses of
the fund, as shown above.
21
<PAGE>
EXPENSE EXAMPLE
1 Year 3 Years
$108 $336
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
INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the
fund's portfolio.
OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal
year, including an administration fee of 0.146% (based on the estimated assets
of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing
or arranging for fund accounting, transfer agency, and certain other fund
administration services, and miscellaneous items such as custody and
professional service fees.
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 companies organized, or with a majority of assets or operations,
in countries considered to be emerging markets. 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 investment adviser 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 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 investment adviser'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.
EMERGING MARKET COUNTRIES: consist of all countries represented by the Morgan
Stanley Capital International Emerging Markets (Free) Index, which currently
includes Argentina, Brazil, Chile, Colombia, the Czech Republic, Egypt, Greece,
Hungary, India, Indonesia, Israel, Jordan, Korea, Mexico, Morocco, Pakistan,
Peru, Philippines, Poland, Russia, Sri Lanka, South Africa, Taiwan, Thailand,
Turkey and Venezuela, together with any other country the investment adviser
believes has an emerging economy or market.
23
<PAGE>
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 market 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.
The fund's investments in value stocks are subject to the risk that their
intrinsic values may never be realized by the market, or that their prices may
decline. 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.
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 small and midsize
companies carry additional risks because their operating histories tend to be
more limited, their earnings are less predictable, and their share prices tend
to be more volatile. The shares of smaller companies tend to trade less
frequently than those of larger, more established companies, which can have an
adverse effect on the pricing of smaller companies' securities and on the fund's
ability to sell them when the portfolio manager deems it appropriate. These
companies may have limited product lines, markets, and/or financial resources.
In addition, these companies may be dependent on a limited management group.
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, 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 highly sensitive to changes in their underlying instrument.
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 could produce higher
brokerage costs and taxable distributions and lower the fund's after-tax
performance accordingly.
24
<PAGE>
PAST PERFORMANCE
Because the fund is newly organized, it does not yet 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. Because annual fund operating expenses
are paid out of fund assets, their effect is included in the share price. The
fund has no sales charge (load) or Rule 12b-1 distribution fees.
Fee table
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Investment advisory fees 1.15%
Other expenses 0.58%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.73%
Less: Fee waiver and/or expense reimbursement* 0.38%
EQUALS: NET EXPENSES 1.35%
*Pursuant to a contractual arrangement with the fund, Mellon Bank, N.A. has
agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the
total annual operating expenses of the fund are limited to the net expenses of
the fund, as shown above.
EXPENSE EXAMPLE
1 Year 3 Years
$138 $430
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
INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the
fund's portfolio.
OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal
year, including an administration fee of 0.146% (based on the estimated assets
of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing
or arranging for fund accounting, transfer agency, and certain other fund
administration services, and miscellaneous items such as custody and
professional service fees.
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, including commercial mortgage-backed
securities
o foreign corporate and government bonds (up to 20% of total assets)
The fund's investments in debt securities must be of investment grade quality at
the time of purchase or, if unrated, deemed of comparable quality by the
investment adviser. Generally, the fund's effective duration will not exceed
eight years. The fund may invest in individual debt securities of any duration.
In calculating effective duration, the fund may treat a security that can be
repurchased by its issuer on an earlier date (known as a "call date") as
maturing on the call date rather than on its stated maturity date.
The investment adviser uses a disciplined process to select securities and
manage risk. The investment adviser 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
investment adviser 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. Generally, the longer a bond's
duration, the more likely it is to react to interest rate fluctuations and the
greater its long-term risk/return potential.
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.
COMMERCIAL MORTGAGE-BACKED SECURITIES: represent direct or indirect
participations in, or are secured by and payable from, pools of loans or leases
26
<PAGE>
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 the fund
maintains a longer duration than other bond funds, its share price typically
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 credit quality of a bond, 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
o under certain market conditions, usually during periods of market illiquidity
or rising interest rates, prices of the fund's "callable" issues are subject
to increased price fluctuation because they can be expected to perform more
like longer-term securities than shorter-term securities
While some of the fund's securities may carry guarantees of 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.
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 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 rate of 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.
27
<PAGE>
Although debt securities must be of investment grade quality when purchased by
the fund, they may subsequently be downgraded.
In the case of commercial mortgage-backed securities, the ability of borrowers
to make payments on underlying loans, and the recovery on collateral sufficient
to provide repayment on such loans, may be less than for other mortgage-backed
securities.
At times, the fund may engage in active trading, which could produce higher
transaction costs and taxable distributions and lower the fund's after-tax
performance accordingly.
PERFORMANCE OF SIMILAR COMMON TRUST FUND
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 at right is that of a predecessor common trust fund (CTF) that, in all
material respects (except as discussed below), had the same investment
objective, policies, guidelines, and restrictions as the fund, and is for
periods before the effective date of this prospectus. Before the fund's
commencement of operations, substantially all of the assets of the predecessor
CTF (and those of two other CTFs) will be transferred to the fund. The
performance presented has been adjusted to reflect the fund's fees and expenses,
by subtracting from the actual performance of the CTF the estimated expenses of
the fund as set forth in the summary of "Expenses" on page 29 (net of certain
fund expenses that will be borne by Mellon Bank, N.A. or the investment
adviser). 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 CTF was not authorized to invest in Rule 144A securities, convertible bonds
or futures, forward or option contracts. Although the fund is authorized to
invest in futures, forward and option contracts, it anticipates that any use it
makes of them would be as an alternative means of managing or maintaining risk
exposure similar to that associated with the CTF and that its investment in such
derivatives would in no event exceed 10% of its total assets. The fund also does
not anticipate that its authority to invest in futures, forward and option
contracts, Rule 144A securities and convertible bonds will cause its performance
to differ materially from what it would be if it could not so invest. In
addition, the fund expects that its effective duration will not exceed eight
years. The CTF had no maximum duration policy. During the period for which
performance is presented at right, the CTF's duration generally ranged between
3.32 and 6.05 years.
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 that covers the U.S. investment grade
fixed-rate bond market and is comprised of U.S. government, corporate,
mortgage-backed and asset-backed securities. 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 (%)
28
<PAGE>
[BAR CHART]
8.78 15.45 6.73 11.59 -1.85 17.42 3.07 9.40 8.23 -1.42
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Q3 '91 +5.63%
Worst Quarter: Q1 '94 -2.18%
The year-to-date total return as of __/__/00 was ____%.
Average annual total return as of 12/31/99
1 Year 5 Years 10 Years
Predecessor CTF -1.42% 7.15% 7.57%
Lehman Brothers Aggregate -0.82% 7.73% 7.70%
Bond Index
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Because annual fund operating expenses
are paid out of fund assets, their effect is included in the share price. The
fund has no sales charge (load) or Rule 12b-1 distribution fees.
Fee table
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Investment advisory fees 0.40%
Other expenses 0.18%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.58%
Less: Fee waiver and/or expense reimbursement* 0.02%
EQUALS: NET EXPENSES 0.56%
*Pursuant to a contractual arrangement with the fund, Mellon Bank, N.A. has
agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the
total annual operating expenses of the fund are limited to the net expenses of
the fund, as shown above.
EXPENSE EXAMPLE
1 Year 3 Years
$57 $180
29
<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
INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the
fund's portfolio.
OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal
year, including an administration fee of 0.146% (based on the estimated assets
of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing
or arranging for fund accounting, transfer agency, and certain other fund
administration services, and miscellaneous items such as custody and
professional service fees.
30
<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 including commercial mortgage-backed
securities (up to 25% of total assets)
o foreign corporate and government bonds (up to 20% of total assets)
o municipal bonds
The fund's investments in debt securities must be of investment grade quality at
the time of purchase or, if unrated, deemed of comparable quality by the
investment adviser. Generally, the fund's effective duration will be between 2.5
and 5.5 years. The fund may invest in individual debt securities of any
duration. In calculating effective duration, the fund may treat a security that
can be repurchased by its issuer on an earlier date (known as a "call date") as
maturing on the call date rather than on its stated maturity date.
The investment adviser uses a disciplined process to select securities and
manage risk. The investment adviser 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
investment adviser 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. Generally, the longer a bond's
duration, the more likely it is to react to interest rate fluctuations and the
greater its long-term risk/return potential.
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.
31
<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 the fund
maintains a longer duration than short-term bond funds, its share price
typically 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 credit quality of a bond, 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
o under certain market conditions, usually during periods of market illiquidity
or rising interest rates, prices of the fund's "callable" issues are subject
to increased price fluctuation because they can be expected to perform more
like longer-term securities than shorter-term securities
o changes in economic, business or political conditions relating to a
particular municipal project, municipality, or state in which the fund
invests may have an impact on the fund's share price
While some of the fund's securities may carry guarantees of 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.
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 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 rate of some derivatives, such
32
<PAGE>
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 quality when purchased by
the fund, they may subsequently be downgraded.
In the case of commercial mortgage-backed securities, the ability of borrowers
to make payments on underlying loans, and the recovery on collateral sufficient
to provide repayment on such loans, may be less than for other mortgage-backed
securities.
At times, the fund may engage in active trading, which could produce higher
transaction costs and taxable distributions and lower the fund's after-tax
performance accordingly.
PERFORMANCE OF SIMILAR COMMON TRUST FUND
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 at right is that of a predecessor common trust fund (CTF) that, in all
material respects (except as discussed below), had the same investment
objective, policies, guidelines, and restrictions as the fund, and is for
periods before the effective date of this prospectus. Before 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, by subtracting from the actual
performance of the CTF the estimated expenses of the fund as set forth in the
summary of "Expenses" on page 33 (net of certain fund expenses that will be
borne by Mellon Bank, N.A. or the investment adviser). 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 CTF was not authorized to invest in Rule 144A securities, convertible bonds
or futures, forward or option contracts. Although the fund is authorized to
invest in futures, forward and option contracts, it anticipates that any
use it makes of them would be as an alternative means of managing or maintaining
risk exposure similar to that associated with the CTF and that its investment in
such derivatives would in no event exceed 10% of its total assets. The fund also
does not anticipate that its authority to invest in futures, forward and option
contracts, Rule 144A securities and convertible bonds will cause its performance
to differ materially from what it would be if it could not so invest. In
addition, the fund expects that its effective duration will range between 2.5
and 5.5 years. The CTF's policy with respect to duration was tied to the
weighted average duration of a market index and, during the period for which
performance is presented at right, the CTF's duration generally ranged between
2.46 and 4.17 years.
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 that covers the U.S.
government and corporate investment grade bond market and is comprised of issues
that must have a maturity from one to (but not including) ten years. All
33
<PAGE>
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]
8.50 13.53 6.84 9.23 -2.72 14.74 3.56 7.63 7.62 -0.55
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Q2 '95 +4.84%
Worst Quarter: Q1 '94 -2.40%
The year-to-date total return as of __/__/00 was ____%.
Average annual total return as of 12/31/99
1 Year 5 Years 10 Years
Predecessor CTF -0.55% 6.48% 6.71%
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. Because annual fund operating expenses
are paid out of fund assets, their effect is included in the share price. The
fund has no sales charge (load) or Rule 12b-1 distribution fees.
Fee table
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Investment advisory fees 0.40%
Other expenses 0.19%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.59%
Less: Fee waiver and/or expense reimbursement* 0.03%
EQUALS: NET EXPENSES 0.56%
*Pursuant to a contractual arrangement with the fund, Mellon Bank, N.A. has
agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the
total annual operating expenses of the fund are limited to the net expenses of
the fund, as shown above.
34
<PAGE>
EXPENSE EXAMPLE
1 Year 3 Years
$57 $180
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
INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the
fund's portfolio.
OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal
year, including an administration fee of 0.146% (based on the estimated assets
of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing
or arranging for fund accounting, transfer agency, and certain other fund
administration services, and miscellaneous items such as custody and
professional service fees.
35
<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 primarily 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.
Generally the fund's effective duration will be less than three years. The fund
may invest in individual debt securities of any duration. In calculating
effective duration, the fund may treat a security that can be repurchased by its
issuer on an earlier date (known as a "call date") as maturing on the call date
rather than on its stated maturity date.
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. Generally, the longer a bond's
duration, the more likely it is to react to interest rate fluctuations and the
greater its long-term risk/return potential.
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.
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.
36
<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 the fund
maintains a longer duration than other short-term bond funds, its share price
typically will react more strongly to interest rate movements.
Other risk factors that could have an effect on the fund's performance include:
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 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
o under certain market conditions, usually during periods of market illiquidity
or rising interest rates, prices of the fund's "callable" issues are subject
to increased price fluctuation because they can be expected to perform more
like longer-term securities than shorter-term securities
While most 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.
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
Some mortgage-backed securities are a form of derivative. 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 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.
At times, the fund may engage in active trading, which can produce higher
transaction costs and taxable distributions and lower the fund's after-tax
performance accordingly.
37
<PAGE>
PERFORMANCE OF SIMILAR COMMON TRUST FUND
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 at right is that of a predecessor common trust fund (CTF) that, in all
material respects (except as discussed below), had the same investment
objective, policies, guidelines, and restrictions as the fund, and is for
periods before the effective date of this prospectus. Before 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, by subtracting from the actual
performance of the CTF the estimated expenses of the fund as set forth in the
summary of "Expenses" on page 37 (net of certain fund expenses that will be
borne by Mellon Bank, N.A. or the investment adviser). 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.
Although the CTF was authorized to invest in mortgage-backed securities (not
including CMOs), it did not do so. The fund is authorized to invest in
mortgage-backed securities, including CMOs, and anticipates that it will do so.
The CTF was not authorized to invest in Rule 144A securities or derivative
instruments. Although the fund is authorized to invest in derivatives, it
anticipates that any use it makes of them would be as an alternative means of
managing or maintaining risk exposure similar to that associated with the CTF
and that its investment in derivatives would in no event exceed 10% of its total
assets. The fund also does not anticipate that its authority to invest in
derivative instruments and Rule 144A securities will cause its performance to
differ materially from what it would be if it could not so invest. In addition,
the fund expects that its effective duration will be less than three years. The
CTF operated under a policy that its average maturity would be maintained
between eighteen months and three years. During the period for which performance
is presented below, the CTF's duration generally ranged between 1.30 and 2.16
years.
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 and agency securities with
maturities between one and three 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]
9.02 10.95 6.37 6.63 -0.39 10.57 4.22 5.98 6.60 2.44
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Q3 '91 +3.46%
Worst Quarter: Q1' 94 -0.90%
38
<PAGE>
The year-to-date total return as of __/__/00 was ____%.
Average annual total return as of 12/31/99
1 Year 5 Years 10 Years
Predecessor CTF 2.44% 5.93% 6.19%
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. Because annual fund operating expenses
are paid out of fund assets, their effect is included in the share price. The
fund has no sales charge (load) or Rule 12b-1 distribution fees.
Fee table
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Investment advisory fees 0.35%
Other expenses 0.22%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.57%
Less: Fee waiver and/or expense reimbursement* 0.02%
EQUALS: NET EXPENSES 0.55%
*Pursuant to a contractual arrangement with the fund, Mellon Bank, N.A. has
agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the
total annual operating expenses of the fund are limited to the net expenses of
the fund, as shown above.
EXPENSE EXAMPLE
1 Year 3 Years
$56 $177
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.
39
<PAGE>
CONCEPTS TO UNDERSTAND
INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the
fund's portfolio.
OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal
year, including an administration fee of 0.146% (based on the estimated assets
of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing
or arranging for fund accounting, transfer agency, and certain other fund
administration services, and miscellaneous items such as custody and
professional service fees.
40
<PAGE>
MPAM NATIONAL INTERMEDIATE MUNICIPAL BOND FUND
GOAL/APPROACH
The fund seeks to maximize current income exempt from federal income tax to the
extent consistent with the preservation 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. The fund's investments in
municipal and taxable bonds must be of investment grade quality at the time of
purchase or, if unrated, deemed of comparable quality by the investment adviser.
Generally, the fund's effective duration will not exceed eight years. The fund
may invest in individual municipal and taxable bonds of any duration. In
calculating effective duration, the fund may treat a security that can be
repurchased by its issuer on an earlier date (known as a "call date") as
maturing on the call date rather than on its stated maturity date.
Municipal bonds are typically of 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. Generally, the longer a bond's
duration, the more likely it is to react to interest rate fluctuations and the
greater its long-term risk/return potential.
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 the fund
maintains a longer duration than short-term bond funds, its share price
typically will react more strongly to interest rate movements.
41
<PAGE>
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, municipality, or state in which the fund
invests may have an impact on the fund's share price
o under certain market conditions, usually during periods of market illiquidity
or rising interest rates, prices of the fund's "callable" issues are subject
to increased price fluctuation because they can be expected to perform more
like longer-term securities than shorter-term securities
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 municipal and taxable debt securities must be of investment grade
quality 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. During
such periods, the fund may not achieve its investment objective.
OTHER POTENTIAL RISKS
The fund, at times, may invest in certain derivatives, such as futures and
options and debt obligations having similar features. 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
rate of 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.
PERFORMANCE OF SIMILAR COMMON TRUST FUND
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 at right is that of a predecessor common trust fund (CTF) that, in all
material respects (except as discussed below), had the same investment
objective, policies, guidelines, and restrictions as the fund, and is for
periods before the effective date of this prospectus. Before 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, by subtracting from the actual
performance of the CTF the estimated expenses of the fund as set forth in the
summary of "Expenses" on page 41 (net of certain fund expenses that will be
borne by
42
<PAGE>
Mellon Bank, N.A. or the investment adviser). 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 CTF was not authorized to invest in futures or option contracts.
Although the fund is authorized to invest in futures and option
contracts, it anticipates that any use it makes of them would be as an
alternative means of managing or maintaining risk exposure similar to that
associated with the CTF and that its investment in such derivatives would in no
event exceed 10% of its total assets. The fund also does not anticipate that its
authority to invest in futures and option contracts will cause its
performance to differ materially from what it would be if it could not so
invest. In addition, the fund expects that its effective duration will not
exceed eight years. The CTF had no maximum duration policy. During the period
for which performance is presented at right, the CTF's duration generally ranged
between 4.25 and 6.50 years.
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 broad-based,
unmanaged total return performance benchmark of investment grade municipal bonds
maturing in the 6-to-8-year range. 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]
7.25 11.65 7.57 10.50 -3.83 12.98 4.45 7.31 6.30 -1.49
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Q1 '95 +4.86%
Worst Quarter: Q1 '94 -3.44%
The year-to-date total return as of __/__/00 was ____%.
Average annual total return as of 12/31/99
1 Year 5 Years 10 Years
Predecessor CTF -1.49% 5.81% 6.14%
Lehman Brothers 7-Year -0.14% 6.35% 6.59%
Municipal Bond Index
43
<PAGE>
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Because annual fund operating expenses
are paid out of fund assets, their effect is included in the share price. The
fund has no sales charge (load) or Rule 12b-1 distribution fees.
Fee table
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Investment advisory fees 0.35%
Other expenses 0.19%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.54%
Less: Fee waiver and/or expense reimbursement* 0.02%
EQUALS: NET EXPENSES 0.52%
*Pursuant to a contractual arrangement with the fund, Mellon Bank, N.A. has
agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the
total annual operating expenses of the fund are limited to the net expenses of
the fund, as shown above.
EXPENSE EXAMPLE
1 Year 3 Years
$53 $167
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
INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the
fund's portfolio.
OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal
year, including an administration fee of 0.146% (based on the estimated assets
of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing
or arranging for fund accounting, transfer agency, and certain other fund
administration services, and miscellaneous items such as custody and
professional service fees.
44
<PAGE>
MPAM NATIONAL SHORT-TERM MUNICIPAL BOND FUND
GOAL/APPROACH
The fund seeks to maximize current income exempt from federal income tax to the
extent consistent with the preservation 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's investments in municipal and taxable
bonds must be of investment grade quality at the time of purchase or, if
unrated, deemed of comparable quality by the investment adviser. Generally, the
fund's effective duration will be less than three years. The fund may invest in
individual municipal and taxable bonds of any duration. In calculating effective
duration, the fund may treat a security that can be repurchased by its issuer on
an earlier date (known as a "call date") as maturing on the call date rather
than on its stated maturity date.
Municipal bonds are typically of 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. Generally, the longer a bond's
duration, the more likely it is to react to interest rate fluctuations and the
greater its long-term risk/return potential.
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 the fund
maintains a longer duration than other short-term bond funds, its share price
typically will react more strongly to interest rate movements.
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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, municipality, or state in which the fund
invests may have an impact on the fund's share price
o under certain market conditions, usually during periods of market illiquidity
or rising interest rates, prices of the fund's "callable" issues are subject
to increased price fluctuation because they can be expected to perform more
like longer-term securities than shorter-term securities
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 municipal and taxable debt securities must be of investment grade
quality 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. During
such periods, the fund may not achieve its investment objective.
OTHER POTENTIAL RISKS
The fund, at times, may invest in certain derivatives, such as futures and
options and debt obligations having similar features. 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
rate of 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.
PAST PERFORMANCE
Because the fund is newly organized, it does not yet 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. Because annual fund operating expenses
are paid out of fund assets, their effect is included in the share price. The
fund has no sales charge (load) or Rule 12b-1 distribution fees.
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Fee table
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Investment advisory fees 0.35%
Other expenses 0.21%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.56%
Less: Fee waiver and/or expense reimbursement* 0.04%
EQUALS: NET EXPENSES 0.52%
*Pursuant to a contractual arrangement with the fund, Mellon Bank, N.A. has
agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the
total annual operating expenses of the fund are limited to the net expenses of
the fund, as shown above.
EXPENSE EXAMPLE
1 Year 3 Years
$53 $167
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
INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the
fund's portfolio.
OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal
year, including an administration fee of 0.146% (based on the estimated assets
of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing
or arranging for fund accounting, transfer agency, and certain other fund
administration services, and miscellaneous items such as custody and
professional service fees.
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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 at least 65% of its net assets in municipal bonds, the
interest from which is exempt from federal and Pennsylvania state personal
income taxes. The fund also may invest in municipal bonds that are exempt from
federal income taxes, but not Pennsylvania personal income taxes, and in taxable
bonds. The fund's investments in municipal and taxable bonds must be of
investment grade quality at the time of purchase or, if unrated, deemed of
comparable quality by the investment adviser. Generally, the fund's effective
duration will not exceed eight years. The fund may invest in individual
municipal and taxable bonds of any duration. In calculating effective duration,
the fund may treat a security that can be repurchased by its issuer on an
earlier date (known as a "call date") as maturing on the call date rather than
on its stated maturity date.
Municipal bonds are typically of 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. Generally, the longer a bond's
duration, the more likely it is to react to interest rate fluctuations and the
greater its long-term risk/return potential.
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 the fund
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maintains a longer duration than short-term bond funds, its share price
typically 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 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 principal and 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
o under certain market conditions, usually during periods of market illiquidity
or rising interest rates, prices of the fund's "callable" issues are subject
to increased price fluctuation because they can be expected to perform more
like longer-term securities than shorter-term securities
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 and
Pennsylvania state income taxes, interest from some of its holdings may be
subject to federal income tax including the alternative minimum tax. In
addition, the fund may invest in taxable bonds and/or municipal bonds that are
exempt only from federal income taxes. During such periods, the fund may not
achieve its investment objective.
OTHER POTENTIAL RISKS
The fund, at times, may invest in certain derivatives, such as futures and
options and debt obligations having similar features. 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
rate of 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 municipal and taxable debt securities must be of investment grade
quality when purchased by the fund, they may subsequently be downgraded.
PERFORMANCE OF SIMILAR COMMON TRUST FUND
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 at right is that of a predecessor common trust fund (CTF) that, in all
material respects (except as discussed below), had the same investment
objective, policies, guidelines, and restrictions as the fund, and is for
periods before the effective date of this prospectus. Before the fund's
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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, by subtracting from the actual
performance of the CTF the estimated expenses of the fund as set forth in the
summary of "Expenses" on page 49 (net of certain fund expenses that will be
borne by Mellon Bank, N.A. or the investment adviser). 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 CTF was not authorized to invest in futures or option contracts.
Although the fund is authorized to invest in futures and option
contracts, it anticipates that any use it makes of them would be as an
alternative means of managing or maintaining risk exposure similar to that
associated with the CTF and that its investment in such derivatives would in no
event exceed 10% of its total assets. In addition, before June 1, 2000, the CTF
had a stated policy that, under normal circumstances, it sought to maintain a
minimum of 60% of its assets in issues that are exempt from federal and
Pennsylvania personal income taxes. Beginning June 1, 2000, the CTF increased
this percentage to 65%. The fund maintains a policy that it normally invests at
least 65% of its net assets in municipal bonds, the interest from which is
exempt from federal and Pennsylvania personal income taxes.
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 broad-based,
unmanaged total return performance benchmark of investment grade municipal bonds
maturing in the 6-to-8-year range. 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]
6.91 9.60 8.04 10.28 -3.34 13.18 3.83 7.11 5.73 -1.75
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Q1 '95 +5.44%
Worst Quarter: Q1 '94 -3.37%
The year-to-date total return as of __/__/00 was ____%.
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Average annual total return as of 12/31/99
1 Year 5 Years 10 Years
Predecessor CTF -1.75% 5.51% 5.84%
Lehman Brothers 7-Year -0.14% 6.35% 6.59%
Municipal Bond Index*
* Unlike the fund, this index is not limited to obligations issued by a single
state or municipalities in that state.
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the table below. Because annual fund operating expenses
are paid out of fund assets, their effect is included in the share price. The
fund has no sales charge (load) or Rule 12b-1 distribution fees.
Fee table
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Investment advisory fees 0.50%
Other expenses 0.17%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.67%
Less: Fee waiver and/or expense reimbursement* 0.00%
EQUALS: NET EXPENSES 0.67%
*Pursuant to a contractual arrangement with the fund, Mellon Bank, N.A. has
agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the
total annual operating expenses of the fund are limited to the net expenses of
the fund, as shown above. Based on estimated expenses, any such waiver or
reimbursement is expected to be less than 0.01% of average daily net assets of
the fund.
EXPENSE EXAMPLE
1 Year 3 Years
$69 $215
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.
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CONCEPTS TO UNDERSTAND
INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing
the fund's portfolios.
OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal
year, including an administration fee of 0.146% (based on the estimated assets
of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing
or arranging for fund accounting, transfer agency, and certain other fund
administration services, and miscellaneous items such as custody and
professional service fees.
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MPAM BALANCED FUND
GOAL/APPROACH
The fund seeks long-term growth of principal in conjunction with current income.
This objective may be changed without shareholder approval.
The fund is designed for investors who seek capital appreciation and current
income. The fund may invest in both individual securities and other MPAM funds
(referred to below as the "underlying funds"). To pursue its goal, the fund
currently intends to invest in a combination of equity securities,
income-producing bonds, MPAM Mid Cap Stock Fund, MPAM International Fund and
MPAM Emerging Markets Fund. MPAM Mid Cap Stock Fund, MPAM International Fund and
MPAM Emerging Markets Fund, in turn, may 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 has established target allocations for its assets of 55% in the
aggregate to equity securities (directly and through underlying funds that
invest principally in equity securities), and 45% to bonds and money market
instruments (directly and, possibly in the future, through underlying funds that
invest principally in such securities). The fund may deviate from these target
allocations within ranges of 10% above or below the target amount. The fund's
investment in each of MPAM Mid Cap Stock Fund, MPAM International Fund, and MPAM
Emerging Markets Fund is subject to a separate limit of 20% of the fund's total
assets, as is the fund's investment in money market instruments. Subject to
these percentage limitations, the fund's investment adviser allocates the fund's
investments (directly, through MPAM Mid Cap Stock Fund, MPAM International Fund
and MPAM Emerging Markets Fund, or, possibly in the future, through other
underlying funds) among equity securities, bonds, and money market instruments
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 securities and
underlying funds, in combination, will be appropriate to achieve the fund's
investment objective. If appreciation or depreciation in the value of selected
securities or an underlying fund's shares causes the percentage of the fund's
assets invested in a type of security or underlying fund or the allocation among
the different types of securities or underlying funds to fall outside the
applicable investment range, the investment adviser will consider whether to
reallocate the fund's assets, but is not required to do so. The underlying
funds, the target allocations among security or fund types, and the investment
percentage ranges for securities and each underlying fund may be changed by the
fund's board at any time.
In selecting equity securities in which the fund invests directly, the
investment adviser uses a computer model to identify and rank stocks within an
industry or sector, based on:
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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, based on fundamental analysis, the investment adviser generally selects
the most attractive of the higher 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.
Debt securities in which the fund may invest include:
o U.S. government and agency bonds
o corporate bonds
o mortgage-related securities, including commercial mortgage-backed securities
o foreign corporate and government bonds
The fund's investments in debt securities must be of investment grade quality at
the time of purchase or, if unrated, deemed of comparable quality by the
investment adviser. Generally, the effective duration of bonds in the fund's
portfolio will not exceed eight years. The fund may invest in individual debt
securities of any duration. In calculating effective duration, the fund may
treat a security that can be repurchased by its issuer on an earlier date (known
as a "call date") as maturing on the call date rather than on its stated
maturity date.
The investment adviser uses a disciplined process to select debt securities and
manage risk. The investment adviser 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
investment adviser will use other techniques in an attempt to manage market risk
and duration.
CONCEPTS TO UNDERSTAND
COMPUTER MODEL: a proprietary program 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. The investment adviser reviews each of
the screens on a regular basis, and maintains the flexibility to adapt the
screening criteria to changes in market conditions.
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. Generally, the longer a bond's
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duration, the more likely it is to react to interest rate fluctuations and the
greater its long-term risk/return potential.
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.
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
The value of your investment in the fund will go up and down, which means that
you could lose money. Your investment in the fund is subject to both the risks
of investment in the securities held directly by the fund and the risks of
investments in the securities held by the underlying funds. The fund's
performance therefore depends not only on the allocation of its assets among
securities and the various underlying funds, but also on the performance of the
securities themselves and the underlying funds' ability to meet their investment
objectives. The investment adviser may not accurately assess the attractiveness
or risk potential of particular securities or 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 in which it invests. 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 transactions in its portfolio securities or in shares of the
underlying funds and by the underlying funds' own portfolio transactions.
Because the fund invests, directly and through the underlying funds, in both
common stocks and bonds, the fund is subject to equity risk, interest rate risk,
and credit risk. Investing in the fund includes the principal risks summarized
below, although not all of those risks apply to each underlying fund. For more
information on the 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.
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EQUITY SECURITIES AND THE UNDERLYING FUNDS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price.
