As filed with the Securities & Exchange Commission August 21, 1997
Securities Act File No. 33-55758
----------
Investment Company Act File No. 811-7366
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
Registration Statement Under the Securities Act of 1933 X
------
Pre-Effective Amendment No.
-------- ------
Post-Effective Amendment No. 7 X
-------- ------
Registration Statement Under the Investment Company Act of 1940 X
------
Amendment No. 9 X
-------- ------
THE ANALYTIC SERIES FUND
(Exact Name of Registrant as Specified in Charter)
700 South Flower Street, Suite 2400, Los Angeles, CA 90017
(Address of principal executive offices)
Registrant's Telephone Number: (213) 688-3015
NAME AND ADDRESS OF AGENT FOR SERVICE
COPIES TO:
HARINDRA DE SILVA MICHAEL GLAZER
Analytic[bullet]TSA Global Asset
Management, Inc. Paul, Hastings, Janofsky & Walker LLP
700 South Flower Street, Suite 2400 555 South Flower Street
Los Angeles, CA 90017 Los Angeles, CA 90071
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
- ----
on ___________ pursuant to paragraph (b)
- ----
X 60 days after filing pursuant to paragraph (a)(1)
- ----
on ________________ pursuant to Rule 485 paragraph (a)(1)
- ----
75 days after filing pursuant to paragraph (a)(2)
- ----
on ________________ pursuant to paragraph (a)(2) of Rule 485
- ----
This post-effective amendment designates a new effective date for a
- ---- previously filed post-effective amendment.
The Registrant has registered an indefinite number of shares of its common stock
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The Registrant's Rule 24f-2 Notice for its most recent
fiscal year was filed on February 27, 1997.
<PAGE>
CROSS REFERENCE SHEET
FORM N-1A
PART A: INFORMATION REQUIRED IN PROSPECTUS
N-1A
Item No. Item Location in Registration Statement
1. Cover Page Cover Page - Prospectus
2. Synopsis Fund Expenses; Yield and Total
Return Disclosure
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objective and
Policies; Investment
Limitations; Investment Risks
5. Management of the Fund Management of the Fund
6. Capital Stock and Other Securities General Information; Dividends,
Capital Gains and Taxes;
Shareholder Guide
7. Purchase of Securities Being Highlights; Shareholder Guide -
Offered Purchasing Shares; Shareholder
Guide - Exchanging Shares
8. Redemption or Repurchase Highlights; Shareholder Guide -
Redeeming Shares; Shareholder
Guide - Exchanging Shares
9. Legal Proceedings Not Applicable
PART B: INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
N-1A
Item No. Item Location in Registration Statement
10. Cover Page Cover Page - Statement of
Additional Information
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Policies Investment Objective and
Policies; Investment Limitations
14. Management of Registrant Management of the Fund
15. Control Persons and Principal Management of the Fund;
Holders of Securities Principal Shareholders
16. Investment Advisory and Other Investment Advisory and Other
Services Services
17. Broker Allocation Portfolio Transactions
18. Capital Stock and Other Securities Not Applicable (See Prospectus)
19. Purchase, Redemption, and Pricing Net Asset Value Per Share;
of Securities Being Offered Purchase of Shares; Redemption of
Shares
20. Tax Status Investment Objectives - Federal
Tax Treatment of Options and
Futures
21. Underwriters Not Applicable
22. Calculation of Performance Data Not Applicable (See Prospectus.)
23. Financial Statements Financial Statements
PART C: OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PART A
THE ANALYTIC SERIES FUND
(800) 374-2633
PROSPECTUS DATED OCTOBER ____, 1997
A No-Load Open-End Fund With No Sales Charge or Redemption Fee
TABLE OF CONTENTS
Page Page
- --------------------------------------------------------------------------------
Highlights 4 Dividends, Capital Gains and Taxes 34
- --------------------------------------------------------------------------------
Fund Expenses 6 General Information 35
- --------------------------------------------------------------------------------
Financial Highlights 7 Yield, Total Return, and Other 37
Calculations
- --------------------------------------------------------------------------------
Investment Objective and Policies 10 Shareholder Guide 39
- --------------------------------------------------------------------------------
Investment Risks 13 Opening an Account 39
- --------------------------------------------------------------------------------
Who Should Invest 15 Purchasing Shares 39
- --------------------------------------------------------------------------------
Implementation of Policies 16 Redeeming Shares 42
- --------------------------------------------------------------------------------
Management of Fund 30 Exchanging Shares 45
- --------------------------------------------------------------------------------
Investment Adviser 30 Withdrawal Plan 47
- --------------------------------------------------------------------------------
The Share Price of Each Portfolio 33
- --------------------------------------------------------------------------------
1
<PAGE>
THE ANALYTIC SERIES FUND
(800) 374-2633
INVESTMENT OBJECTIVE The Analytic Series Fund, a Delaware business
AND POLICIES trust (the "Fund"), is a newly organized,
no-load, open-end diversified investment company
or "mutual fund" presently consisting of 3
separate Portfolios, each with a distinct
investment objective. The Portfolios are: the
Analytic Portfolio"), and the Analytic Enhanced
Equity Portfolio ("Enhanced Equity Portfolio").
The investment objective of the Short-Term
Government Portfolio is to provide a high level
of income consistent with both low fluctuations
in market value and low credit risk. At least 80%
of the total assets of the Portfolio will be
invested in U.S. government securities and up to
20%, may be invested in securities of foreign
issuers.
The investment objective of the Master Fixed
Income Portfolio is to provide above-average
total returns from a diversified bond portfolio
consisting primarily of domestic government,
corporate, and mortgage-related fixed income
securities. Up to 20% of the total assets of the
Portfolio may be invested in securities of
foreign issuers.
The investment objective of the Enhanced Equity
Portfolio is to provide above-average total
returns from a diversified equity portfolio which
consists primarily of domestic common stocks and
related investments such as options and futures.
Up to 20% of the total assets of the Portfolio
may be invested in securities of foreign issuers.
2
<PAGE>
OPENING AN ACCOUNT Please complete and return the Account
Registration. If you need assistance in
completing this form, please call the Fund's
sub-transfer agent at (800) 374-2633. There is no
minimum investment for tax deferred retirement
accounts; otherwise, the minimum initial
investment is $5,000 invested in any proportion
among the Portfolios. Shares may be purchased at
net asset value per share, without a sales
charge, next determined after receipt of a
purchase order in good form.
ABOUT THIS PROSPECTUS This Prospectus sets forth concisely the
information you should know about the Fund before
you invest. It should be retained for future
reference. A Statement of Additional Information
containing additional information about the Fund
has been filed with the Securities and Exchange
Commission. The Statement is incorporated by
reference into this Prospectus and a copy may be
obtained without charge by calling the Fund's
sub-transfer agent at (800) 374-2633.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus and the related Statement of Additional Information
is October ____, 1997
3
<PAGE>
HIGHLIGHTS
THREE SEPARATE PORTFOLIOS Investors may choose from any of the three
Portfolios of the Fund. The investment
characteristics of each Portfolio are summarized
in the chart below.
Page 10
PORTFOLIO SUMMARY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
May Use May Use
Portfolio Primary Investments Options Foreign
and Futures Securities
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Shorter term U.S. Treasury & U.S. Yes Yes
Government Government agency fixed income
securities, with an average duration of
1 to 3 years
Master Fixed Income Intermediate and longer term U.S. Yes Yes
Government, and high grade corporate
and mortgage-related fixed income
securities
Enhanced Equity Publicly traded common stocks with Yes Yes
average capitalization typical of
medium to large companies
- ---------------------------------------------------------------------------------------
</TABLE>
RISK CHARACTERISTICS The securities in the Portfolios are subject to
various risks, including interest rate risk,
credit risk, currency risk and equity risk. The
following chart summarizes the Adviser's opinion
of the exposure of each Portfolio to these risks
and the expected price fluctuations due to these
and other risks, based on the historical
financial characteristics of the various
securities.