By investing, directly and through the underlying funds, in a mix of growth and
value companies, the fund assumes the risks of both types of companies, and may
achieve more modest gains than funds that use only one investment style. Because
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, even if
earnings do increase. 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 investment adviser believes is their
full market value, either because the market fails to recognize the stock's
intrinsic worth, or the portfolio manager misgauged that worth. They also may
decline in price even though in theory they are already underpriced. While
investments in value stocks may limit downside risk over time, they may produce
smaller gains than riskier stocks.
Small and midsize companies carry additional risks because their operating
histories tend to be more limited, their earnings are less predictable, and
their share prices tend to be more volatile. The shares of smaller companies
tend to trade less frequently than those of larger, more established companies,
which can have an adverse effect on the pricing of smaller companies' securities
and on the fund's ability to sell them when the portfolio manager deems it
appropriate. These companies may have limited product lines, markets, and/or
financial resources. In addition, these companies may be dependent on a limited
management group. The prices of securities purchased in initial public offerings
or shortly thereafter may be very volatile. Some such securities will rise and
fall based on investor perception rather than economics.
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 market
securities, and the stock markets of emerging market countries can be extremely
volatile.
BONDS
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 the fund maintains a longer duration than other bond
funds, its share price typically will react more strongly to interest rate
movements. An investment in bonds could be subject to additional risk factors,
including:
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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
o under certain market conditions, usually during periods of market illiquidity
or rising interest rates, prices of the fund's "callable" issues are subject
to increased price fluctuation because they can be expected to perform more
like longer-term securities than shorter-term securities
While some of the fund's securities may carry guarantees of 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.
MONEY MARKET INSTRUMENTS
The fund may invest, and under adverse market conditions MPAM International Fund
and MPAM Emerging Markets Fund may also invest, in money market instruments.
Although the funds would do this to avoid losses, it could reduce the benefit
from any upswing in the market. During such periods, the funds may not achieve
their investment objectives.
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 rate of
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.
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 debt securities must be of investment grade quality when purchased by
the fund, they may subsequently be downgraded.
In the case of commercial mortgage-backed securities, the ability of borrowers
to make payments on underlying loans, and the recovery on collateral sufficient
to provide repayment on such loans, may be less than for other mortgage-backed
securities.
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At times, the fund or MPAM Emerging Markets Fund may engage in active trading,
which could produce higher transaction costs and taxable distributions, and
lower the fund's after-tax performance accordingly.
PAST PERFORMANCE
Because the fund is newly organized, it does not yet have any past performance
to report.
EXPENSES
As an investor, you pay certain fees and expenses in connection with the fund,
which are described below. Because annual fund operating expenses are paid out
of fund assets, their effect is included in the share price. The fund has no
sales charge (load) or Rule 12b-1 distribution fees.
The fund has agreed to pay an investment advisory fee at the rate of 0.65%
applied to that portion of its average daily net assets allocated to direct
investments in equity securities, at the rate of 0.40% applied to that portion
of its average daily net assets allocated to direct investments in debt
securities, and at the rate of 0.15% applied to that portion of its average
daily net assets allocated to money market instruments or the underlying funds.
The fund will also indirectly bear its pro rata share of the expenses of the
underlying funds. Each of the underlying funds pays an investment advisory fee
to the investment adviser and also pays other operating expenses. An investor in
the fund will indirectly pay the investment advisory fees and other expenses of
the underlying funds it holds.
The following table shows the estimated total annual expense ratios for each
underlying fund as a percentage of average net assets. Note that the fund's pro
rata share of expenses fluctuates along with changes in the average assets in
each of the underlying funds.
Expense ratio table
UNDERLYING FUND ESTIMATED TOTAL ANNUAL EXPENSE RATIO
--------------- ------------------------------------
MPAM Mid Cap Stock Fund 0.92%
MPAM International Fund 1.05%*
MPAM Emerging Markets Fund 1.35%*
*Pursuant to a contractual arrangement with each fund, Mellon Bank, N.A. has
agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the
total annual operating expenses of each of these funds are limited to the
respective estimated total annual expense ratio, as shown above.
The fund has also agreed to pay an administration fee to Mellon Bank, N.A. for
providing or arranging for fund accounting, transfer agency, and certain other
fund administration services, at the rate of approximately 0.146% (based on the
estimated assets of the MPAM funds in the aggregate), applied to that portion of
its average daily net assets allocated to direct investments in equity or debt
securities. In
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addition, the fund will pay certain expenses for custody and other items. The
following table shows the estimated total annual expenses of the fund, assuming
an asset allocation of 65% to direct investment in equity securities and 35% to
direct investment in debt securities.
Fee table
ANNUAL FUND OPERATING EXPENSES
% OF AVERAGE DAILY NET ASSETS
Investment advisory fees 0.56%
Other expenses 0.18%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.74%
Less: Fee waiver and/or expense reimbursement* 0.10%
EQUALS: NET EXPENSES 0.64%
*Pursuant to a contractual arrangement with the fund, Mellon Bank, N.A. has
agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the
total annual operating expenses of the fund are limited to the net expenses of
the fund, as shown above.
EXPENSE EXAMPLE
1 Year 3 Years
$66 $206
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
INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the
fund's portfolio.
OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal
year, including an administration fee of 0.146% (based on the estimated assets
of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing
or arranging for fund accounting, transfer agency, and certain other fund
administration services, and miscellaneous items such as custody and
professional service fees.
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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 $129 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 Intermediate Municipal Bond Fund John F. Flahive and Kristin D.
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
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BIOGRAPHICAL INFORMATION
GENE F. CERVI, CFA, has been a portfolio manager at Dreyfus since September
1998. 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, CFA, 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.
LAWRENCE R. DUNN, CFA, has been a portfolio manager at Dreyfus 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, CFA, senior portfolio manager of Boston Safe Deposit and
Trust Company, an affiliate of Dreyfus, has been a portfolio manager at 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 a portfolio manager at Dreyfus 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, CFA, has been a portfolio manager at Dreyfus since November 1994.
Mr. Flahive is also first vice president of Boston Safe Deposit and Trust
Company, an affiliate of Dreyfus, which he joined in October, 1994.
ANTHONY J. GALISE, CFA, has been a portfolio manager at Dreyfus since April
1996. He is also a portfolio manager at Laurel Capital Advisors, an affiliate of
Dreyfus, 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, CFA, has been a portfolio manager at Dreyfus since May 1996. He
is also senior 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 a portfolio manager at Dreyfus since October 1994.
She is also a vice president of Mellon Bank, N.A. and Boston Safe Deposit and
Trust Company, which she joined in May, 1991.
CAROL D. MILTENBERGER, CFA, has been a portfolio manager at Dreyfus since July
2000. She also is an assistant vice president of Mellon Bank, N.A., which she
joined in October 1994.
BERT MULLINS has been a portfolio manager at Dreyfus since October 1994, and has
been employed as a portfolio manager by Laurel Capital Advisors, an affiliate of
Dreyfus, since October 1990. He is also a first vice president, portfolio
manager and senior securities analyst for Mellon Bank, N.A.
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MARY COLLETTE O'BRIEN, CFA, has been a portfolio manager at Dreyfus since July
1996. She is a vice president of Mellon Bank, N.A. and Boston Safe Deposit and
Trust Company, which she joined in April 1995.
TIMOTHY J. SANVILLE, CFA, has been a portfolio manager at Dreyfus since July
2000. He also 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.
The funds, the investment adviser and Dreyfus Service Corporation (each fund's
distributor) each has 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
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.
INVESTMENT ADVISORY FEE
Each of the funds has agreed to pay the investment adviser an investment
advisory fee at the annual rates set forth in the table below:
Investment advisory fees
NAME OF FUND INVESTMENT ADVISORY FEE (AS A
PERCENTAGE OF AVERAGE DAILY
NET ASSETS)
MPAM Large Cap Stock Fund 0.65%
MPAM Income Stock Fund 0.65%
MPAM Mid Cap Stock Fund 0.75%
MPAM Small Cap Stock Fund 0.85%
MPAM International Fund 0.85%
MPAM Emerging Markets Fund 1.15%
MPAM Bond Fund 0.40%
MPAM Intermediate Bond Fund 0.40%
MPAM Short-Term U.S. Government Securities Fund 0.35%
MPAM National Intermediate Municipal Bond Fund 0.35%
MPAM National Short-Term Municipal Bond Fund 0.35%
MPAM Pennsylvania Intermediate Municipal Bond 0.50%
Fund
MPAM Balanced Fund 0.56%*
*The investment advisory fee of MPAM Balanced Fund is estimated, assuming an
asset allocation of 65% to direct investment in equity
securities and 35% to direct investment in debt securities.
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YOUR INVESTMENT
ACCOUNT POLICIES AND SERVICES
BUYING SHARES
The funds are designed primarily 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 transfer fund shares from an MPAM Account to other
existing MPAM Clients for their MPAM Accounts, and to individuals and
corporations that do not have MPAM Accounts to be held in separate accounts
(Individual Accounts). MPAM Clients who terminate their relationship with Mellon
Bank, N.A. or Boston Safe Deposit and Trust Company, or their bank affiliates,
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
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.
Because MPAM National Intermediate Municipal Bond Fund, MPAM National Short-Term
Municipal Bond Fund and MPAM Pennsylvania Intermediate Municipal Bond Fund seek
tax-exempt income, they are not recommended for purchase by qualified retirement
plans or other tax-advantaged accounts.
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.
Before selling shares recently purchased by check or TeleTransfer, please note
that:
o if you send a written request to sell such shares, the fund may delay sending
the proceeds for up to eight business days following the purchase of those
shares
o the fund will not process wire, telephone or TeleTransfer redemption requests
for up to eight business days following the purchase of those shares
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PURCHASES, REDEMPTIONS AND EXCHANGES THROUGH MELLON ACCOUNTS
MPAM Clients should contact their account officer for information concerning
purchasing, selling (redeeming), and exchanging fund shares. The policies and
fees applicable to MPAM Clients under their agreements with Mellon Bank, N.A.,
Boston Safe Deposit and Trust Company, or their bank affiliates, may differ from
those described in this prospectus, and different minimum investments or
limitations on buying, selling and exchanging shares may apply.
PURCHASES AND REDEMPTIONS THROUGH INDIVIDUAL ACCOUNTS
PURCHASING SHARES
Individual Accounts may be opened only by the transfer of fund shares from an
MPAM Account, by MPAM Clients who terminate their relationship with Mellon Bank,
N.A. or Boston Safe Deposit and Trust Company, or their bank affiliates, but
who wish to continue to hold MPAM fund shares, or by exchange from Individual
Accounts holding other MPAM funds as described below 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 subsequent
investments 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 and Trust Company, with these instructions:
o ABA# 011001234
o DDA# 115762
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.
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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 02940-6587
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 $1,000 OR MORE from one MPAM
fund into another. However, each fund account, including those established
through exchanges, must continue to meet the minimum account 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
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<PAGE>
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 30 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
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
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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 generally 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% BRACKET TAX RATE FOR 28% BRACKET OR ABOVE
-------------------- ------------------------ ---------------------------------
Income dividends Ordinary income rate Ordinary income rate
Short-term capital Ordinary income rate Ordinary income rate
gains
Long-term capital gains 10% 20%
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 a substantial portion of 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.
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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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FOR MORE INFORMATION
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 Funds Trust
SEC file number: 811-09903
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).
BY TELEPHONE
MPAM Clients, please contact your MPAM Account Officer or call 1-800-234-MELLON.
Individual Account holders, please call Dreyfus at 1-800-645-6561.
BY MAIL
MPAM Clients, write to your MPAM 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
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ON THE INTERNET Text-only versions of certain fund documents can be viewed
online or downloaded from:
http://www.sec.gov
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
<PAGE>
SUBJECT TO COMPLETION. PRELIMINARY STATEMENT OF ADDITIONAL
INFORMATION DATED JULY 7, 2000.
---------------------------------------------------------------------------
MPAM FUNDS TRUST:
-----------------
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
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER __, 2000
---------------------------------------------------------------------------
This Statement of Additional Information, which is not a prospectus, supplements
and should be read in conjunction with the current combined Prospectus of the
funds named above (each, a "Fund" and collectively, the "Funds") dated September
__, 2000, as it may be revised from time to time. The Funds are separate
portfolios of MPAM Funds Trust, an open-end management investment company (the
"Trust") that is registered with the Securities and Exchange Commission (the
"SEC"). To obtain a copy of the Funds' Prospectus, please write to the Funds at
144 Glenn Curtiss Boulevard, Uniondale, New York 11556-0144, or call one of 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>
TABLE OF CONTENTS
PAGE
----
DESCRIPTION OF THE TRUST AND FUNDS............................................3
THE FUNDS AND THEIR INVESTMENTS...............................................3
THE FUNDS' INVESTMENTS, RELATED RISKS AND LIMITATIONS.........................8
MANAGEMENT OF THE FUNDS......................................................46
MANAGEMENT ARRANGEMENTS......................................................50
HOW TO BUY SHARES............................................................52
HOW TO REDEEM SHARES.........................................................54
SHAREHOLDER SERVICES.........................................................56
ADDITIONAL INFORMATION ABOUT PURCHASES, EXCHANGES AND REDEMPTIONS............56
DETERMINATION OF NET ASSET VALUE.............................................57
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES.....................................58
PORTFOLIO TRANSACTIONS.......................................................66
PERFORMANCE INFORMATION......................................................68
INFORMATION ABOUT THE FUNDS/TRUST............................................70
COUNSEL AND INDEPENDENT AUDITORS.............................................71
APPENDIX A...................................................................A-1
APPENDIX B...................................................................B-1
2
<PAGE>
DESCRIPTION OF THE TRUST AND FUNDS
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 (the "Investment Adviser").
Dreyfus Service Corporation (the "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 can invest and the investment
techniques they can employ. Additional information about these portfolio
securities and investment techniques is provided under "The Funds' Investments,
Related Risks and Limitations."
DOMESTIC EQUITY FUNDS
---------------------
MPAM Large Cap Stock Fund, MPAM Income Stock Fund, MPAM Mid Cap Stock
Fund, and MPAM Small Cap Stock Fund are sometimes referred to herein as the
"Domestic Equity Funds."
MPAM LARGE CAP STOCK FUND seeks investment returns (consisting of
capital appreciation and income) that are consistently superior to those of the
Standard & Poor's(R) 500 Composite Stock Price Index ("S&P 500").
The Fund may invest in the following portfolio securities: common
stock, foreign securities including American Depositary Receipts ("ADRs") and
New York Shares, government obligations, 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, and derivative instruments (including options,
futures contracts and options on futures contracts).
MPAM INCOME STOCK FUND seeks 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, preferred stock, convertible securities, corporate obligations, foreign
securities including ADRs and New York Shares, government obligations, illiquid
securities, other investment companies, and money market instruments.
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<PAGE>
The Fund may utilize the following investment techniques: borrowing,
when-issued securities and delayed-delivery transactions, securities lending,
reverse repurchase agreements, and derivative instruments (including options,
futures contracts and options on futures contracts).
MPAM MID CAP STOCK FUND seeks investment returns (consisting of
capital appreciation and income) that are consistently superior to those of the
Standard & Poor's MidCap 400(R) Index ("S&P MidCap 400").
The Fund may invest in the following portfolio securities: common
stock, foreign securities including ADRs and New York Shares, government
obligations, 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, derivative instruments (including options,
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 those of the Standard & Poor's
SmallCap 600(R) Index ("S&P SmallCap 600").