Page 13
RISK SUMMARY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Interest Rate Currency Expected
Portfolio and Equity Risk Risk Portfolio
Credit Risk Price Fluctuations
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Low None Low Low to Moderate
Government
Master Fixed Income High Low to Low Moderate to High
Moderate
Enhanced Equity Low High Low High to Very High
- -------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
INVESTMENT ADVISER Analytic[bullet]TSA Global Asset Management, Inc.
(the "Adviser"), 700 South Flower Street, Suite
2400, Los Angeles, CA 90017, is the investment
adviser of the Fund. The Adviser is a wholly
owned subsidiary of United Asset Management
Corporation, a holding company described under
"Management of the Fund" in the Statement of
Additional Information.
Page 29
DIVIDEND POLICY The Short-Term Government and Master Fixed Income
Portfolios declare a dividend each business day
based on their respective net investment incomes.
These dividends are paid on the first business
day of each month. The Enhanced Equity Portfolio
declares and pays its net investment income on
the last business day of the calendar quarter.
All Portfolios distribute net realized capital
gains, if any, annually.
Page 34
TAXES Dividends and capital gains distributions paid by
the Fund's Portfolios are generally subject to
federal, state and local income taxes. However,
depending on provisions of your state's tax law,
the portion of a Portfolio's income derived from
"full faith and credit" U.S. Treasury obligations
may be exempt from state and local taxes. A sale
of shares, whether by outright redemption or
exchange, is a taxable event and may result in a
capital gain or loss.
Page 34
PURCHASING SHARES Shares may be purchased by wire, mail, or
exchange from another Portfolio in the Fund, at
net asset value per share, without a sales
charge, next determined after receipt of a
purchase order in good form. There is no minimum
initial or subsequent purchase of Portfolio
shares by tax deferred retirement plans
(including IRA, SEP-IRA and profit sharing and
money purchase plans) or Uniform Gifts to Minors
Act accounts. For other investors the minimum is
$5,000 for an initial purchase, in any proportion
among the Portfolios, and there is no minimum for
subsequent purchases.
Page 39
REDEEMING SHARES Shares are redeemed without charge and
redemptions may be made by telephone, mail, or
exchange to another Portfolio in the Fund.
Page 42
ADMINISTRATIVE SERVICES UAM Fund Services, Inc., a wholly-owned
subsidiary of United Asset Management
Corporation, is responsible for performing and
overseeing all administrative, fund accounting,
dividend disbursing and transfer agent services
for the Fund. UAM Fund Services has subcontracted
certain of these services to Chase Global Funds
Services Company, an affiliate of The Chase
Manhattan Bank. Chase Global Funds Services
Company will act as the Fund's sub-dividend
disbursing agent, sub-transfer agent and
sub-shareholder servicing agent.
Page 31
Shareholder inquiries should be addressed to the
Fund's sub-shareholder servicing agent at:
Analytic Funds, c/o Chase Global Funds Services
Company, P.O. Box 2798, Boston, MA 02208;
telephone (800) 374-2633.
5
<PAGE>
FUND EXPENSES The following table illustrates the expenses and
fees that a shareholder of the Fund is expected
to incur for the Fund's 1997 fiscal year.
However, transaction fees may be charged if a
broker-dealer or other financial intermediary
deals with the Fund on your behalf (See
"Shareholder Guide - Purchasing Shares").
<TABLE>
<CAPTION>
Short-Term Master Enhanced
Government Fixed Income Equity
Shareholder Transaction Expenses Portfolio Portfolio Portfolio
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Sales Load Imposed on Reinvested None None None
Dividends
Redemption Fees None None None
Exchange Fees None None None
<CAPTION>
Short-Term Master Enhanced
Annual Fund Operating Expenses Government Fixed Income Equity
(After Expense Reimbursement*) Portfolio Portfolio Portfolio
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.00% 0.45% 0.09%
12b-1 Fees None None None
Other Expenses 0.60 0.52 0.91
---- ---- ----
Total Fund Operating Expenses (after 0.60% 0.97% 1.00%
expense reimbursement)
</TABLE>
* After reimbursement of expenses. The Adviser has voluntarily agreed to
reimburse expenses of the Fund, including advisory fees (but excluding interest,
taxes, and extraordinary expenses) that exceed 0.60%, and 1.0% of average daily
net assets for the Short-Term Government, and Enhanced Equity Portfolios,
respectively, for the year ending December 31, 1997. Without such reimbursement,
management fees for the Short-Term Government, and Enhanced Equity Portfolio
would be 0.30%, and 0.60%, respectively, and total expenses are expected to be
3.28% (this projection was based on asset levels as of the date of this
prospectus) and 1.51%, respectively, for the year ending December 31, 1997. The
voluntary expense caps for year ended December 31, 1996 were 0.60%, 0.80% and
1.0% for the Short Term Government, Master Fixed Income and Enhanced Equity
Portfolios, respectively. The information in the Fund Expenses table has been
restated to reflect the current expense caps.
The Master Fixed Income and Enhanced Equity Portfolios have entered into
agreements whereby certain operating expenses of the Portfolio are paid
indirectly by a broker, based upon a percentage of commissions earned by the
broker for execution of portfolio transactions. Gross commission rates for this
broker are consistent with those of other brokers utilized by the Fund. For the
year ended December 31, 1996, expenses paid indirecty by such broker represented
0.06% and 0.13% of average daily net assets of the Master Fixed Income and
Enhanced Equity Portfolios, respectively. With expenses reimbursed by the
Adviser and expenses paid indirectly through brokerage arrangements, total
expenses would have been 0.56%, 0.72% and 0.91% of average daily net assets of
the Short-Term Government, Master Fixed Income and Enhanced Equity Portfolios,
respectively.
EXAMPLE The following example illustrates the expenses you would
pay on a $1,000 investment, assuming (1) a 5% annual rate
of return and (2) redemption at the end of each period.
Portfolio 1 year 3 years 5 years 10 years
--------- ------ ------- ------- --------
Short-Term Goverment $6 $19 $33 $75
Master Fixed Income 10 31 54 119
Enhanced Equity 10 32 55 122
6
<PAGE>
FINANCIAL HIGHLIGHTS
The financial statements in the tables below for each of the four years in
the period ended December 31, 1996, and the one month ended December 31, 1992,
have been audited by Deloitte & Touche LLP, independent auditors. Such financial
statements and the report of Deloitte & Touche LLP thereon are incorporated by
reference in the Statement of Additional Information. Copies of the Fund's 1996
Annual Report to Shareholders may be obtained, at no charge, by telephoning the
Fund at the telephone number appearing on the cover page of this Prospectus.
SHORT TERM GOVERNMENT PORTFOLIO
<TABLE>
<CAPTION>
One Month
Ended
Year Ended December 31 December 31
--------------------------------------------------------------
1996 1995 1994 1993 1992
-------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.98 $ 9.55 $ 10.03 $ 10.03 $ 10.00
-------- --------- -------- --------- ---------
Income from investment
operations
Net investment income 0.62 0.56 0.48 0.53 0.05
Net realized and unrealized
gains (losses) on
investment and foreign
currency transactions (0.10) 0.43 (0.48) 0.00 0.03
-------- --------- -------- --------- ---------
Total from investment
operations 0.52 0.99 0.00 0.53 0.08
Less distributions
From net investment income 0.66 0.56 0.48 0.53 0.05
Return of capital 0.01
-------- --------- -------- --------- ---------
Total distributions 0.67 0.56 0.48 0.53 0.05
======== ========= ======== ========= =========
Net asset value, end of period $ 9.83 $ 9.98 $ 9.55 $ 10.03 $ 10.03
======== ========= ======== ========= =========
Total return 5.28 % 10.65 % 0.00 % 5.37 % 9.38 % =
======== ========= ======== ========= =========
Ratios/supplemental data
Net assets, end of period ($000) $ 1,008 $ 27,880 $ 24,481 $ 26,097 $ $ 7,619
Ratio of expenses to average
net assets (1) 0.76 % 0.82 % 0.85 % 0.75 % 0.77 % =
Ratio of net investment
income to average net assets 5.99 % 5.76 % 5.37 % 4.91 % 5.45 % =
Portfolio turnover rate 31.48 % 10.15 % 3.21 % 85.69 % 0.00 %
</TABLE>
(1) Gross of Adviser reimbursed expenses. With expense reduction, such ratios
would have been 0.56%, 0.50%, 0.45%, 0.45%, and 0.45%= for each of the years
in the periods ended December 31, 1996 and for the month ended December 31,
1992, respectively.
= Annualized
7
<PAGE>
MASTER FIXED INCOME PORTFOLIO
<TABLE>
<CAPTION>
One Month
Ended
Year Ended December 31 December 31
-------------------------------------------------------
1996 1995 1994 1993 1992
------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 10.41 $ 9.50 $ 10.26 $ 10.06 $ 10.00
------- ------ ------ ------- ------
Income from investment
operations
Net investment income 0.58 0.61 0.64 0.67 0.04
Net gains (losses) on
investments and options
(realized and unrealized) (0.01) 0.91 (0.75) 0.41 0.06
------- ------ ------ ------- ------
Total from investment
operations 0.57 1.52 (0.11) 1.08 0.10
Less distributions
From net investment income 0.58 0.61 0.64 0.67 0.04
From net realized gains 0.12 0.00 0.01 0.21 0.00
In excess of net realized
realized gains 0.01 0.00 0.00 0.00 0.00
------- ------ ------ ------- ------
Total distributions 0.71 0.61 0.65 0.88 0.04
------- ------ ------ ------- ------
Net asset value, end of period $ 10.27 $ 10.41 $ 9.50 $ 10.26 $ 10.06
======= ====== ====== ======= ======
Total return 5.69 % 16.43 % (1.04)% 10.94 % 13.09 % =
======= ====== ====== ======= ======
Ratios/supplemental data
Net assets, end of period
($000) $ 28,926 $ 24,868 $ 6,155 $ 8,066 $ 9,219
Ratio of expenses to
average net assets (1) 0.97 % 1.03 % 1.17 % 1.04 % 1.05 % =
Ratio of net investment income =
to average net assets 5.66 % 5.99 % 7.16 % 6.39 % 5.63 %
Portfolio turnover rate 21.95 % 31.82 % 44.30 % 105.39 % 0.00 %
Average commission rate (2) $ 0.0418 $ 0.0277
</TABLE>
(1) Gross of Adviser reimbursed expenses and expenses indirectly paid through
brokerage arrangements. With both expense reductions, such ratios would have
been 0.72%, 0.69%, 0.60%, 0.60% and 0.60%= for each of the years in the
periods ended December 31, 1996 and for the month ended December 31, 1992,
respectively.
(2) The formula for calculating the average commission rate is total commissions
paid divided by the total shares purchased and sold. Each option contract is
100 shares.
= Annualized
8
<PAGE>
ENHANCED EQUITY PORTFOLIO
<TABLE>
<CAPTION>
One Month
Ended
Year Ended December 31 December 31
---------------------------------------------------------------------
1996 1995 1994 1993 1992
------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.94 $ 9.83 $ 10.15 $ 10.02 $ 10.00
------- --------- --------- --------- ---------
Income from investment operations
Net investment income 0.21 0.23 0.28 0.40 0.01
Net realized and unrealized
gains (losses) on
investment and option
transactions 2.74 3.22 (0.32) 0.62 0.02
------- --------- --------- --------- ---------
Total from investment
operations 2.95 3.45 (0.04) 1.02 0.03
Less distributions
From net investment income 0.21 0.23 0.28 0.40 0.01
From net realized gains 3.58 0.11 0.00 0.37 0.00
In excess of net realized gains 0.01 0.00 0.00 0.00 0.00
Return of capital 0.00 0.00 0.00 0.12 0.00
------- --------- --------- --------- ---------
Total distributions 3.80 0.34 0.28 0.89 0.01
------- --------- --------- --------- ---------
Net asset value, end of period $ 12.09 $ 12.94 $ 9.83 $ 10.15 $ 10.02
======= ========= ========= ========= =========
Total return 22.95 % 35.36 % (0.37) % 10.07 % 4.08 % =
======= ========= ========= ========= =========
Ratios/supplemental data
Net assets, end of period ($000) $ 3,519 $ 2,318 $ 1,511 $ 903 $ 12,823
Ratio of expenses to average
net assets (1) 1.51 % 1.33 % 1.35 % 1.35 % 1.07 % =
Ratio of net investment income to 1.53 % 2.02 % 3.24 % 2.16 % 1.66 % =
average net assets
Portfolio turnover rate 179.47 % 10.15 % 24.75 % 76.34 % 25.20 %
Average commission rate (2) $ 0.0658 $ 0.0431
</TABLE>
(1) Gross of Adviser reimbursed expenses and expenses indirectly paid through
brokerage arrangements. With both expense reductions, such ratios would have
been 0.91%, 0.50%, 0.24%, 0.57%, and 0.70%= for each of the years in the
periods ended December 31, 1996 and for the month ended December 31, 1992,
respectively.
(2) The formula for calculating the average commission rate is total commission
paid divided by the total shares purchased and sold. Each option contract is
100 shares.
= Annualized
9
<PAGE>
INVESTMENT OBJECTIVES The investment objectives and policies of each
AND POLICIES Portfolio are listed below. The objectives are
fundamental and may not be changed without
shareholder approval. However, the investment
policies, practices, and strategies employed in
pursuit of each Portfolio's objective are not
fundamental and may be changed without
shareholder approval. Because there are risks
inherent in all securities investments, there is
no assurance that these objectives will be
achieved.
Short-Term Government Investment Objective:
Portfolio
The investment objective of the Short-Term
Government Portfolio is to provide a high level
of income consistent with both low fluctuations
in market value and low credit risk.
Investment Policies:
The Short-Term Government Portfolio seeks to
achieve its investment objective by investing
primarily in U.S. Treasury or U.S. Government
agency securities to minimize credit risk. To
minimize fluctuations in market value, the
Portfolio is expected, under normal market
conditions, to maintain a dollar weighted average
maturity and weighted average duration between 1
and 3 years. Duration is the weighted average
time to receipt of both principal and interest
payments of a debt security and also a measure of
the sensitivity of fixed income related
investments to interest rate changes.
Under normal market conditions, the Short-Term
Government Portfolio will invest at least 80% of
its total assets in U.S. Government securities.
Subject to certain additional limitations, the
remainder of the Portfolio's assets may be
invested in other high grade debt securities,
securities of foreign governments and
supranational organizations considered to be of
high grade investment quality, currency-rate and
interest rate-related options and futures, and
cash and cash equivalents. The high grade
investment standard for the Fund includes only
those securities with (i) over 1 year original
maturity and rated at the time of purchase a
minimum of A by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation
("Standard & Poor's") , (ii) under 1 year
original maturity and rated at the time of
purchase a minimum of Prime 1 by Moody's or A-1
by Standard & Poor's, or (iii) unrated securities
determined by the Adviser at the time of purchase
to be equivalent to these ratings. See the
discussion of ratings under "Implementation of
Policies" below.