The Fund may invest in the following portfolio securities: common
stock, foreign securities including ADRs and New York Shares, government
obligations, 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, derivative instruments (including options,
futures contracts and options on futures contracts), foreign currency
transactions, forward contracts, swaps, caps, collars and floors.
INTERNATIONAL EQUITY FUNDS
--------------------------
MPAM International Fund and MPAM Emerging Markets Fund are sometimes
referred to herein as the "International Equity Funds."
MPAM INTERNATIONAL FUND seeks long-term capital growth.
The Fund may invest in the following portfolio securities: common
stock, preferred stock, convertible securities, foreign securities including
ADRs, Global Depositary Receipts ("GDRs"), and New York Shares, illiquid
securities, other investment companies, warrants, foreign bank deposit
obligations, and money market instruments.
The Fund may utilize the following investment techniques: borrowing,
when-issued securities and delayed delivery transactions, derivative instruments
(including options, futures contracts and options on futures contracts),
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<PAGE>
securities lending, short-selling, foreign currency transactions and forward
contracts.
MPAM EMERGING MARKETS FUND seeks long-term capital growth.
The Fund may invest in the following portfolio securities: common
stock, preferred stock, convertible securities, foreign securities including
ADRs, GDRs, and New York Shares, foreign government obligations, securities of
supranational entities, illiquid securities, other investment companies, foreign
bank deposit obligations, and money market instruments.
The Fund may utilize the following investment techniques: borrowing,
when-issued securities and delayed delivery transactions, derivative instruments
(including options, futures contracts and options on futures contracts),
securities lending, short-selling, foreign currency transactions and forward
contracts.
TAXABLE BOND FUNDS
------------------
MPAM Bond Fund, MPAM Intermediate Bond Fund, and MPAM Short-Term U.S.
Government Securities Fund are sometimes referred to herein as the "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 Brothers 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,
mortgage-related securities (including commercial mortgage backed securities),
asset-backed securities, convertible securities, zero coupon securities,
preferred stock, illiquid securities, foreign securities, other investment
companies, and money market instruments. MPAM Intermediate Bond Fund may also
invest in municipal bonds, municipal notes, and municipal commercial paper.
Each Fund may utilize the following investment techniques: borrowing,
when-issued securities and delayed delivery transactions, derivative instruments
(including options, futures contracts and options on futures contracts),
securities lending, foreign currency transactions, 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 up to 35% of its net assets in mortgage-related
securities, including those with fixed, floating or variable interest rates,
those with interest rates that change based on multiples of changes in a
specified index of interest rates and those with interest rates that change
inversely to a change in interest rates, as well as stripped mortgage-backed
securities which do not bear interest.
The Fund may invest in the following portfolio securities: government
obligations, mortgage-related securities (including collateralized mortgage
obligations, multi-class pass-through securities, stripped mortgage-backed
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securities, and adjustable-rate mortgage loans), illiquid securities, and money
market instruments.
The Fund may utilize the following investment techniques: borrowing,
when-issued securities and delayed delivery transactions, derivative instruments
(including options, futures contracts and options on futures contracts),
securities lending, short-selling, and mortgage dollar rolls.
MUNICIPAL BOND FUNDS
--------------------
MPAM National Intermediate Municipal Bond Fund, MPAM National
Short-Term Municipal Bond Fund and MPAM Pennsylvania Intermediate Municipal Bond
Fund are sometimes referred to herein as the "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 tax to the extent consistent with the preservation of capital.
Each Fund seeks to achieve its objective by investing primarily in debt
obligations issued by states, cities, counties, municipalities, municipal
agencies and regional districts that are of "investment grade" quality at the
time of purchase, the interest from which is, in the opinion of bond counsel to
the respective issuers, exempt from Federal income tax ("Municipal
Obligations").
Under normal market conditions, each Fund will invest a minimum of
80% of its net assets in Municipal Obligations. However, each Fund may invest
without limit in obligations the interest on which is an item of tax preference
for purposes of the alternative minimum tax (a "Tax Preference Item"), and may
invest under normal market conditions up to 20% of its net assets in taxable
obligations. In addition, each Fund may, for defensive purposes under abnormal
market conditions, temporarily invest more than 20% of its net 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 including municipal bonds, municipal notes, municipal commercial
paper, municipal lease obligations, tender option bonds (up to 10% of the value
of its assets), floating rate and variable rate obligations, stand-by
commitments, tax-exempt participation interests, illiquid securities, zero
coupon securities, taxable investments, other investment companies, and money
market instruments.
Each Fund may utilize the following investment techniques: borrowing,
securities lending, when-issued securities and delayed delivery transactions,
municipal bond index and interest rate futures contracts, and options on
municipal bond index and interest rate futures contracts. A Fund's use of
certain of these investment techniques may give rise to taxable income.
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.
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Under normal market conditions, the Fund invests 65% of its net
assets in debt securities of the Commonwealth of Pennsylvania, its political
subdivisions, authorities and corporations, and certain other specified
securities, the interest from which is, in the opinion of bond counsel to the
issuer, exempt from Federal and Pennsylvania state personal income taxes
(collectively, "Pennsylvania Municipal Obligations"). However, the Fund may
invest without limit in obligations the interest on which is a Tax Preference
Item, and may invest under normal market conditions up to 35% of its net assets
in taxable obligations and in Municipal Obligations the interest on which is
exempt from Federal, but not Pennsylvania, income taxes. In addition, the Fund
may, for defensive purposes under abnormal market conditions, temporarily invest
more than 35% of its net assets in securities the interest from which is subject
to Federal or Pennsylvania personal income taxes or both. 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 including municipal bonds, municipal notes, municipal commercial
paper, and municipal lease obligations, tender option bonds (up to 10% of the
value of its assets), floating rate and variable rate obligations, custodial
receipts, stand-by commitments, tax-exempt participation interests, illiquid
securities, zero coupon securities, taxable investments, other investment
companies, and money market instruments.
The Fund may utilize the following investment techniques: borrowing,
securities lending, when-issued securities and delayed delivery transactions,
municipal bond index and interest rate futures contracts, and options on
municipal bond index and interest rate futures contracts. The Fund's use of
certain of these investment techniques may give rise to taxable income.
BALANCED FUND
-------------
MPAM BALANCED FUND seeks long-term growth of principal in conjunction
with current income. The Fund may invest in individual equity and debt
securities of the types in which MPAM Large Cap Stock Fund and MPAM Bond Fund
may invest, and in shares of MPAM Mid Cap Stock Fund, MPAM International Fund,
and MPAM Emerging Markets Fund, as well as in money market instruments.
The Fund may utilize the following investment techniques: borrowing,
when-issued securities and delayed delivery transactions, securities lending,
reverse repurchase agreements, derivative instruments (including options,
futures contracts and options on futures contracts), foreign currency
transactions, forward contracts, swaps, caps, collars, floors, and mortgage
dollar rolls.
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
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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, nor hold more than
10% of the outstanding voting securities of any single issuer (other than, in
each case, securities of other investment companies, and securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities).
The Municipal Bond Funds 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 in which the Funds invest may
cause a Fund's share price to fluctuate to a greater degree than if the Fund
were diversified. However, each Fund intends to conduct its operations so that
it will qualify under the Internal Revenue Code of 1986, as amended (the
"Code"), as a "regulated investment company." To qualify, among other
requirements, a Fund will be required to limit its investments so that at the
close of each quarter of its 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 its 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
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
ADRS, NEW YORK SHARES AND GDRS. 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. GDRs are negotiable
certificates evidencing ownership of a company's shares and are available for
purchase in markets other than the market in which the shares themselves are
traded. GDRs allow purchasers to gain exposure to companies that are traded on
foreign markets without having to purchase the shares directly in the market in
which they are traded.
ADRs, New York Shares and GDRs 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 Bank Deposits and 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
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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. As discussed at greater length below under
"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.
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 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.
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CORPORATE OBLIGATIONS. The relevant Funds may purchase corporate
obligations rated at least Baa by Moody's Investors Service, Inc. ("Moody's") or
BBB by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"),
or if unrated, of comparable quality as determined by the Investment Adviser.
Securities rated Baa by Moody's or BBB by S&P or higher 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 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.
FOREIGN BANK DEPOSIT OBLIGATIONS AND FOREIGN SECURITIES. The relevant
Funds may purchase securities of foreign issuers and may invest in foreign
currencies and deposit obligations 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. Evidence of ownership of portfolio securities may be held outside of
the United States, and a Fund may be subject to the risks associated with
holding such property overseas.
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 Funds 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
U.S. Treasury, (c) the discretionary authority of the U.S. Treasury to lend to
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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. None of the relevant Funds will knowingly invest
more than 15% of the value of its net assets in illiquid securities, including
time deposits and repurchase agreements having maturities longer than seven
days. Securities that have readily available market quotations are not deemed
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illiquid for purposes of this limitation (irrespective of any legal or
contractual restrictions on resale). A Fund may invest in commercial paper
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 Investment Adviser pursuant
to guidelines established by the Board of Trustees. 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. 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. The prices of securities issued in IPOs can be
very volatile. Shares are given a market value reflecting expectations for the
corporation's future growth. Special rules of the National Association of
Securities Dealers, Inc. 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. A Fund may
purchase money market instruments when it has cash reserves. Where indicated for
a Fund in the Prospectus, purchases of money market instruments in excess of
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cash reserves will be limited to periods when the Investment Adviser determines
that adverse market conditions exist, during which the Fund may adopt a
temporary defensive position by investing some or all of its assets in money
market instruments.
BANK OBLIGATIONS. Certificates of deposit are short-term negotiable
obligations of commercial banks; time deposits 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. 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 banks or foreign branches of domestic 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
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. In addition,
there may be less publicly available information about a branch of a foreign
bank than about a domestic bank.
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. The commercial paper purchased by a
Fund will consist only of obligations which, at the time of their purchase, are
(a) rated at least Prime-1 by Moody's, A-1 by S&P, F-1 by Fitch IBCA, Inc.
("Fitch") or D-1 by Duff & Phelps Inc. ("Duff & Phelps"); (b) issued by
companies having an outstanding unsecured debt issue currently rated at least Aa
by Moody's, or AA- by S&P, Fitch or Duff & Phelps; or (c) if unrated, determined
by the Investment Adviser to be of comparable quality to those rated obligations
which may be purchased by the Fund.
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
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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.
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. These 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 ARMs.
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
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create 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 any time 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.
Private issuer mortgage certificates are generally backed by conventional single
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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 of 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 or 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.
As CMOs have evolved, some classes of CMO bonds have become more
prevalent. The planned amortization class (PAC) and targeted amortization class
(TAC), for example, were designed to reduce prepayment risk by establishing a
sinking-fund structure. PAC and TAC bonds assure to varying degrees that
investors will receive payments over a predetermined period under varying
prepayment scenarios. Although PAC and TAC bonds are similar, PAC bonds are
better able to provide stable cash flows under various prepayment scenarios than
TAC bonds because of the order in which these tranches are paid.
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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. 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 multi-family 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.
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GENERAL. Unless otherwise specified, "Municipal Obligations," when
referred to below, include Pennsylvania Municipal Obligations. Municipal
Obligations generally include debt obligations issued to obtain funds for
various public purposes as well as certain private activity bonds issued by or
on behalf of public authorities. Municipal Obligations include 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. Notes are short-term instruments that 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
also 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
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subject to a maximum and minimum. Certain Municipal Obligations are subject to
redemption at a date earlier than 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. The latter is likely to be the case with respect to
investments of MPAM Pennsylvania Intermediate Municipal Bond Fund. Sizable
investments in these obligations could increase risk to the Funds should any of
the related projects or facilities experience financial difficulties.
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.
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.
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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 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
Taxes," interest income on these bonds may be a Tax Preference Item.
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
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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
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.
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.
TAX-EXEMPT PARTICIPATION INTERESTS. The relevant Funds may purchase
from financial institutions tax-exempt participation interests in Municipal
Obligations (such as private activity 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.
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
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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 of 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.
A Fund will purchase tender option bonds only when it is satisfied
that the custodial and tender option arrangements, including the fee payment
arrangements, will not adversely affect the tax-exempt status of the underlying
Municipal Obligations and that payment of any tender fees will not have the
effect of creating taxable income for the Fund. Based on the tender option bond
agreement, a Fund expects to be able to value the tender option bond at par;
however, the value of the instrument will be monitored to assure that it is
valued at fair value.
VARIABLE AND FLOATING RATE DEMAND NOTES. Variable and floating rate
demand notes and bonds are tax-exempt obligations that 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.
CUSTODIAL RECEIPTS. MPAM Pennsylvania Intermediate Municipal Bond
Fund 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 two classes have
different characteristics, but in each case, payments on the two classes are
based on payments received on the underlying Municipal Obligations. One class
has the characteristics of a typical auction rate security, where at specified
intervals its interest rate is adjusted, and ownership changes, based on an
auction mechanism. The interest rate on this class 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 adjustments. The
second class bears interest at a rate that exceeds the interest rate typically
borne by a security of comparable quality and maturity; this rate is also
adjusted, but in this case inversely to changes in the rate of interest of the
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first class. In no event will the aggregate interest paid with respect to the
two classes exceed the interest paid by the underlying Municipal Obligations.
The value of the second class and similar securities should be expected to
fluctuate more than the value of a Municipal Obligation of comparable quality
and maturity and their purchase by the Fund should increase the volatility of
its net asset value and, thus, its price per share. These custodial receipts are
sold in private placements. The Fund also may purchase directly from issuers,
and not in a private placement, Municipal Obligations having characteristics
similar to custodial receipts. These securities may be part of a multi-class
offering and the interest rate on certain classes may be subject to a cap or
floor.
OTHER INVESTMENT COMPANIES. A Fund (other than MPAM Short-Term U.S.
Government Securities Fund) may invest in securities issued by other investment
companies to the extent 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. Under the 1940 Act, a Fund's investment in securities of another
investment company, 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.
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.
STAND-BY COMMITMENTS. Each Municipal Bond Fund may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio. Under
a stand-by commitment, a Fund obligates a broker, dealer or bank to repurchase,
at the Fund's option, specified securities at a specified price and, in this
respect, stand-by commitments are comparable to put options. The exercise of a
stand-by commitment, therefore, is subject to the ability of the seller to make
payment on demand. A Fund will acquire stand-by commitments solely to facilitate
its portfolio liquidity and does not intend to exercise its rights thereunder
for trading purposes. A Fund may pay for stand-by commitments if such action is
deemed necessary, thus increasing to a degree the cost of the underlying
Municipal Obligation and similarly decreasing such security's yield to
investors. Gains realized in connection with stand-by commitments will be
taxable. A Fund also may acquire call options on specific Municipal Obligations.
A Fund generally would purchase these call options to protect a Fund from the
issuer of the related Municipal Obligation redeeming, or other holder of the
call option from calling away, the Municipal Obligation before maturity. The
sale by a Fund of a call option that it owns on a specific Municipal Obligation
could result in its receipt of taxable income.
TAXABLE INVESTMENTS. (MPAM Intermediate Municipal Bond Fund and MPAM
National Short-Term Municipal Bond Fund Only) Because each Fund's goal is to
provide income exempt from Federal income tax, it will invest in taxable
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obligations only if and when the Investment Adviser believes it would be in the
best interests of its shareholders to do so.
(MPAM Pennsylvania Intermediate Municipal Bond Fund Only) The Fund
anticipates being as fully invested as practicable in Municipal Obligations.