The Portfolio may also invest in repurchase
agreements collateralized by U.S. Government
securities. For temporary defensive purposes, the
Portfolio may reduce the average duration to less
than 1 year. See "Implementation of Policies" for
a description of these investment practices of
the Portfolio and the additional limitations that
may apply to some of the investments described
above.
10
<PAGE>
Master Fixed Income Portfolio Investment Objective:
The investment objective of the Master Fixed
Income Portfolio is to provide above-average
total returns from a diversified bond portfolio
consisting primarily of U.S. Government,
corporate, and mortgage-related fixed income
securities. For this purpose, "above average"
total returns means returns above the average
long-term total returns of other mutual funds
with similar investment policies and risk
characteristics.
Investment Policies:
The Master Fixed Income Portfolio seeks to
achieve its objective by investing primarily in
U.S. Treasury, U.S. Government, and U.S. dollar
denominated high grade securities, including
mortgage-related securities. The weighted average
duration of the Portfolio's fixed income
investments is generally expected, under normal
market conditions, to range between 3 and 10
years.
Under normal market conditions, the Master Fixed
Income Portfolio will invest at least 65% of its
total assets in U.S. dollar denominated, high
grade, fixed income debt securities. The high
grade investment standard for the Fund includes
only those securities with (i) over 1 year
original maturity and rated at the time of
purchase a minimum of A by Moody's or Standard &
Poor's, (ii) under 1 year original maturity and
rated at the time of purchase a minimum of Prime
1 by Moody's or A-1 by Standard & Poor's, or
(iii) unrated securities determined by the
Adviser at the time of purchase to be equivalent
to these ratings. See the discussion of ratings
under "Implementation of Policies" below.
Subject to certain additional limitations, under
normal market conditions, the remainder of the
Portfolio's assets may be invested in floating
rate and other types of debt securities, high
grade non-U.S.-dollar denominated debt
securities, below high grade fixed income
securities, convertible securities, "synthetic
convertible" positions, covered call and cash
secured put investments, preferred stock, and the
shares of other investment companies which invest
primarily in high grade debt securities. The
Portfolio may also invest in interest and
currency rate-related derivative securities. For
temporary defensive purposes, the Portfolio may
retain all or part of its assets in high grade,
U.S. dollar denominated debt securities or cash
and cash equivalents. See "Implementation of
Policies" for a description of these investment
practices of the Portfolio and the additional
limitations that may apply to some of the
investments described above.
11
<PAGE>
Enhanced Equity Portfolio Investment Objective:
The investment objective of the Enhanced Equity
Portfolio is to provide above-average total
returns from a diversified equity portfolio which
consists primarily of common stocks and related
investments such as options and futures. For this
purpose, "above average" total returns means
returns above the average long-term total returns
of other mutual funds with similar investment
policies and risk characteristics.
Investment Policies:
The Enhanced Equity Portfolio seeks to achieve
its objective by investing primarily in the
publicly traded common stocks of U.S. domiciled
corporations and options and futures that relate
to such stocks. While the Portfolio may invest in
stocks of any market capitalization, it is
anticipated that the average capitalization of
the Portfolio's stocks will be typical of medium
to large companies (typically $15 billion or
higher). A company's market capitalization is the
total stock market value of its outstanding
shares.
Under normal market conditions, the Enhanced
Equity Portfolio will invest at least 65% of its
total assets in common stocks of U.S. domiciled
corporations and equity-type investments that
relate to U.S. domiciled corporations. Equity-
type investments include preferred stock,
warrants, and convertible securities. See
"Implementation of Policies" for a description of
certain additional limitations on the percentage
of the Portfolio that may be invested in some of
the equity-type investments.
Subject to certain additional limitations, the
remainder of the Portfolio's assets may be
invested in foreign equity and equity-type
securities, equity related options and futures
contracts, debt securities of investment grade or
below, the shares of other investment companies,
and cash or cash equivalents awaiting investment.
For temporary defensive purposes, the Portfolio
may retain all or part of its assets in high
grade, U.S. dollar denominated debt securities or
cash and cash equivalents. See "Implementation of
Policies" for a description of these and other
investment practices of the Portfolio and the
additional limitations that may apply to some of
the investments described above.
To manage the Portfolio, the Adviser is currently
using a proprietary model for investment in
domestic common stocks, based on work pioneered
by Professor Robert A. Haugen. As a result, the
Adviser currently intends to invest primarily in
such stocks. See the Statement of Additional
Information for further information regarding the
application of this model.
12
<PAGE>
INVESTMENT RISKS All of the Portfolios are expected to have
fluctuations in their net asset values. However,
the Short-Term Government Portfolio is expected
to have the lowest volatility of the three
Portfolios and the Enhanced Equity Portfolio is
expected to have the highest.
Certain Investment Risks These fluctuations in value are associated with
various risks to which the securities in the
Portfolios are subject. These risks include, but
are not limited to, interest rate risk, credit
risk, currency risk, and equity risk. These risks
are described below. In addition, the trading
practices of the Portfolios (such as their use of
mortgage-related securities, foreign securities
and options and futures strategies) will expose
them to additional risks, discussed below under
"Implementation of Policies" and in the Statement
of Additional Information.
Each Portfolio that holds fixed income securities
is subject to varying degrees of interest rate
risk. Interest rate risk is the potential for a
decline in bond prices due to rising interest
rates. In general, bond prices vary inversely
with interest rates. When interest rates rise,
bond prices generally fall. Conversely, when
interest rates fall, bond prices generally rise.
The change in price depends on several factors,
including the bond's maturity date. In general,
bonds with longer maturities are more sensitive
to interest rates than bonds with shorter
maturities.
Each Portfolio that holds fixed income securities
is also subject to varying degrees of credit
risk. Credit risk is the possibility that a bond
issuer will fail to make timely payments of
interest or principal. The credit risk to which a
Portfolio is subject depends on the quality of
its investments. Reflecting their higher risks,
lower-quality bonds generally offer higher yields
than higher-quality bonds.
Each Portfolio that holds foreign securities is
subject to currency risk. Currency risk is the
potential for changes in value because of changes
in the exchange rate between the currency in
which principal and interest on the security are
payable and the U.S. dollar. Currency
fluctuations will affect the value of the
Portfolios' shares irrespective of the
performance of its underlying investments.
A Portfolio that holds common stocks and
equity-type investments is subject to equity
risk. Equity risk is the potential for price
declines. The magnitude of this risk associated
with any particular investment can vary widely
depending on the business and financial condition
of the issuer, market conditions in general, the
type of investment, and the extent to which the
position may be hedged.
13
<PAGE>
Short-Term Government The Short-Term Government Portfolio should be
Portfolio subject to relatively low interest rate and
credit risk, but should have no equity risk.
Because of the short-term average duration of
this Portfolio, it is expected to exhibit low to
moderate price fluctuations as interest rates
change. The Portfolio's average duration and
maturity should also exhibit low to moderate
fluctuations. With respect to the Portfolio's
primary investments, credit risk should be
negligible for its U.S. Treasury securities, and
only slightly higher for its U.S. Government
agency obligations (some of which are not
explicitly guaranteed by the U.S Government).
Risks associated with the Portfolio's other
investments, in securities of foreign
governments, mortgage-related securities, options
and futures contracts, and repurchase agreements,
are discussed under "Implementation of Policies"
below.