Although the Fund's goal is to provide income exempt from Federal and
Pennsylvania personal income taxes, it is anticipated that the Fund may invest
up to 35% of its total assets in obligations on which the interest is subject to
Federal and Pennsylvania personal income taxes.
Situations in which a Fund may invest in taxable securities include:
(a) pending investment of proceeds of sales of shares of the Funds or 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 (35% for MPAM Pennsylvania Intermediate Municipal
Bond Fund) in Federally 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 kinds of taxable securities
described above under "Money Market Instruments."
Dividends paid by a Fund that are attributable to income earned by
the Fund from taxable investments will be taxable to investors. See "Dividends,
Other Distributions and Taxes."
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, as
determined by the Investment Adviser, must 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 securities could
cause losses to the Fund and affect its share price.
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
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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. The Code requires the holder of a zero coupon security to
accrue income with respect to the security prior to the receipt of cash
payments. To maintain its qualification as a regulated investment company and
avoid liability for Federal income tax, a Fund may be required to distribute the
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 this distribution requirement.
INVESTMENT TECHNIQUES
In addition to the principal investment strategies discussed in the
Prospectus, to the extent indicated above under "The Funds and Their
Investments," a Fund may utilize the investment techniques described below. A
Fund might not use any of these strategies and there can be no assurance that
any strategy that is used will succeed. A Fund's use of certain of these
investment techniques may give rise to taxable income.
BORROWING MONEY. The 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 such
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.
A 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 a Fund anticipates purchasing
or selling a security denominated in a foreign currency, a Fund may enter into a
forward contract in order to set the exchange rate at which the transaction will
be made. A 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.
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Forward currency contracts may substantially change a 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 a Fund or that it will hedge at an appropriate time.
FOREIGN CURRENCY STRATEGIES - SPECIAL CONSIDERATIONS. The relevant
Funds may enter into various financial contracts (such as interest rate, index
and foreign currency futures contracts) and options (such as options on U.S. and
foreign securities or indices of such securities, foreign currencies and futures
contracts), forward currency contracts and interest rate and currency swaps,
collars and floors, to hedge against movements in the values of the foreign
currencies in which a Fund's securities are denominated. Such currency hedges
can protect against price movements in a security that a 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 by using various techniques. In some such cases, a Fund may hedge
against price movements in that currency by entering into transactions using
futures contracts, options, forward currency contracts and currency swaps,
collars and floors. Such transaction may involve 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 costs associated with such transactions, including
the prices of the underlying currencies, will not correlate perfectly with
movements in the price of the currency being hedged is magnified when this
strategy is used.
The value of such transactions involving 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
substantially larger amounts than those involved in the use of foreign currency
transactions, a 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,
a 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.
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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. A 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, a 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, a 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 a 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. Thus, there can be no assurance that a 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, a Fund might be unable
to close out a forward contract at any time prior to maturity. In either event,
a 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, a 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
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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, a
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, typically repurchase agreements, and the income from these
investments, together with any additional fee income received on the sale is
expected to generate income for a Fund exceeding the yield on the securities
sold. Forward roll transactions involve the risk that the market value of the
securities sold by a Fund may decline below the purchase price of those
securities. A Fund will segregate permissible liquid assets at least equal to
the amount of the repurchase price (including accrued interest).
The Taxable Bond 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 borrowings or other senior securities and will be excluded from the
calculation of a Fund's borrowings and other senior securities.
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 interest rate, index and foreign currency futures contracts) and
options (such as options on U.S. and foreign securities or indices of such
securities, foreign currencies and futures contracts), forward currency
contracts and interest rate, equity index and currency swaps, collars and
floors. The index Derivative Instruments which a 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, to lock in
unrealized market value gains or losses, to facilitate or substitute for the
sale or purchase of securities, to manage the duration of securities, to alter
the exposure of a particular investment or portion of a Fund's portfolio to
fluctuations in interest rates or currency rates, to uncap a capped security, or
to convert a fixed rate security into a variable rate security or a variable
rate security into a fixed rate security.
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 a Fund's portfolio. Thus, in a short hedge a 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.
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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 a Fund intends to acquire.
Thus, in a long hedge a 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 a 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 a
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 a 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 Fund's 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
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
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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 a Fund's current or anticipated investments exactly. A
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 a 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. A 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.
(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, a Fund could suffer a loss. In either
such case, a Fund would have been in a better position had it not attempted to
hedge at all.
(4) As described below, a 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 a 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 a 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. A 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
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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 a
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, and
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. A
Fund will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities, futures or options, currencies or
forward contracts 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. A Fund will comply with SEC guidelines
regarding cover for Derivative Instruments and will, if the guidelines so
require, set aside permissible liquid assets 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 a 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 a Fund
purchases a futures contract, it incurs an obligation to take delivery of a
specified amount of the security underlying the futures contract at a specified
time in the future for a specified price. When a Fund sells a futures contract,
it incurs an obligation to deliver a specified amount of the security 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 a Fund writes a call, it assumes a short futures position. If a Fund
writes a put, it assumes a long futures position. When a 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.
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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 a 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 a Fund at
the termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, a
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 a Fund has insufficient cash to meet daily
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. A Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, a Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
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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.
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 a 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, a 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 a Fund will be obligated to
sell the investment at less than its market value unless the option is closed
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 a 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 a Fund would experience losses to the extent of premiums paid for
them.
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A 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, a 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 a Fund to realize profits or limit
losses on an option position prior to its exercise or expiration.
A 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 a Fund and its counterparty (usually a securities dealer or a bank) with
no clearing organization guarantee. Thus, when a 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 a Fund
as well as the loss of any expected benefit of the transaction. A 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. A 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
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 a 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 a 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
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expiration. In the event of insolvency of the counterparty, a 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 a Fund owns the underlying security or a
call option on the same security with a lower strike price.
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.
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.
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
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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 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 a
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. There can be
no assurance that there will be a correlation between movements in the price of
the underlying instruments of the 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 Funds intend 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, a 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
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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.
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.
The ability of a 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 regulated
investment companies. See "Dividends, Other Distributions and Taxes" below.
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 Funds may purchase put and call options on both municipal
bond index and interest rate futures contracts. The Funds 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.
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
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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.
The Funds 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 Funds' 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.
Any income earned by the Funds from transactions in futures contracts
and options on futures contracts will be taxable. Accordingly, it is anticipated
that such investments will be made by the Municipal Bond Funds only in unusual
circumstances, such as when the Investment Adviser anticipates an extreme change
in interest rates or market conditions.
FUTURE DEVELOPMENTS. A Fund 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.
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 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 a 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, a Fund may return a part of the interest
earned from the investment of collateral received for securities loaned to the
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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, the International Equity Funds
and MPAM Short-Term Government Securities Fund may sell securities they do 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 a Fund's net assets be 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
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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 United States 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 a 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 a 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, a Fund will have to rely on its contractual remedies (which may 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 SEC staff 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. A 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
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the commitment before the settlement date if it is deemed advisable as a matter
of investment strategy. Permissible liquid assets having a market value equal to
the amount of the above commitments will be segregated on each 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 each 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 creditworthiness of the issuer and 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 a 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, a 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, a 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. A Fund will
establish a segregated account consisting of permissible liquid assets in an
amount at least equal at all times to the amounts of its delayed delivery
commitments.
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"), the parent
company 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.
The prices of securities of small- and mid-capitalization companies
may be subject to more abrupt or erratic market movements than larger, more
established companies, because these securities typically are traded in lower
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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. Securities rated Baa by Moody's and BBB by
S&P, Fitch and Duff & Phelps, may be subject to such risk with respect to the
issuing entity and to greater market fluctuations than certain lower yielding,
higher rated fixed-income securities. 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, a 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 a 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 price volatility; (iii) certain national policies which may
restrict a Fund's investment opportunities including restrictions on investing
in issuers or industries deemed sensitive to relevant national interests; and
(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 a 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.
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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, Duff & Phelps 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 Funds
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, Duff & Phelps 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 a 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 a 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. 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 an investment in bonds that pay interest
throughout the period to maturity, a Fund will realize no cash until the cash
payment date unless a portion of the bonds are sold, and if the issuer defaults,
the Fund may obtain no return at all on its investment.
MORTGAGE-RELATED SECURITIES. Mortgage-related securities can be
complex Derivative Instruments, subject to both credit and prepayment risk, and
may be more volatile and less liquid than more traditional debt securities.
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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 a 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 a
Fund. Moreover, with respect to certain stripped mortgage-backed securities, if
the underlying mortgage securities experience greater than anticipated
prepayments of principal, a 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 a Fund's mortgage-related securities to
decrease broadly, the Fund's effective duration, and thus sensitivity to
interest rate fluctuations, would increase.
MUNICIPAL OBLIGATIONS. The relevant Funds may invest more than 25% of
the value of their 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, a 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 a 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
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"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 Code provisions 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 a Fund and thus
reduce available yield. Shareholders should consult their tax advisers
concerning the effect of these provisions on an investment in a 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 a Fund so as to adversely affect its shareholders, the Fund would
reevaluate its investment objective and policies and submit possible changes in
the its structure to shareholders for their consideration. If legislation were
enacted that would treat a type of Municipal Obligation as taxable, a Fund would
treat that security as a permissible Taxable Investment within the applicable
limits set forth herein.
PENNSYLVANIA MUNICIPAL OBLIGATIONS. An investor in MPAM Pennsylvania
Intermediate Municipal Bond Fund should consider carefully the special risks
inherent in its 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 historically identified as
a heavy industry state although that reputation has recently changed as the
coal, steel and railroad industries declined 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 decrease in taxes of over $ 240 million. 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, Moody's, Duff & Phelps
and Fitch, 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
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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. 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 Funds believe 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
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.)
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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,
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
46
<PAGE>
Board of Trustees, or its delegate, determines that such securities are liquid,
based upon the trading markets for the specific security.
2. 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. This Investment Restriction has not been
adopted with respect to MPAM International Fund, MPAM Emerging Markets Fund, and
MPAM Short-Term U.S. Government Securities Fund.
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.
MANAGEMENT OF THE FUNDS
TRUSTEES 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:
<TABLE>
<CAPTION>
<S> <C>
MPAM Advisers, a division of The Dreyfus
Corporation............................................ Investment Adviser
Dreyfus Service Corporation............................ Distributor
Dreyfus Transfer, Inc.................................. Transfer Agent
Mellon Bank............................................ Custodian for the Funds except
MPAM International Fund and
47
<PAGE>
MPAM Emerging Markets Fund
Boston Safe Deposit and Trust Company.................. Custodian for MPAM International
Fund and MPAM Emerging
Markets Fund
</TABLE>
The Trust has a Board composed of seven Trustees. The following lists the
Trustees and officers and their positions with the Trust and their present and
principal occupations during the past five years. Each Trustee who is an
"interested person" of the Trust, as defined in the 1940 Act, is indicated by an
asterisk (*).
TRUSTEES OF THE TRUST
---------------------
*RONALD R. DAVENPORT, TRUSTEE. Since 1972, Mr. Davenport has been the
Chairman of Sheridan Broadcasting Corporation. He is the Co-Chairman of American
Urban Radio Networks and also serves on the Board of Aramark Corporation. From
1982 to 1984, he was a Partner at Buchanan Ingersoll Professional Corporation.
From 1970 to 1982, he served as Dean of the Duquesne University School of Law.
He has served on the Boards of several state, federal, and non-profit
organizations. He is 64 years old and his address is c/o Sheridan Broadcasting
Corporation, 960 Penn Avenue - Suite 200, Pittsburgh, Pennsylvania 15222.
JOHN L. DIEDERICH, TRUSTEE. Since 1998, Mr. Diederich has been the
Chairman of Digital Site Systems, Inc., a privately held software company
providing Internet service to the construction materials industry. From 1960 to
1997, he served in various capacities at the Aluminum Company of America
(ALCOA), including Executive Vice President and Chairman's Council (1991-1997).
He has also served on the Board of Continental Mills, United States Filter
Corporation, Copperweld Steel Corporation and various non-profit organizations
in Pittsburgh. He is 63 years old and his address is 1120 South Negley Avenue,
Pittsburgh, Pennsylvania 15217.
MAUREEN D. MCFALLS, TRUSTEE. Since January 2000, Ms. McFalls has been
the Director of the Office of Government Relations at Carnegie Mellon
University. From 1994 to 1999, she served as the Manager of Government
Communications at the Software Engineering Institute (SEI) at Carnegie Mellon
University. From 1990 to 1993, she managed the state and local government
programs regarding hazardous materials information for small business, industry
and government in Pennsylvania at the Center for Hazardous Materials Research,
University of Pittsburgh. Prior to that, she served as President of
Environmental Compliance, Inc. She is 54 years old and her address is 7521
Graymore Road, Pittsburgh, Pennsylvania 15221.
*PATRICK J. O'CONNOR, CHAIRMAN OF THE BOARD AND TRUSTEE. Since 1973,
Mr. O'Connor has been an attorney with Cozen and O'Connor, P.C. He currently
serves as Vice Chairman of Cozen and O'Connor, P.C. He serves on the Board of
Consultors for Villanova University School of Law. Mr. O'Connor has served on
the Board of Villanova University School of Law, Founders Bank, College
Misericordia, Temple University, and Kings College. He is 57 years old and his
48
<PAGE>
address is c/o Cozen and O'Connor, P.C., 1900 Market Street, Philadelphia,
Pennsylvania 19103.
KEVIN C. PHELAN, TRUSTEE. Since 1978, Mr. Phelan has been a mortgage
banker with Meredith & Grew, Inc. He serves as the Executive Vice President and
Director of Meredith & Grew, Inc. Prior to 1978, he worked in various capacities
for State Street Bank & Trust Co. Mr. Phelan is currently a Trustee/Director of
Greater Boston Chamber of Commerce, Fiduciary Trust Bank, St. Elizabeth's
Medical Center, Providence College, Boston Municipal Research Bureau, and the
Boys & Girls Clubs of Boston. He is 55 years old and his address is c/o Meredith
& Grew, Inc., 160 Federal Street, Boston, Massachusetts 02110.
PATRICK J. PURCELL, TRUSTEE. Since February 1994, Mr. Purcell has
been the President and Publisher of the Boston Herald. In July 1996, he founded
jobfind.com., an employment search site on the World Wide Web, and now serves as
its President. Prior to 1994, Mr. Purcell served as President and Chief
Executive Officer of News America Publishing, Inc. and as publisher of the New
York Post. Mr. Purcell is the Vice Chairman of the American Ireland Fund, a
Board Member of The Genesis Fund, United Way of Massachusetts Bay, John F.
Kennedy Library Foundation, and Greater Boston Chamber of Commerce. He is 52
years old and his address is 339 Wellesley St., Weston, Massachusetts 02493.
THOMAS F. RYAN, JR, TRUSTEE. Prior to retiring in April 1999, from
October 1995 to April 1999, Mr. Ryan served as President and Chief Operating
Officer of the American Stock Exchange. Until April 1999, Mr. Ryan served as a
Director of Securities Industry Automation Corporation, National Securities
Clearing Corporation, and the American Stock Exchange. From August 1968 to
September 1995, Mr. Ryan served in various capacities at Kidder, Peabody &
Company, Inc., including Chairman. He is presently a Trustee/Director of Boston
College, Brigham & Women's Hospital, New York State Independent System Operator,
and Paragon Trade Brands, Inc. He is 58 years old and his address is 220
Boylston Street, Apartment #9017, Boston, Massachusetts 02116.