Master Fixed Income Portfolio The Master Fixed Income Portfolio will have a
higher degree of both interest rate risk and
credit risk than the Short-Term Government
Portfolio. With respect to its primary
investments, the Portfolio is expected to exhibit
moderate to high fluctuations as interest rates
change, because it will generally have
significant holdings of both intermediate-term
and longer-term bonds. The Portfolio will also
have various credit risks as a result of holding
obligations of high grade securities of
non-governmental issuers. It will also have low
to moderate equity risk as a result of its
investment in convertible and synthetic
convertible security positions and covered call
and cash secured put investments. Risks
associated with the Portfolio's other
investments, including convertible and synthetic
convertible positions, covered call and cash
secured put investments, non-investment grade
fixed income securities, foreign securities and
interest and currency-related derivative
securities, are discussed under "Implementation
of Policies" below. Reflecting these increased
risks, the Portfolio will generally offer higher
yields than the Short-Term Government Portfolio.
Enhanced Equity Portfolio The Enhanced Equity Portfolio is expected to be
subject primarily to equity risk, and to exhibit
high to very high price fluctuations, as is
characteristic of common stocks and equity funds
in general. The price fluctuations of this
Portfolio can generally be expected to be greater
than either of the other Portfolios. The
Portfolio's use of options, futures contracts,
foreign and non-non-investment grade debt
securities will also expose it to certain
additional risks, discussed under "Implementation
of Policies" below.
14
<PAGE>
WHO SHOULD INVEST Because of potential fluctuations in the share
price of all of the Portfolios in the Fund, any
of the Portfolios may be inappropriate for
short-term investors who require maximum
stability of principal. For example, money market
funds attempt to maintain a stable net asset
value and will provide more stability of
principal and less risk than the Portfolios. You
should base your selection of a Portfolio (or
Portfolios) on your own objectives, risk
preferences, and time horizon. Both the
Short-Term Government Portfolio and the Master
Fixed Income Portfolio are suitable for investors
with common stock holdings who are seeking a
complementary fixed income investment to create a
more diversified and balanced investment mix. The
Enhanced Equity Portfolio is suitable for
long-term investors seeking the generally higher
average total returns that diversified stock
portfolios have provided historically, and who
can tolerate substantial price fluctuations and
possible significant loss in value of their
investment.
The Short-Term Government Portfolio is designed
for investors who are seeking yields that are
more durable and usually higher than those
available from money market funds, and who can
tolerate modest fluctuations in the value of
their investment.
The Master Fixed Income Portfolio is designed for
investors seeking total returns from a broadly
diversified bond market investment with high
grade credit quality, and who can tolerate
relatively larger fluctuations in price. The
yields from this Portfolio are generally expected
to be higher and the income steadier than from a
shorter maturity fund. However, these higher
yields and steadier income levels come with
greater fluctuations in total return. Because of
these risks, the Master Fixed Income Portfolio is
intended to be a long term investment vehicle and
is not designed to provide investors with a means
of speculating on short-term interest rate
movements.
The Enhanced Equity Portfolio is designed for
investors seeking the higher average total
returns that diversified equity portfolios have
provided over long term time horizons. The share
price of the Portfolio is expected to be
volatile, and investors should be able to
tolerate sudden, sometimes substantial
fluctuations in the value of their investments.
Because of the risks inherent in equity investing
and the general wisdom of diversification,
investors should carefully consider what portion
of their investment assets should be prudently
allocated to equities. Because of these risks,
the Enhanced Equity Portfolio is intended to be a
long term investment vehicle and is not designed
to provide investors with a means of speculating
on short-term stock market movements.
15
<PAGE>
IMPLEMENTATION OF POLICIES In addition to the investment policies described
above (and subject to certain restrictions
described herein), the Portfolios may invest in
some or all of the following securities and
employ some or all of the following investment
techniques, some of which may present special
risks as described below. A more complete
discussion of these securities and investment
techniques and their associated risks is
contained in the Fund's Statement of Additional
Information.
Short-Term Investments Each Portfolio may invest in short-term
investments in connection with its options and
futures strategies (discussed below) and during
periods when, in the opinion of the Adviser,
attractive equity or longer maturity fixed income
investments are temporarily unavailable or other
circumstances or market conditions warrant such
investments. Under normal market conditions, and
excluding such short-term investments that are
made in connection with options and futures
contracts, no more than 20% of the Master Fixed
Income Portfolio's and 20% of the Enhanced Equity
Portfolio's total assets, will be retained in
cash and cash equivalents. As a result of the
collateral requirements associated with options
and futures contracts, the percentage of each
such Portfolio's total assets invested in cash
and cash equivalents may be as high as 35%. Such
investments may include U.S. Treasury Bills and
other U.S. Government and Government agency
obligations with remaining maturities less than
one year; certificates of deposit; banker's
acceptances; commercial paper rated at the time
of purchase A-1 by Standard & Poor's or P-1 by
Moody's; shares of money market mutual funds; and
corporate, foreign and U.S. government, and
supranational organization debt obligations with
remaining maturities less than one year and with
debt ratings by Standard & Poor's, Moody's or
other recognized rating agencies that are
determined by the Adviser at the time of purchase
to be equivalent to a cash equivalent rating of
A-1/P-1. Such investments may include securities
which offer a variable or floating rate of
interest. In addition, and subject to a 5%
limitation, the Master Fixed Income Portfolio and
the Enhanced Equity Portfolio may also invest in
short-term debt securities rated at the time of
purchase A-2/P-2 or equivalent.
Government Securities Each Portfolio may purchase U.S. Government
Securities. U.S. Government Securities include
(1) U.S. Treasury bills (maturity of one year or
less), U.S. Treasury notes (maturities of one to
ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years); and (2)
obligations issued or guaranteed by U.S.
Government agencies and instrumentalities which
are supported by the full faith and credit of the
U.S. Treasury (such as Government National
Mortgage Association ("GNMA") Certificates), the
right of the issuer to borrow an amount limited
to a specific line of credit from the U.S.
Treasury, discretionary authority of the U.S.
Government to purchase certain obligations of the
agency or instrumentality, or the credit of the
instrumentality. Agencies and instrumentalities
include: Federal Land Banks, Farmers Home
Administration, Federal Farm Credit Banks,
Federal Home Loan Banks, Federal National
Mortgage Association ("FNMA") , GNMA, Federal
Home Loan Mortgage Corporation ("FHLMC"), Student
Loan Marketing Association, Financing
Corporation, Tennessee Valley Authority,
Resolution Funding Corporation, Farm Credit
Financial Assistance Corporation, Private Export
Funding Corporation, and others.
16
<PAGE>
Floating Rate and Each Portfolio may invest in securities which
Other Debt Securities offer a variable or floating rate of interest.
Variable rate securities provide for automatic
establishment of a new interest rate at fixed
intervals (e.g., daily, monthly or
semi-annually). Floating rate securities provide
for automatic adjustment of the interest rate
whenever some specified interest rate index
changes. The interest rate on variable or
floating-rate securities is ordinarily determined
by reference to or is a percentage of a bank's
prime rate, the 90-day U.S. Treasury bill rate,
or some other objective measure. Such obligations
are often secured by letters of credit or other
credit support arrangements provided by banks.
Such obligations frequently are not rated by
credit rating agencies and, if not so rated, the
Fund may invest in them only if the Adviser
determines that, at the time of the investment,
the obligations are of comparable quality to the
other obligations in which a particular Portfolio
may invest. The Adviser will consider on an
ongoing basis the creditworthiness of the issuers
of such instruments in the Fund's Portfolios.
Each Portfolio may also from time to time invest
in zero-coupon, step-coupon and pay-in-kind
securities. These securities are debt securities
that do not make regular interest payments.
Zero-coupon and step-coupon securities are sold
at a deep discount to their face value.
Pay-in-kind securities pay interest through the
issuance of additional securities. A Portfolio
will not purchase any security in one of these
categories if, as a result of such purchase, more
than 5% of its net assets would be invested in
such category of securities.