The Trust pays its Board members an annual retainer and a per meeting
fee and reimburses them for their expenses. The aggregate amount of compensation
estimated to be paid to each Board member by the Trust and by all funds in the
fund complex for which such person is a Board member (which are the thirteen
Funds) for the year ending December 31, 2000, is as follows:
<TABLE>
<CAPTION>
---------------------------------------- ----------------------------------------- -----------------------------------------
NAME OF TRUSTEE AGGREGATE COMPENSATION FROM THE TRUST TOTAL COMPENSATION FROM THE FUND COMPLEX
--------------- ------------------------------------- ----------------------------------------
---------------------------------------- ----------------------------------------- -----------------------------------------
<S> <C> <C>
Ronald R. Davenport $23,500 $23,500
---------------------------------------- ----------------------------------------- -----------------------------------------
John L. Diederich $23,500 $23,500
---------------------------------------- ----------------------------------------- -----------------------------------------
Maureen D. McFalls $23,500 $23,500
---------------------------------------- ----------------------------------------- -----------------------------------------
Patrick J. O'Connor $23,500 $23,500
---------------------------------------- ----------------------------------------- -----------------------------------------
Kevin C. Phelan $23,500 $23,500
---------------------------------------- ----------------------------------------- -----------------------------------------
Patrick J. Purcell $23,500 $23,500
---------------------------------------- ----------------------------------------- -----------------------------------------
Thomas F. Ryan Jr. $20,500 $20,500
---------------------------------------- ----------------------------------------- -----------------------------------------
</TABLE>
49
<PAGE>
OFFICERS OF THE TRUST
---------------------
David F. Lamere, PRESIDENT. Executive Vice President of Mellon
Financial Corporation ("Mellon") and Boston Safe Deposit and Trust Company. As
President of Mellon Private Asset Management, Mr. Lamere oversees all investment
management, fiduciary, administrative and charitable planned giving services for
the firm's family office, endowment, foundation and high net worth clients. He
has been with the firm since 1983 and is 40 years old.
Prior to his current position, Mr. Lamere held several management
positions within Mellon Private Asset Management and The Boston Company. He is a
member of Mellon's Senior Management Committee and a Director of the Boards of
The Boston Company, Boston Safe Deposit and Trust Company, Laurel Capital
Advisors, LLP, Mellon United National Bank, and Newton Management, Ltd., of
London, England. In addition, he is Chairman of the Board for Mellon Trust of
New York, Mellon Trust of California, and Mellon Trust of Florida, National
Association. He is also a member of Mellon's Committee for Public
Responsibility.
H. Vernon Winters, VICE PRESIDENT. As Chief Investment Officer of
Mellon Private Asset Management, Mr. Winters is responsible for investment
strategy, policy and implementation for Mellon Private Asset Management. He
serves as a Director of Boston Safe Deposit and Trust Company and The Boston
Company. He is also the Chairman and CEO of Laurel Capital Advisors, LLP. He is
59 years old.
Mark N. Jacobs, VICE PRESIDENT. Vice President, Secretary, and
General Counsel of Dreyfus, and an officer of other investment companies advised
and administered by Dreyfus. He is 54 years old.
Joseph Connolly, VICE PRESIDENT AND TREASURER. Director - Mutual Fund
Accounting of Dreyfus, and an officer of other investment companies advised and
administered by Dreyfus. He is 42 years old.
Jeff Prusnofsky, SECRETARY. Assistant General Counsel of Dreyfus, and
an officer of other investment companies advised and administered by Dreyfus. He
is 34 years old.
Steven F. Newman, ASSISTANT SECRETARY. Assistant Secretary and
Associate General Counsel of Dreyfus, and an officer of other investment
companies advised and administered by Dreyfus. He is 50 years old.
Michael A. Rosenberg, ASSISTANT SECRETARY. Associate General Counsel
of Dreyfus, and an officer of other investment companies advised and
administered by Dreyfus. He is 40 years old.
Gregory S. Gruber, ASSISTANT TREASURER. Senior Accounting Manager -
Municipal Bond Funds of Dreyfus, and an officer of other investment companies
advised and administered by Dreyfus. He is 40 years old.
William McDowell, ASSISTANT TREASURER. Senior Accounting Manager -
Taxable Fixed Income of Dreyfus, and an officer of other investment companies
advised and administered by Dreyfus. He is 41 years old.
50
<PAGE>
James Windels, ASSISTANT TREASURER. Senior Treasury Manager of
Dreyfus, and an officer of other investment companies advised and administered
by Dreyfus. He is 41 years old.
The address of each officer of the Trust is 200 Park Avenue, New
York, New York 10166.
As of September 10, 2000, the officers and Trustees of the Trust as a
group owned beneficially less than 1% of each Fund's total shares outstanding.
MANAGEMENT ARRANGEMENTS
INVESTMENT ADVISER. MPAM Advisers is a division of Dreyfus, a
wholly-owned subsidiary of 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. Mellon provides a
comprehensive range of financial products and services in domestic and selected
international markets. Mellon is among the 25 largest bank holding companies in
the United States based on total assets.
INVESTMENT ADVISORY AGREEMENT. Pursuant to an Investment Advisory
Agreement with the Trust (the "Investment Advisory Agreement"), the Investment
Adviser provides investment management services to each Fund, including the
day-to-day management of the Fund's investments.
The Investment Advisory 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 Advisory
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 Advisory Agreement upon 60 days'
written notice to the Trust. The Investment Advisory 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; Patrice M. Kozlowski, Senior
Vice President-Corporate Communications; Mark N. Jacobs, Vice President, General
Counsel and Secretary; Diane P. Durnin, Vice President-Product Development; Mary
Beth Leibig, Vice President-Human Resources; Ray Van Cott, Vice
President-Information Systems; Theodore A. Schachar, Vice President-Tax; Wendy
Strutt, 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.
51
<PAGE>
The Investment Adviser manages each Fund's investments in accordance
with the stated policies of the Fund, subject to the approval of the Trust's
Board. The Investment Adviser is responsible for investment decisions, and
provides each Fund with portfolio managers who are authorized by the Board to
execute purchases and sales of securities. The Investment Adviser also maintains
a research department with a professional staff of portfolio managers and
securities analysts who provide research services for the Funds and for other
funds advised by the Investment Adviser.
Mellon Bank, the parent company of Dreyfus, and its affiliates may
have deposit, loan and commercial banking or other relationships with issuers of
securities purchased by a Fund. The Investment Adviser has informed the Trust
that in making investment decisions it does not obtain or use material inside
information that Mellon Bank or its affiliates may possess with respect to such
issuers.
The Investment Adviser may make such advertising and promotional
expenditures, using its own resources, as it from time to time deems
appropriate.
The Investment Adviser's Code of Ethics (the "Ethics 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 the Investment
Adviser must preclear and report their personal securities transactions and
holdings, which are reviewed for compliance with the Ethics Code and are also
subject to the oversight of Mellon's Investment Ethics Committee. Portfolio
managers and other investment personnel who comply with the Ethics 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 serves as administrator for the
Funds pursuant to an Administration Agreement with the Trust (the
"Administration Agreement"). Pursuant to the Administration Agreement, Mellon
Bank: supplies office facilities, data processing services, clerical, accounting
and bookkeeping services, auditing and legal services, internal executive and
administrative services, sub-accounting and recordkeeping services, stationery
and office supplies; prepares reports to shareholders, tax returns, reports to
and filings with the SEC and state Blue Sky authorities; pays for transfer
agency services and first year SEC registration fees; calculates the net asset
value of Fund shares; and generally assists in all aspects of Fund operations.
Mellon Bank, directly and through its affiliates, maintains all accounts of Fund
shareholders that maintain a qualified fiduciary, custody or other accounts with
Mellon Bank, Boston Safe Deposit and Trust Company, or their bank affiliates
("MPAM Clients"). Mellon Bank is also responsible for providing ongoing
information and communication to MPAM Clients regarding the Funds and their
investment in the Funds. Mellon Bank has entered into a Sub-Administration
Agreement with Dreyfus pursuant to which Mellon Bank pays Dreyfus for performing
certain of these administrative services.
DISTRIBUTOR. The 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
52
<PAGE>
profits but not including the investment advisory 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 distributor for the funds in the
Dreyfus Family of Funds.
CUSTODIAN. Mellon Bank, 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 keep all necessary accounts and records. For its custody
services, each custodian receives a monthly fee based on the market value of a
Fund's assets held in custody and receives certain securities transaction
charges.
TRANSFER AND DIVIDEND DISBURSING 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 Funds and the payment of
dividends and distributions payable by the Funds. 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. The investment advisory fee for each Fund is stated in the
Prospectus. The administration fee is calculated from the following
administration fee schedule based on the level of assets of the Funds, in the
aggregate:
TOTAL ASSETS ANNUAL FEE
------------ ----------
$0 to $6 billion .15%
Greater than $6 billion to $12 billion .12%
Greater than $12 billion .10%
The Investment Adviser and Mellon Bank bear all expenses in
connection with the performance of their services under the Investment Advisory
Agreement and Administration Agreement, respectively. All other expenses to be
incurred in the operation of the Funds are borne by the Funds, except to the
extent specifically assumed by the Investment Adviser or Mellon Bank.
HOW TO BUY SHARES
GENERAL. Shares are sold without a sales charge. The Funds reserve
the right to reject any purchase order.
53
<PAGE>
There is no minimum initial or subsequent investment requirement for
shareholders that are 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 an MPAM
Account to individuals or corporations that do not have MPAM Accounts, for whom
such Fund shares will be held in separate accounts ("Individual Accounts"). MPAM
Clients 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.
Management understands that Mellon Bank, Boston Safe, or their bank
affiliates may impose certain conditions on MPAM Clients which are different
from those described in the MPAM Funds' Prospectus and this Statement of
Additional Information, and, to the extent permitted by applicable regulatory
authority, may charge their clients direct fees. Holders of MPAM 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 a 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."
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 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 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
54
<PAGE>
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 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 - 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 1-888-281-7350.
HOW TO REDEEM SHARES
WIRE REDEMPTION PRIVILEGE. Holders of Individual Accounts may redeem
Fund shares 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:
TRANSFER AGENT'S
TRANSMITTAL CODE ANSWER BACK SIGN
---------------- ----------------
144295 144295 TSSG PREP
55
<PAGE>
If you do not have direct access to telegraphic equipment, you may
have the wire transmitted by contacting a TRT Cables operator at 1-800-654-7171,
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 "Signatures."
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 Individual Accounts 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
(___)___-____.
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.
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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
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. Shareholders may purchase, in exchange for shares of
a Fund, shares of other Funds, to the extent such shares are offered for sale in
their state of residence. To request an exchange, holders of MPAM Accounts must
contact their account representative and holders of Individual Accounts 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 1-888-281-7350. 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 account 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 Dreyfus
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 1-888-281-7350.
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 speculating on short-term
market movements. A pattern of frequent purchases and exchanges can be
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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 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 or 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 Trust'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
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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
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
price 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 investment advisory fee and
administration 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.
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 exists 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
DISTRIBUTIONS
Each Fund usually pays its shareholders dividends from its net
investment income as follows:
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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 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
* Declares dividends daily.
Each Fund distributes any net capital gains it has realized once a year.
A Fund will make distributions from net realized capital gains only
if all its capital loss carryovers, if any, have been utilized or have expired.
All expenses are accrued daily and deducted before the declaration of dividends
to investors. Generally, 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.
Holders of Individual Accounts 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. For
Individual Accounts, dividends and other distributions will be reinvested in
Fund shares unless the shareholder instructs the Fund otherwise. Holders of MPAM
Accounts should contact their account officer for information on reinvestment of
dividends and other distributions.
If you elect to receive dividends and other distributions in cash,
and your distribution check is returned to a Fund as undeliverable or remains
uncashed for six months, the Fund reserves the right to reinvest that
distribution and all future distributions payable to you in additional Fund
shares at NAV. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
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 (to the extent
not tax-exempt) as stated under "Dividends, Other Distributions and Taxes" in
the Funds' Prospectus.
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TAXES
GENERAL. It is expected that each Fund, each of which is treated as a
separate corporation for Federal income tax purposes, will qualify for treatment
as a "regulated investment company" ("RIC") under the Code so long as that
qualification is in the best interests of its shareholders. Qualification as
such will relieve a Fund of any liability for Federal income tax to the extent
it distributes its net earnings and realized gains to its shareholders. To
qualify for that treatment, a Fund (1) must distribute to its shareholders each
taxable year at least 90% of its investment company taxable income (generally
consisting of taxable net investment income, net short-term capital gains and
net gains from certain foreign currency transactions) ?? in the case of a
Municipal Bond Fund, at least 90% of the sum of that income plus its net
interest income excludable from gross income under section 103(a) of the Code ??
("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.
If any Fund failed to qualify for treatment as a RIC for any taxable
year, (1) it would be taxed as an ordinary corporation on the full amount of its
taxable income for that year without being able to deduct the distributions it
makes to its shareholders and (2) the shareholders would treat all those
distributions, including distributions that otherwise would be "exempt-interest
dividends" described below and distributions of net capital gain (i.e., the
excess of net long-term capital gain over net short-term capital loss) ("capital
gain distributions"), as taxable dividends (that is, ordinary income) to the
extent of the Fund's earnings and profits. In addition, the Fund could be
required to recognize unrealized gains, pay substantial taxes and interest and
make substantial distributions before requalifying for RIC treatment.
A Fund may be subject to a non-deductible 4% excise tax ("Excise
Tax"), measured with respect to certain undistributed amounts of taxable
investment income and capital gains.
TAX CONSEQUENCES OF MUNICIPAL BOND FUNDS' DIVIDENDS. If a Municipal
Bond Fund satisfies the requirement that, at the close of each quarter of its
taxable year, at least 50% of the value of its total assets consists of
securities the interest on which is excludable from gross income under section
103(a) of the Code, it may pay "exempt-interest dividends" to its shareholders.
Those dividends constitute the portion of its aggregate dividends (excluding
capital gain distributions) equal to the excess of its excludable interest over
certain amounts disallowed as deductions. Exempt-interest dividends are
excludable from a shareholder's gross income for Federal income tax purposes,
although the amount of those dividends must be reported on the recipient's
Federal income tax return. Shareholders' treatment of dividends from a Municipal
Bond Fund under state and local income tax laws may differ from the treatment
thereof under the Code. Investors should consult their tax advisers concerning
this matter.
Because the Municipal Bond Funds distribute exempt-interest
dividends, interest on indebtedness incurred or continued by a shareholder to
purchase or carry Fund shares is not deductible for Federal income tax purposes.
If a shareholder receives any exempt-interest dividends with respect to
Municipal Bond Fund shares held for six months or less, then any loss on the
redemption or exchange of those shares will be disallowed to the extent of those
exempt-interest dividends. In addition, (1) the Code may require a shareholder
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that receives exempt-interest dividends to treat as taxable income a portion of
certain otherwise non-taxable social security and railroad retirement benefit
payments, (2) the portion of an exempt-interest dividend paid by a Municipal
Bond Fund that represents interest from private activity bonds may be taxable in
the hands of a shareholder who is a "substantial user" of a facility financed by
those bonds or a "related person" thereof (both as defined for Federal income
tax purposes), and (3) some or all of a Municipal Bond Fund's dividends may be a
Tax Preference Item, or a component of an adjustment item, for purposes of the
Federal alternative minimum tax. Shareholders should consult their own tax
advisers as to whether they (1) are, or are related to, substantial users of a
facility (as so defined) or (2) are subject to the Federal alternative minimum
tax or any applicable state alternative minimum tax.