Repurchase Agreements Each Portfolio may invest in repurchase
agreements for the purpose of managing its
short-term cash. In a repurchase agreement, the
seller (a U.S. commercial bank or recognized U.S.
securities dealer) sells securities to the
Portfolio and agrees to repurchase the securities
at the Portfolio's cost plus interest within a
specified period (normally one to seven days). In
these transactions, which are the economic
equivalents of loans by the Portfolio, the
securities purchased by the Portfolio will at all
times have a total value equal to or in excess of
the value of the repurchase obligation.
While repurchase agreements involve certain risks
not associated with direct investments in U.S.
Government securities, the Portfolio will follow
procedures designed to minimize such risks. These
procedures include effecting repurchase
transactions only with large, well-capitalized
banks and certain reputable broker-dealers. In
addition, the Portfolio's repurchase agreements
will provide that the value of the collateral
underlying the repurchase agreement will always
be at least equal to the repurchase price,
including any accrued interest earned on the
repurchase agreement. In the event of a default
or bankruptcy by a seller, the Portfolio will
seek to liquidate such collateral. However, to
liquidate such collateral could involve certain
costs or delays and, to the extent that proceeds
from any sale upon a default of the obligation to
repurchase were less than the repurchase price,
the Portfolio could suffer a loss.
17
<PAGE>
Mortgage-Related Securities Each Portfolio may invest in mortgage-related
securities. Mortgage-related securities are
interests in pools of mortgage loans made to U.S.
residential home buyers, including mortgage loans
made by savings and loan institutions, mortgage
bankers, commercial banks, and others.
Mortgage-related securities not issued or
guaranteed by U.S. government agencies or
instrumentalities are not considered U.S.
government securities for purposes of the 80%
test for such securities in the Short-Term
Government Portfolio. Pools of mortgage loans are
assembled as securities for sale to investors by
various governmental, government-related and
private organizations. The interest rates earned
on such securities may be fixed, in the case of
pools of fixed-rate mortgages, or variable, in
the case of pools of adjustable-rate mortgages.
Each Portfolio may also invest in debt securities
which are secured with collateral consisting of
U.S. mortgage-related securities, such as
collateralized mortgage obligations, and in other
types of mortgage-related securities, limited in
the aggregate to 5% of each Portfolio's net
assets.
An example of a mortgage-related security is a
GNMA mortgage-backed certificate. Although the
mortgage loans in the pool underlying the
certificate will have maturities of up to 30
years, the actual average life of a GNMA
certificate will be substantially less because
the mortgages may be prepaid prior to maturity.
Prepayment rates vary widely and may be affected
by changes in mortgage interest rates. In periods
of falling interest rates, the rate of prepayment
on higher interest rate mortgages increases,
thereby shortening the average life of the GNMA
certificate. Conversely, when interest rates are
rising, the rate of prepayment decreases, thereby
lengthening the actual average life of the
certificate. Reinvestment of prepayments may
occur at higher or lower rates than the original
yield on the certificates. Due to the possibility
of prepayment and the need to reinvest
prepayments of principal at current rates, GNMA
certificates can be less effective then typical
non-callable bonds of similar maturities at
"locking in" higher yields during periods of
declining rates, although they may have
comparable risks of decline in value during
periods of rising interest rates. See "Investment
Objectives and Policies" in the Statement of
Additional Information.
Foreign Securities Each Portfolio may invest its assets directly in
the securities of foreign issuers and
supranational organizations ("foreign
securities"), or options and futures related to
foreign securities, subject to the following
additional limitations. Foreign securities may be
denominated in U.S. dollars or in a foreign
currency.
The Short-Term Government Portfolio will limit
its foreign securities to (i) 20% of Portfolio
total assets, and (ii) high grade debt
obligations issued or guaranteed by foreign
governments, agencies, instrumentalities, or
their political subdivisions, or supranational
agencies, and judged by the Adviser to have a
credit risk at the time of purchase comparable to
a domestic A or better credit rating.
18
<PAGE>
The Master Fixed Income Portfolio and the
Enhanced Equity Portfolio will limit their
non-U.S. dollar denominated foreign security
investments to 20% of Portfolio total assets, but
have no percentage limitation on the amount
invested in foreign securities which are U.S.
dollar denominated, including investments in
foreign securities in domestic markets through
depository receipts. Foreign debt securities that
these two Portfolios purchase will generally be
high grade as the Master Fixed Income Portfolio
and the Enhanced Equity Portfolio have adopted a
5% limitation on non-investment grade securities
(See "Non-Investment Grade Securities").
Foreign debt securities that these two portfolios
purchase will generally be high grade as the
Master Fixed Income Portfolio and the Enhanced
Equity Portfolio have adopted a 5% limitation on
below high grade fixed income securities and a 5%
limitation on below high grade convertible
securities (See "Below High Grade Securities").
Foreign investments involve risks which are in
addition to the risks inherent in domestic
investments. In many countries, there is less
publicly available information about issuers,
including governments, than is available in the
reports and ratings published about issuers in
the United States. In addition, foreign companies
are not subject to uniform accounting, auditing,
and financial reporting standards. The value of
foreign investments may rise or fall because of
changes in currency exchange rates, and a
Portfolio may incur certain costs in converting
securities denominated in foreign currencies to
U.S. dollars. Dividends and interest on foreign
securities may be subject to foreign withholding
taxes, which would reduce a Portfolio's income
without providing a tax credit for Portfolio
shareholders. Obtaining judgments, when
necessary, in foreign countries may be more
difficult and more expensive than in the United
States. Although each Portfolio intends to invest
in securities of foreign governments or issuers
located in developed nations which the Adviser
considers as having stable and friendly
governments, there is the possibility of
expropriation, confiscatory taxation,
nationalization, currency blockage, or political
or social instability which could affect
investments in those nations. These factors are
considered when making foreign security
investments and the Adviser would make such
investments when they are expected to provide
higher income or higher total returns to
compensate for such increased risks beyond those
of domestic investments.
19
<PAGE>
Options and Futures Each Portfolio may utilize various call option,
Strategies put option, and financial futures strategies in
pursuit of its objective. Option contracts,
futures contracts, and various other financial
contracts are also known as derivative
securities, because their values depend on the
values of a more basic underlying security (or
perhaps multiple underlying securities), which
may be a common stock, a fixed income or other
debt security, a foreign currency exchange rate,
a stock index, or some other financial instrument
or index. The Short-Term Government Portfolio
will limit its use of derivative securities to
those which are primarily interest rate or
currency exchange rate related.
These techniques will be used to hedge against
changes in securities prices, interest rates, or
foreign currency exchange rates on securities
held or intended to be acquired by the Fund, to
reduce the volatility of the currency exposure
associated with foreign securities, or as an
efficient means of adjusting exposure to stock or
bond markets, and not for speculation.
20
<PAGE>
A call option on securities gives the purchaser
of the option the right (but not the obligation)
to buy from the writer of the option the
underlying securities at the exercise price
during the option period. Similarly, a put option
on securities gives the purchaser of the option
the right (but not the obligation) to sell to the
writer of the option the underlying securities at
the exercise price during the option period.
A financial futures contract is a commitment by
both the buyer and the seller of the contract to
trade the underlying financial instrument at a
price and time agreed upon when the contract is
executed. The financial instrument may be a stock
index, bond index, interest rate, foreign
currency exchange rate, or other similar
instrument. The contract may include an option
held by the seller with regard to the specific
underlying instrument to be delivered from a
class of instruments and the specific day of
delivery within a delivery month. Options on
futures contracts are similar to options on
securities, with the futures contract playing the
role of the underlying security.
Options on indexes and currencies, and futures on
indexes, are similar to options and futures on
securities, with the underlying index or currency
playing the role of the underlying security, and
with the difference that at the end of the option
or future period there is generally a cash
settlement between buyers and sellers instead of
delivery of the underlying security.
Options may be traded on an exchange
(exchange-traded options) or may be customized
agreements between the Portfolio and a
counter-party, often a brokerage firm, bank, or
other financial institution. These customized
agreements are also known as "over-the-counter"
or OTC options. Futures contracts are normally
traded as standardized contracts on exchanges.
When firm commitment type agreements similar to
futures are traded over-the-counter they are
usually known as forward contracts.
Exchange-traded options and futures have the
additional financial backing of an intermediary
known as a clearing corporation, whereas OTC
options and forwards have no such intermediary
and are subject to the credit risk that the
counter-party will not fulfill its obligations
under the contract. While each Portfolio, to the
extent that it utilizes derivative securities,
intends to primarily utilize exchange-traded
options and futures, it may also utilize OTC
options, currency forward contracts, and other
OTC derivative securities. No Portfolio will
invest, at the time of purchase, more than 5% of
its net assets in the purchase of OTC options or
invest more than 5% of its net assets in the
purchase of forward contracts.
Although options on securities and financial
futures by their terms call for actual delivery
and acceptance of securities, in many cases the
contracts are closed out before the expiration
date by selling contracts that are owned or by
buying contracts that have been sold or written.
Like any security transaction, this may produce a
realized gain or loss to the Portfolio. Open
positions are valued whenever a Portfolio's
assets are valued and the Portfolio will have an
unrealized gain or loss depending on the
difference between the current value of the
position and the opening value when the position
was entered.
21
<PAGE>
Writing Covered Put and Call Options on
Securities or Indexes
The Portfolios will not write uncovered options
or utilize written options to create leverage,
but instead will write only covered calls and
covered puts.
Writing a covered call option on securities or
indexes means that the Portfolio will own at the
time of selling the option (1) the underlying
security (or securities convertible into the
underlying security without additional
consideration), or (2) a call option on the same
security or index with the same or lesser
exercise price, or (3) a call option on the same
security or index with a greater exercise price,
with the difference between the exercise prices
maintained as a segregated account containing
cash, U.S. government securities or other liquid
high-grade debt securities, or (4) liquid
high-grade segregated debt securities equal to
the fluctuating market value of the optioned
securities which is marked-to-the-market daily,
or (5) in the case of an index, a portfolio of
securities which correlates with the index.
Writing a covered put option on securities or
indexes means that the Portfolio will, at the
time of selling the option (1) enter a short
position in the underlying security or index
portfolio, or (2) purchase a put option on the
same security or index with the same or greater
exercise price , or (3) purchase a put option on
the same security or index with a lesser exercise
price, with the difference between the exercise
prices maintained as liquid high-grade segregated
debt securities, or (4) maintain the entire
exercise price as liquid high-grade segregated
debt securities. No Portfolio will write put
options if as a result more than 25% of the
Portfolio's assets would be represented by debt
securities segregated for such put options.
The Master Fixed Income Portfolio will only write
an "in-the-money" covered call option on common
stock or an "out-of-the-money" covered put option
on common stock or stock indexes. An in-the-money
covered call option is an investment in which the
Portfolio purchases common stock and sells a call
option with an exercise price that is below the
market price of the stock at the time of the
option sale. An out-of-the-money covered put
option is an investment in which the Portfolio
sells a put option on a common stock or stock
index with an exercise price that is below the
market price of the stock or index at the time of
the option sale and maintains the exercise price
as high-grade segregated debt securities.
Purchasing Put and Call Options on Securities or
Indexes
Each Portfolio may purchase put and call options
on securities or indexes in pursuit of its
objective. The Portfolio may, at the same time,
have a long or covered short position in the
underlying security or index, and may have
written covered options on the same security or
index. Hence, the Portfolio's entire position in
a particular security may be complex, consisting
of a number of different option positions, a
possible position in the underlying security, and
a possible segregated debt securities holding.
22
<PAGE>
Convertible Securities, Synthetic Convertible
Investments, Certain Covered Call and Cash
Secured Put Investments, and Warrants
The Master Fixed Income Portfolio and the
Enhanced Equity Portfolio may invest in
securities which may be exchanged for, converted
into, or exercised to acquire a predetermined
number of shares of the issuer's common stock at
the option of the Portfolio during a specified
time period (such as convertible preferred
stocks, convertible debentures and warrants). A
convertible security is generally a fixed income
security which is senior to common stock in an
issuer's capital structure, but is usually
subordinated to similar non-convertible
securities. No more than 5% of a Portfolio's
total assets will be invested in convertible
securities rated at the time of purchase lower
than A or equivalent. See "Investment Objective
and Policies" in the Statement of Additional
Information and "Securities Ratings" below.
In general, the market value of a convertible
security is at least the higher of its
"investment value" (i.e., its value as a fixed
income security) or its "conversion value" (i.e.,
its value upon conversion into its underlying
common stock). As a fixed income security, a
convertible security tends to increase in value
when interest rates decline and tends to decrease
in value when interest rates rise. However, the
price of a convertible security is also
influenced by the market value of the security's
underlying common stock. The price of a
convertible security tends to increase as the
market value of the underlying stock rises,
whereas it tends to decrease as the market value
of the underlying stock declines. While no
securities investment is without some risk,
investments in convertible securities and
synthetic convertible positions generally entail
less risk than investments in the common stock of
the same issuer.
Investments in warrants involve certain risks,
including the possible lack of a liquid market
for resale of the warrants, potential price
fluctuations as a result of speculation or other
factors, and failure of the price of the
underlying security to reach or have reasonable
prospects of reaching a level at which the
warrant can be prudently exercised (in which
event the warrant may expire without being
exercise, resulting in a loss of the Portfolio's
entire investment therein).
The Master Fixed Income Portfolio and the
Enhanced Equity Portfolio may each invest up to
35% of their total assets in convertible
securities, synthetic convertible and certain
combinations of covered call and cash secured put
investments. A synthetic convertible investment
is a combination investment in which the
Portfolio purchases both (i) high-grade cash
equivalents or a high grade debt obligation of an
issuer or U.S. Government securities and (ii)
call options or warrants on the common stock of
the same or different issuer with some or all of
the anticipated interest income from the
associated debt obligation that is earned over
the holding period of the option or warrant. The
Portfolios may also write an "in-the-money"
covered call option on common stock or an
"out-of-the-money" covered put option on common
stock or stock indexes. Convertible securities,
synthetic convertible and in-the-money covered
calls and out-of-the-money cash secured puts are
not taken into account when determining whether
the Portfolios have met the requirements that 65%
of their total assets be invested in fixed income
and equity securities (see "Investment Objectives
and Policies" above).
23
<PAGE>
While providing a fixed income stream (generally
higher in yield than the income derivable from
common stock but lower than that afforded by a
similar non-convertible security), a convertible
security also affords an investor the
opportunity, through its conversion feature, to
participate in the capital appreciation attendant
upon a market price advance in the convertible
security's underlying common stock. A synthetic
convertible position has similar investment
characteristics, but may differ with respect to
credit quality, time to maturity, trading
characteristics, and other factors. Because the
Portfolio will create synthetic convertible
positions only out of high grade fixed income
securities, the credit rating associated with a
Portfolio's synthetic convertible investments is
generally expected to be higher than that of the
average convertible security, many of which are
rated below high grade. However, because the
options used to create synthetic convertible
positions will generally have expirations between
one month and three years of the time of
purchase, the maturity of these positions will
generally be shorter than average for convertible
securities. Since the option component of a
convertible security or synthetic convertible
position is a wasting asset (in the sense of
losing "time value" as maturity approaches), a
synthetic convertible position may lose such
value more rapidly than a convertible security of
longer maturity; however, the gain in option
value due to appreciation of the underlying stock
may exceed such time value loss, the market price
of the option component generally reflects these
differences in maturities, and the Adviser takes
such differences into account when evaluating
such positions. When a synthetic convertible
position "matures" because of the expiration of
the associated option, the Portfolio may extend
the maturity by investing in a new option with
longer maturity on the common stock of the same
or different issuer. If the Portfolio does not so
extend the maturity of a position, it may
continue to hold the associated fixed income
security.