Dividends paid by a Municipal Bond Fund derived from the interest
income earned on any day are designated as tax-exempt in the same percentage of
the day's dividend as the actual tax-exempt income bears to the total income
earned that day. Thus, the percentage of the dividend designated as tax-exempt
may vary from day to day. Similarly, dividends paid by a Municipal Bond Fund
derived from interest income earned on a particular state's Municipal
Obligations are designated as 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 bears to the total income earned that day.
A Municipal Bond Fund may invest in bonds that are purchased,
ordinarily not on their original issue, with "market discount" (that is,
generally at a price less than the principal amount of the bond or, in the case
of a bond that was issued with original issue discount, a price less than the
amount of the issue price plus accrued original issue discount) ("market
discount bonds"). Gain on the disposition of a market discount bond (other than
a bond with a fixed maturity date within one year from its issuance) generally
is treated as ordinary (taxable) income, rather than capital gain, to the extent
of the bond's accrued market discount at the time of disposition. In lieu of
that treatment, a Municipal Bond Fund may elect to include market discount in
its gross income currently, for each taxable year to which it is attributable.
TAX CONSEQUENCES OF OTHER DISTRIBUTIONS. Dividends paid by a Fund
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"), are taxable to its 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 a Fund's net capital gain for a
taxable year (designated as such in a written notice mailed by the Fund to its
shareholders after the close of that year) are taxable to its U.S. shareholders
as long-term capital gains, regardless of how long they have held their Fund
shares and whether those distributions are received in cash or reinvested in
additional Fund shares. Dividends and other distributions also may be subject to
state and local taxes.
If a shareholder receives any capital gain distributions with respect
to Fund shares held for six months or less, then any loss incurred on the
redemption or exchange of those shares will be treated as a long-term capital
loss to the extent of those capital gain distributions.
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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 will be deemed to have been paid by the Fund and received
by the shareholders on December 31 of that year if the Fund pays the
distributions during the following January. Accordingly, those distributions
will be taxed to shareholders for the year in which that December 31 falls.
The receipt of Fund 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
subject to those taxes.
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 other distributions,
if any, paid during the year.
A Fund must withhold and remit to the U.S. Treasury 31% of taxable
dividends, capital gain distributions and redemption proceeds, regardless of the
extent to which gain or loss may be realized, payable to any individual or
certain other non-corporate shareholder if the shareholder fails to certify that
the "TIN" furnished to the Fund is correct ("backup withholding"). Backup
withholding at that rate also is required from a Fund's dividends and capital
gain distributions payable to such a shareholder if (1) the shareholder fails to
certify that he or she has not received notice from the Internal Revenue Service
("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 Fund to institute backup
withholding because the IRS determines that the shareholder's TIN is incorrect
or 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 and may be claimed as a credit on the record owner's
Federal income tax return.
A portion of the dividends paid by a Domestic Equity Fund or MPAM
Balanced 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 Federal alternative minimum tax.
TAX CONSEQUENCES OF CERTAIN INVESTMENTS. Dividends and interest
received by a Fund, and gains realized thereby, on foreign securities may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions that would reduce the yield and/or total return on those
securities. Tax conventions between certain countries and the United States may
reduce or eliminate these taxes, 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 (collectively, "Derivatives")
derived by a Fund with respect to its business of investing in securities or
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foreign currencies, will be treated as qualifying income under the Income
Requirement.
A Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is any foreign corporation (with certain
exceptions) that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive or (2) an average of at least 50% of its
assets produce, or are held for the production of, passive income. Under certain
circumstances, a Fund will be subject to Federal income tax on a portion of any
"excess distribution" received on the stock of a PFIC or of any gain on
disposition of the stock (collectively "PFIC income"), plus interest thereon,
even if the Fund distributes the PFIC income as a dividend to its shareholders.
The balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent it
distributes that income to its shareholders. If a Fund invests in a PFIC and
elects to treat the PFIC as a "qualified electing fund" ("QEF"), then in lieu of
the foregoing tax and interest obligation, the Fund would be required to include
in income each year its pro rata share of the QEF's annual ordinary earnings and
net capital gain which the Fund likely would have to distribute to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax even if the QEF
did not distribute those earnings and gain to the Fund. In most instances it
will be very difficult, if not impossible, to make this election because of
certain requirements thereof.
A Fund may elect to "mark to market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of the stock over a
Fund's adjusted basis therein as of the end of that year. Pursuant to the
election, a Fund also may deduct (as an ordinary, not capital, loss) the excess,
if any, of its adjusted basis in PFIC stock over the fair market value thereof
as of the taxable year-end, but only to the extent of any net mark-to-market
gains with respect to that stock included in income by the Fund for prior
taxable years under the election. A Fund's adjusted basis in each PFIC's stock
subject to the election would be adjusted to reflect the amounts of income
included and deductions taken thereunder.
Gains and losses realized from portfolio transactions ordinarily will
be treated as capital gains and losses. However, a portion of the gains and
losses from the disposition of foreign currencies and certain
non-U.S.-dollar-denominated securities (including debt instruments, certain
financial Derivatives and certain preferred stock) may be treated as ordinary
income and losses under section 988 of the Code. In addition, all or a portion
of any gains 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 gains realized from engaging in "conversion transactions" may be treated as
ordinary income under section 1258 of the Code. "Conversion transactions" are
defined to include certain Derivative and straddle transactions, transactions
marketed or sold to produce capital gains and 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 Derivatives will be treated as 60% long-term capital gain or loss
and 40% short-term capital gain or loss. Gain or loss will arise on exercise or
lapse of those Derivatives as well as from closing transactions. In addition,
any such Derivatives remaining unexercised at the end of a Fund's taxable year
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will be treated as sold for their then fair market value (i.e.,
"marked-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 Derivatives may
constitute "straddles," which are defined to include offsetting positions in
actively traded personal property. In certain circumstances, the Code sections
that govern the tax treatment of straddles override or modify sections 988 and
1256. As such, all or a portion of any capital gain from certain straddle
transactions may be recharacterized as ordinary income. If a Fund were treated
as entering into straddles by reason of its engaging in certain Derivatives
transactions, those straddles would be characterized as "mixed straddles" if the
Derivatives comprising a part of the 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
it will be deferred to the extent of unrealized gain in the offsetting position.
Moreover, as a result of those 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.
If a Fund has an "appreciated financial position" generally, an
interest (including an interest through a Derivative or short sale) with respect
to any stock, debt instrument (other than "straight debt") or partnership
interest the fair market value of which exceeds its adjusted basis and enters
into a "constructive sale" of the position, the Fund will be treated as having
made an actual sale thereof, with the result that it will recognize gain at that
time. A constructive sale generally consists of a short sale, an offsetting
notional principal contract, or a futures or forward contract entered into by a
Fund or a related person with respect to the same or substantially identical
property. In addition, if the appreciated financial position is itself a short
sale or such a contract, acquisition of the underlying property or substantially
identical property will be deemed a constructive sale. The foregoing will not
apply, however, to any transaction by a Fund during any taxable year that
otherwise would be treated as a constructive sale if the transaction is closed
within 30 days after the end of that year and the Fund holds the appreciated
financial position unhedged for 60 days after that closing (i.e., at no time
during that 60-day period is the Fund's risk of loss regarding that position
reduced by reason of certain specified transactions with respect to
substantially identical or related property, such as having an option to sell,
being contractually obligated to sell, making a short sale or granting an option
to buy substantially identical stock or securities).
Investment by a Fund in securities issued 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 that income to satisfy the
Distribution Requirement and avoid the Excise Tax. In that case, the Fund may
have to dispose of securities it might otherwise have continued to hold in order
to generate cash to make the necessary distribution.
STATE AND LOCAL TAXES. Depending on the extent of a Fund's activities
in states and localities in which it is deemed to be conducting business, it may
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be subject to the tax laws thereof. 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 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 Federal branch
profits tax.
Capital gains realized by foreign shareholders on the sale of Fund
shares and capital gain distributions to them generally will not be subject to
U.S. 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
U.S. withholding tax. However, those distributions may be subject to backup
withholding, unless the foreign investor certifies his or her 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 Fund
shares, 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
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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). The
Investment Adviser may use research services of and place brokerage transactions
with broker-dealers affiliated with it or Mellon Bank if the commissions are
reasonable, fair and comparable to commissions charged by non-affiliated
brokerage firms for similar services. Any spread, commission, 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 obligations to the Fund. The receipt of such research services does not
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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 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 Adviser, 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
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 a Fund on the
basis of potential for obtaining the Fund's specific objective 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 transaction costs 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 a 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.
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PERFORMANCE INFORMATION
The following information supplements and should be read in
conjunction with the paragraphs in the Funds' Prospectus entitled "Performance
of Similar Common Trust Fund."
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 (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.
Yields are computed by using standardized methods of calculation
required by the SEC. Yields are calculated by dividing the net investment income
per share earned during a 30-day (or one-month) period by the maximum offering
price per share on the last day of the period, according to the following
formula:
YIELD = 2[(A-B +1)6 -1]
---
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of
reimbursements);
c = average daily number of shares outstanding during
the period that were entitled to receive dividends;
and
d = maximum offering price per share on the last day
of the period.
Yield information may be useful in reviewing a Fund's 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,
Mellon Bank, or an affiliate waives any portion of otherwise applicable fees.
A Fund's net investment income may change in response to fluctuations
in interest rates and the expenses of the Fund. Consequently, any given
performance quotation should not be considered as representative of a Fund's
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.
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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.
Performance information for a Fund may be compared in reports and
promotional literature to indexes including, but not limited to: (i) the S&P
500; (ii) the Russell 1000 Value Index; (iii) the S&P MidCap 400; (iv) S&P
SmallCap 600; (v) Lehman Brothers Aggregate Bond Index; (vi) Lehman Brothers
Intermediate Government/Corporate Bond Index; (vii) Lehman 1-3 Year U.S.
Government Index; (viii) Lehman Brothers 7-Year Municipal Bond Index; (ix) the
Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE)
Index; (x) the Morgan Stanley Capital International Emerging Markets (Free)
Index or other appropriate unmanaged domestic or foreign indices of performance
of various types of investments so that investors may compare a Fund's results
with those of indices widely regarded by investors as representative of the
securities markets in general; (xi) other groups of mutual funds tracked by
Lipper Analytical Services, Inc., a widely used independent research firm which
ranks mutual funds by overall performance, investment objectives and assets, or
tracked by other services, companies, publications, or persons who rank mutual
funds on overall performance or other criteria; (xii) the Consumer Price Index
(a measure of inflation) to assess the real rate of return from an investment in
the respective Fund; and (xiii) products managed by a universe of money managers
with similar country allocation and performance objectives. Unmanaged indices
may assume the reinvestment of dividends but generally do not reflect deductions
or administrative and management costs and expenses. From time to time,
advertising materials for a Fund may refer to Morningstar ratings and related
analyses supporting the rating.
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- and
mid-cap investing.
From time to time, advertising material for a Fund may also include:
(i) 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; (ii) information
concerning retirement and investing for retirement, including statistical data
or general discussions about the growth and development of the Investment
Adviser and its affiliates (including in terms of new customers, assets under
management and market share) and their presence in the defined contribution plan
market; (iii) the approximate number of then current Fund shareholders; and (iv)
references to a Fund's quantitative, disciplined approach to stock market
investing and the number of stocks analyzed by the Investment Adviser.
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From time to time, advertising materials may refer to studies
performed by Dreyfus or its affiliates, such as "The Dreyfus Tax Informed
Investing Study" or "The Dreyfus Gender Investment Comparison Study (1996-1997)"
or other such studies.
From time to time, a Fund may use hypothetical tax equivalent yields
or charts in its advertising. These hypothetical yields or charts will be used
for illustrative purposes only and are not indicative of a Fund's past or future
performance.
INFORMATION ABOUT THE FUNDS/TRUST
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 are of one class and have equal rights as to dividends and 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
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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
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.
Each Fund will send annual and semi-annual financial statements to
all of its shareholders of record.
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' Prospectus and this SAI.
______________________, 180 Maiden Lane, New York, New York
10038-4982, serves as counsel to the non-interested Trustees of the Funds.
______________________, New York, NY 10017, was appointed by the
Trustees to serve as the Funds' independent auditors, 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
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General Fund, all special revenue funds, the Debt Service Funds and the Capital
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
Fund, produced tax revenue gains averaging 4.1% per year during the period.
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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
therefore 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.
A-5
<PAGE>
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
million), Pennsylvania Infrastructure Investment Authority ($196.4 million),
A-6
<PAGE>
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
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
A-7
<PAGE>
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.
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."
B-1
<PAGE>
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.
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
B-2
<PAGE>
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.
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.
B-3
<PAGE>
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 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.
B-4
<PAGE>
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+ AA High credit quality. Protection factors are strong. Risk is
AA- modest but AA may vary slightly from time to time because 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
BBB for prudent investment. Considerable variability BBB- in risk
BBB- during economic cycles.
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.
B-5
<PAGE>
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) Amended and Restated Agreement and Declaration of
Trust dated June 5, 2000, is filed herein.
(b) By-Laws dated June 5, 2000, are filed herein.
(c) Not Applicable.
(d) Form of Investment Advisory Agreement between MPAM
Funds Trust and MPAM Advisers dated June 14, 2000, is
filed herein.
(e) Form of Distribution Agreement dated June 14, 2000,
is filed herein.
(f) Not Applicable.
(g) (1) Form of Custodian Agreements dated as of June 14,
2000, between MPAM Funds Trust and Boston Safe
Deposit and Trust Company, is filed herein.
(2) Form of Custodian Agreement dated as of June 14,
2000, between MPAM Funds Trust and Mellon Bank, N.A.,
is filed herein.
(h) (1) Form of Transfer Agent Agreement dated as of June 14,
2000, is filed herein.
(2) Form of Administration Agreement dated June 14, 2000,
is filed herein.
(3) Form of Fee Waiver Agreement dated June 14, 2000, is
filed herein.
(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 dated April 18, 2000, is incorporated
herein by reference to Exhibit (p) of MPAM Funds
Trust's (File No. 333-34844) Registration Statement
filed May 12, 2000.
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,
<PAGE>
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
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,
nor the power of the Trust to purchase and maintain liability insurance on
behalf of such person.
C-2
<PAGE>
(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.
Officers and Directors of Investment Adviser
--------------------------------------------
<TABLE>
<CAPTION>
Name and Position
With Dreyfus Other Businesses Position Held Dates
------------ ---------------- ------------- -----
<S> <C> <C> <C>
CHRISTOPHER M. CONDRON Franklin Portfolio Associates, LLC* Director 1/97 - Present
Chairman of the Board and
Chief Executive Officer
TBCAM Holdings, Inc.* Director 10/97 - Present
President 10/97 - 6/98
Chairman 10/97 - 6/98
The Boston Company Asset Director 1/98 - Present
Management, LLC* Chairman 1/98 - 6/98
President 1/98 - 6/98
C-3
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
------------ ---------------- ------------- -----
The Boston Company Asset President 9/95 - 1/98
Management, Inc.* Chairman 4/95 - 1/98
Director 4/95 - 1/98
Franklin Portfolio Holdings, Inc.* Director 1/97 - Present
Certus Asset Advisors Corp.** Director 6/95 - Present
Mellon Capital Management Director 5/95 - Present
Corporation***
Mellon Bond Associates, LLP+ Executive Committee 1/98 - Present
Member
Mellon Bond Associates+ Trustee 5/95 - 1/98
Mellon Equity Associates, LLP+ Executive Committee Member 1/98 - Present
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, Chairman 12/97 - Present
LLC**** 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
CHRISTOPHER M. CONDRON Laurel Capital Advisors+ Trustee 10/93 - 1/98
Chairman and Chief
Executive Officer Boston Safe Deposit and Trust Director 5/93 - Present
(Continued) Company*
The Boston Company Financial President 6/89 - 1/97
Strategies, Inc. * Director 6/89 - 1/97
C-4
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
------------ ---------------- ------------- -----
MANDELL L. BERMAN Self-Employed Real Estate Consultant, 11/74 - Present
Director 29100 Northwestern Highway Residential Builder and
Suite 370 Private Investor
Southfield, MI 48034
BURTON C. BORGELT DeVlieg Bullard, Inc. Director 1/93 - Present
Director 1 Gorham Island
Westport, CT 06880
Mellon Financial Corporation+ Director 6/91 - Present
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 Corporation++ Senior Vice President 3/00 - Present
Director of Investments
Gruntal & Co., LLC Executive Vice President 5/97 - 11/99
New York, NY Partner 5/97 - 11/99
Executive Committee 5/97 - 11/99
Member
Board of Directors 5/97 - 11/99
Member
Treasurer 5/97 - 11/99
Chief Financial Officer 5/97 - 6/99
STEPHEN E. CANTER Dreyfus Investment Chairman of the Board 1/97 - Present
President, Chief Operating Advisors, Inc.++ Director 5/95 - Present
Officer, Chief Investment President 5/95 - Present
Officer, and Director
Newton Management Limited Director 2/99 - Present
London, England
Mellon Bond Associates, LLP+ Executive Committee 1/99 - Present
Member
Mellon Equity Associates, LLP+ Executive Committee 1/99 - Present
Member
Franklin Portfolio Associates, Director 2/99 - Present
LLC*
Franklin Portfolio Holdings, Inc.* Director 2/99 - Present
C-5
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
------------ ---------------- ------------- -----
STEPHEN E. CANTER The Boston Company Asset Director 2/99 - Present
President, Chief Operating Management, LLC*
Officer, Chief Investment
Officer, and Director TBCAM Holdings, Inc.* Director 2/99 - Present
(Continued)
Mellon Capital Management Director 1/99 - Present
Corporation***
Founders Asset Management, Member, Board of 12/97 - Present
LLC**** Managers
Acting Chief Executive 7/98 - 12/98
Officer
The Dreyfus Trust Company+++ Director 6/95 - Present
Chairman 1/99 - Present
President 1/99 - Present
Chief Executive Officer 1/99 - Present
THOMAS F. EGGERS Dreyfus Service Corporation++ Chief Executive Officer 3/00 - Present
Vice Chairman - Institutional and Chairman of the
And Director Board
Executive Vice President 4/96 - 3/00
Director 9/96 - Present
Founders Asset Management, Member, Board of 2/99 - Present
LLC**** Managers
Dreyfus Investment Advisors, Inc. Director 1/00 - Present
Dreyfus Service Organization, Director 3/99 - Present
Inc.++
Dreyfus Insurance Agency of Director 3/99 - Present
Massachusetts, Inc. +++
Dreyfus Brokerage Services, Inc. Director 11/97 - 6/98
401 North Maple Avenue
Beverly Hills, CA.
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
C-6
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
------------ ---------------- ------------- -----
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, Inc.+ Director 1/99 - Present
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
C-7
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
------------ ---------------- ------------- -----
LAWRENCE S. KASH Dreyfus Investment Director 4/97 - 12/99
Vice Chairman Advisors, Inc.++
Dreyfus Brokerage Services, Inc. Chairman 11/97 - 2/99
401 North Maple Ave. Chief Executive Officer 11/97 - 2/98
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 Director 12/94 - 3/99
Organization, Inc.++ President 1/97 - 3/99
Seven Six Seven Agency, Inc. ++ Director 1/97 - 4/99
LAWRENCE S. KASH Dreyfus Insurance Agency of Chairman 5/97 - 3/99
Vice Chairman 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 Credit Chairman 5/97 - 6/99
Corporation++ President 5/97 - 6/99
Director 12/94 - 6/99
Founders Asset Management, Member, Board of 12/97 - 12/99
LLC**** Managers
The Boston Company Advisors, Chairman 12/95 - 1/99
Inc. Chief Executive Officer 12/95 - 1/99
Wilmington, DE President 12/95 - 1/99
The Boston Company, Inc.* Director 5/93 - 1/99
President 5/93 - 1/99
Mellon Bank, N.A.+ Executive Vice President 6/92 - Present
Laurel Capital Advisors, LLP+ Chairman 1/98 - 8/98
Executive Committee 1/98 - 8/98
Member
Chief Executive Officer 1/98 - 8/98
President 1/98 - 8/98
C-8
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
------------ ---------------- ------------- -----
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 President 6/93 - 4/98
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 Officer 3/98 - Present
Director 1/98 - Present
Vice Chairman 1/90 - 3/98
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 of Director 5/98 - Present
Massachusetts, Inc.++++
Dreyfus Brokerage Services, Inc. Chairman 3/99 - Present
401 North Maple Avenue
Beverly Hills, CA
Seven Six Seven Agency, Inc.++ Director 10/98 - Present
Mellon Residential Funding Corp. + Director 4/97 - Present
Mellon Trust of Florida, N.A. Director 8/97 - Present
2875 Northeast 191st Street
North Miami Beach, FL 33180
C-9
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
------------ ---------------- ------------- -----
Mellon Bank, NA+ Executive Vice President 7/96 - Present
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 Financial President 8/96 - 6/99
Services, Inc.* Director 8/96 - 6/99
Boston Safe Deposit and Trust Director 7/96 - Present
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 Services Corp. + Director 9/96 - Present
Vice Chairman and
Director (Continued)
Dreyfus Investment Services Director 4/96 - Present
Corporation+
RICHARD W. SABO Founders Asset Management President 12/98 - Present
Director LLC**** Chief Executive Officer 12/98 - Present
Prudential Securities Senior Vice President 07/91 - 11/98
New York, NY Regional Director 07/91 - 11/98
RICHARD F. SYRON Thermo Electron President 6/99 - Present
Director 81 Wyman Street Chief Executive Officer 6/99 - Present
Waltham, MA 02454-9046
C-10
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
------------ ---------------- ------------- -----
American Stock Exchange Chairman 4/94 - 6/99
86 Trinity Place Chief Executive Officer 4/94 - 6/99
New York, NY 10006
RONALD P. O'HANLEY Franklin Portfolio Holdings, Inc.* Director 3/97 - Present
Vice Chairman
Franklin Portfolio Associates, Director 3/97 - Present
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 Committee 10/98 - Present
(UK) Member
London, England Director 10/98 - Present
Mellon Asset Management Non-Resident Director 11/98 - Present
(Japan) Co., LTD
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
RONALD P. O'HANLEY Mellon Capital Management Director 2/97 -Present
Vice Chairman (Continued) Corporation***
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
C-11
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
------------ ---------------- ------------- -----
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 Company+++ Director 3/96 - Present
The TruePenny Corporation++ President 10/98 - Present
Director 3/96 - Present
Dreyfus Service Director 3/97 - 3/99
Organization, Inc.++
WILLIAM H. MARESCA The Dreyfus Trust Company+++ Chief Financial Officer 3/99 - Present
Controller Treasurer 9/98 - Present
Director 3/97 - Present
Dreyfus Service Corporation++ Chief Financial Officer 12/98 - Present
Dreyfus Consumer Credit Corp. ++ Treasurer 10/98 - Present
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 Corporation++ Vice President 10/98 - Present
Dreyfus Precious Metals, Inc. +++ Treasurer 10/98 - 12/98
The Trotwood Corporation++ Vice President 10/98 - Present
Trotwood Hunters Corporation++ Vice President 10/98 - Present
Trotwood Hunters Site A Corp. ++ Vice President 10/98 - Present
Dreyfus Transfer, Inc. Chief Financial Officer 5/98 - Present
One American Express Plaza,
Providence, RI 02903
Dreyfus Service Treasurer 3/99 - Present
Organization, Inc.++ Assistant Treasurer 3/93 - 3/99
WILLIAM H. MARESCA Dreyfus Insurance Agency of Assistant Treasurer 5/98 - Present
Controller Massachusetts, Inc.++++
(Continued)
C-12
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
------------ ---------------- ------------- -----
WILLIAM T. SANDALLS, JR. Dreyfus Transfer, Inc. Chairman 2/97 - Present
Executive Vice President One American Express Plaza,
Providence, RI 02903
Dreyfus Service Corporation++ Director 1/96 - Present
Executive Vice President 2/97 - Present
Chief Financial Officer 2/97 - 12/98
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, Inc.++ Director 1/96 - 10/98
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 Organization, Treasurer 10/96 - 3/99
Inc.++
Dreyfus Insurance Agency of Director 5/97 - 3/99
Massachusetts, Inc.++++ Treasurer 5/97 - 3/99
Executive Vice President 5/97 - 3/99
DIANE P. DURNIN Dreyfus Service Corporation++ Senior Vice President - 5/95 - 3/99
Vice President - Product Marketing and Advertising
Development Division
PATRICE M. KOZLOWSKI None
Vice President - Corporate
Communications
MARY BETH LEIBIG None
Vice President -
Human Resources
THEODORE A. SCHACHAR Dreyfus Service Corporation++ Vice President -Tax 10/96 - Present
Vice President - Tax
The Dreyfus Consumer Credit Chairman 6/99 - Present
Corporation ++ President 6/99 - Present
Dreyfus Investment Advisors, Vice President - Tax 10/96 - Present
Inc.++
C-13
<PAGE>
Name and Position
With Dreyfus Other Businesses Position Held Dates
------------ ---------------- ------------- -----
Dreyfus Precious Metals, Inc. +++ Vice President - Tax 10/96 - 12/98
THEODORE A. SCHACHAR Dreyfus Service Organization, Vice President - Tax 10/96 - Present
Vice President - Tax Inc.++
(Continued)
WENDY STRUTT None
Vice President
RICHARD TERRES None
Vice President
RAYMOND J. VAN COTT Mellon Financial Corporation+ Vice President 7/98 - Present
Vice-President -
Information Systems
Computer Sciences Corporation Vice President 1/96 - 7/98
El Segundo, CA
JAMES BITETTO The TruePenny Corporation++ Secretary 9/98 - Present
Assistant Secretary
Dreyfus Service Corporation++ Assistant Secretary 8/98 - Present
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
-----------------------
* 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.
*** 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.
</TABLE>
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.
C-14
<PAGE>
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
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.
C-15
<PAGE>
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
(b)
<TABLE>
<CAPTION>
Positions and
offices with
Name and principal business address Positions and offices with the Distributor Registrant
------- ------------------------------------------ ----------
<S> <C> <C>
Thomas F. Eggers * Chief Executive Officer and Chairman of the Board None
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 and Chief Operations Officer None
William T. Sandalls, Jr. * Executive Vice President and Director None
Wilson Santos ** Executive Vice President and Director of Client Services None
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
C-16
<PAGE>
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 - Facilities Management None
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.
</TABLE>
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
Item 29. Management Services
-------------------
Not Applicable.
Item 30. Undertakings
------------
None.
C-17
<PAGE>
SIGNATURES
-------------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Pittsburgh, and Commonwealth of
Pennsylvania on the 14th day of June 2000.
MPAM FUNDS TRUST
/s/ David F. Lamere
BY: __________________________
David F. Lamere, President
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Amendment to the Registration Statement has
been signed below by the following persons in the capacities and on the date
indicated.
Signatures Title Date
---------------------------- -------------------- ----------------
/s/ David F. Lamere President June 14, 2000
----------------------------
David F. Lamere
/s/ Joseph Connolly Treasurer June 14, 2000
----------------------------
Joseph Connolly
/s/ Ronald R. Davenport Trustee June 14, 2000
----------------------------
Ronald R. Davenport
/s/ John L. Diederich Trustee June 14, 2000
----------------------------
John L. Diederich
/s/ Maureen D. McFalls Trustee June 14, 2000
----------------------------
Maureen D. McFalls
/s/ Patrick J. O'Connor Trustee June 14, 2000
----------------------------
Patrick J. O'Connor
/s/ Kevin C. Phelan Trustee June 14, 2000
----------------------------
Kevin C. Phelan
/s/ Patrick J. Purcell Trustee June 14, 2000
----------------------------
Patrick J. Purcell
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitute and appoint Mark N. Jacobs, Steven F.
Newman, Michael A. Rosenberg, Jeff Prusnofsky, Robert R. Mullery, Janette
Farragher, and John B. Hammalian, and each of them, with full power to act
without the other, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him, and in his name, place and
stead, in any and all capacities (until revoked in writing) to sign any and all
amendments to the Registration Statement of each Fund enumerated on Exhibit A
hereto (including post-effective amendments and amendments thereto), and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ David Lamere President June 13, 2000
----------------------
David Lamere
/s/ Joseph W. Connolly Vice President and Treasurer June 13, 2000
----------------------
Joseph W. Connolly
<PAGE>
EXHIBIT A
MPAM FUNDS TRUST
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
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitute and appoint Mark N. Jacobs, Steven F.
Newman, Michael A. Rosenberg, Jeff Prusnofsky, Robert R. Mullery, Janette
Farragher, and John B. Hammalian, and each of them, with full power to act
without the other, his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her, and in his or her
name, place and stead, in any and all capacities (until revoked in writing) to
sign any and all amendments to the Registration Statement of each Fund
enumerated on Exhibit A hereto (including post-effective amendments and
amendments thereto), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Ronald Ross Davenport Trustee June 13, 2000
-------------------------
Ronald Ross Davenport
/s/ John L. Diederich Trustee June 13, 2000
-------------------------
John L. Diederich
/s/ Maureen D. McFalls Trustee June 13, 2000
-------------------------
Maureen D. McFalls
/s/ Patrick J. O'Connor Trustee June 13, 2000
-------------------------
Patrick J. O'Connor
/s/ Kevin C. Phelan Trustee June 13, 2000
-------------------------
Kevin C. Phelan
/s/ Patrick J. Purcell Trustee June 13, 2000
-------------------------
Patrick J. Purcell
/s/ Thomas F. Ryan Trustee June 13, 2000
-------------------------
Thomas F. Ryan
<PAGE>
EXHIBIT A
MPAM FUNDS TRUST
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
<PAGE>
EXHIBIT INDEX
-------------
(a) Amended and Restated Agreement and Declaration of Trust dated
June 5, 2000.
(b) By-Laws dated June 5, 2000.
(d) Form of Investment Advisory Agreement between MPAM Funds
Trust and MPAM Advisers dated June 14, 2000.
(e) Form of Distribution Agreement dated June 14, 2000.
(g) (1) Form of Custodian Agreement dated as of June 14, 2000,
between MPAM Funds Trust and Boston Safe Deposit and Trust
Company.
(2) Form of Custodian Agreement dated as of June 14, 2000, between
MPAM Funds Trust and Mellon Bank, N.A.
(h) (1) Form of Transfer Agent Agreement dated as of June 14, 2000.
(2) Form of Administration Agreement dated June 14, 2000.
(3) Form of Fee Waiver Agreement dated June 14, 2000.
(p) Code of Ethics dated April 18, 2000, is incorporated
herein by reference to Exhibit (p) of MPAM Funds Trust's (File
No. 333-34844) Registration Statement filed May 12, 2000.