Covered call and cash secured put investments are
subject to the risks associated with common
stocks and options described above. While such
investments have a combined volatility similar to
that of long-term corporate bonds, the Adviser
believes they provide greater returns than
investment in such bonds.
Purchase and Sale of Financial Futures,
and Options on Financial Futures.
Each Portfolio may purchase or sell financial and
other futures contracts and options on financial
and other futures contracts in pursuit of its
objective.
Futures contracts and their related options may
be purchased or sold for various reasons: to
hedge portfolio securities against adverse
fluctuations, to adjust the level of market
exposure of a portfolio, to facilitate trading,
to reduce transactions costs, and/or to seek
higher investment returns when a futures or
option contract is attractively priced relative
to a typical Portfolio investment in the
underlying security or index or securities highly
correlated to the underlying index. As with all
of the investment strategies that a Portfolio may
employ, there can be no assurance that any such
strategy will achieve its objective.
24
<PAGE>
A Portfolio's futures and related options
transactions will be conducted within the
following limitations:
(i) When a Portfolio sells a futures contract,
the value of that contract will not exceed the
total market value of the portfolio securities
being hedged;
(ii) A Portfolio will write only covered call and
put options on futures;
(iii) When a Portfolio purchases a futures
contract it will maintain the market value of the
contract in liquid high-grade segregated debt
securities as described above.
(iv) A Portfolio will not enter into futures and
options on futures contracts which would cause
the aggregate sum of the initial margins for such
contracts and related option premiums to exceed
5% of the Portfolio's net assets; provided,
however, that in the case of an option that is
in-the-money at the time of purchase, the
in-the-money amount may be excluded in computing
such 5%.
Certain Risk Factors Associated with Hedging
Strategies
When a Portfolio utilizes futures or options to
hedge the price fluctuations of securities it may
own or want to purchase, the Portfolio is exposed
to the risk of imperfect correlation between the
futures or options and the securities being
hedged. That is, the prices of the securities
being hedged may not move in the same amount, or
even in the same direction, as the hedging
instrument. The Adviser will attempt to minimize
this risk by investing only in those contracts
whose behavior is expected to resemble the
Portfolio securities being hedged. However, if
the Adviser's judgment about the general
direction of interest rates, market value,
volatility, and other economic factors is
incorrect, the Portfolio would have been better
off without the use of such hedging techniques.
In addition, there is the risk of a possible lack
of a liquid secondary market and the resultant
inability to close a futures or option position
prior to its maturity or expiration date. If the
Adviser determines that the ability to close such
a position early is important to its investment
strategy, it will only enter such positions on an
exchange with a secondary market that it judges
to be appropriately active.
Covered Short Sales To hedge against market risks, each Portfolio may
make covered short sales of securities in pursuit
of its objective. A covered short sale is a sale
of borrowed securities in which the Portfolio
will (1) own at the time of selling the
securities, the underlying security (or
securities convertible into the underlying
security without additional consideration), or
(2) own a call option on the same security with
the difference between the exercise price and any
margin required to be deposited in connection
with the short sale at the broker maintained as
liquid high-grade segregated debt securities.
Total segregated collateral for short sales will
not exceed 10% of a Portfolio's net assets at any
one time.
25
<PAGE>
In order to qualify as a regulated investment
company under Subchapter M of the Internal
Revenue Code, a Portfolio must derive less than
30% of its gross income from the sale of
securities it has held for less than three months
(the "three month gain rule"). The three month
gain rule may limit a Portfolio's ability to sell
a portfolio security short, or to terminate its
short position, at a time when the Adviser
believes it would be advantageous to do so. A
Portfolio will not enter into a short sale or
purchase and deliver new securities to terminate
its short position if such action would cause it
to violate the three month gain rules, which
would result in the taxation of Portfolio income
at the Portfolio level.
Below High Grade Securities The Short-Term Government Portfolio may not
purchase securities rated below A ("high grade"
securities) and will sell securities whose
ratings are downgraded to below high grade. The
Master Fixed Income Portfolio and the Enhanced
Equity Portfolio may each invest up to 5% of net
assets in fixed income securities and up to 5% of
net assets in convertible securities rated lower
than the high grade investment standard employed
by the Fund (i.e., rated BBB or lower). The
Master Fixed Income Portfolio and the Enhanced
Equity Portfolio will not necessarily sell
particular securities whose ratings are
downgraded to below A, but will sell sufficient
amounts from the two classes of (i) below high
grade fixed income securities or (ii) below high
grade convertible securities to bring the total
percentage of such securities to 5% or less in
each class. Ratings of securities by rating
agencies such as S & P and Moody's evaluate the
safety of principal and interest payments, not
the market value risk associated with changes in
interest rates. Credit rating agencies may fail
to timely change such ratings to reflect
subsequent events. A debt security may be
assigned a lower rating or cease to be rated
after its purchase by the Fund. For additional
descriptions of the risks of these investments
and the various rating grades, see the Statement
of Additional Information "Appendix- Description
of Bond Ratings".
Investments in Securities of Each of the Portfolios may purchase the
Other Investment Companies securities of other investment companies. The
Short-term Government Portfolio may invest up to
20% of its total assets in such securities and
the Master Fixed Income Portfolio and Enhanced
Equity Portfolio may each invest up to 35% of
their respective total assets in such securities.
However, no Portfolio may own voting stock of any
one such investment company in an amount which,
when aggregated with such stock owned by all
affiliated persons of the Fund (as defined in the
1940 Act) exceeds 3% of the total outstanding
voting stock of such investment company.
Such transactions may in some cases raise a
Portfolio's transaction costs relative to a
direct investment in the same securities, but in
some cases a Portfolio may benefit from being
able to acquire a diversified investment in one
purchase that could not be made economically in a
direct fashion. As other investment companies pay
management fees to their investment advisers,
shareholders of a Portfolio which purchases such
securities will bear the proportionate share of
such fees as well as the management fees paid by
the Portfolio. In addition, the 1940 Act provides
that no investment company in which the Fund
invests is obligated to redeem shares of such
company owned by the Fund in an amount exceeding
1% of such company's outstanding shares during
any period of less than thirty days.
26
<PAGE>
Investments in the securities of other investment
companies by each Portfolio are intended to (i)
provide an investment vehicle for each
Portfolio's cash reserves that the Portfolio does
not want to commit to riskier investments, (ii)
facilitate each Portfolio's investment strategies
in which high-grade collateral is required, or
(iii) facilitate each Portfolio's investment
strategies by acquiring investments in portfolios
of securities more diversified or with
specialized characteristics that could not be
efficiently acquired directly. The Short-Term
Government Portfolio will limit its purchases of
the securities of other investment companies to
those that invest primarily in the same
securities that the Short-Term Government
Portfolio may invest in directly.
Lending of Securities Each Portfolio may lend its investment securities
to qualified institutional investors for the
purpose of realizing income. Loans of securities
by the Portfolio will be collateralized by cash,
letters of credit, or securities issued or
guaranteed by the U.S. Government or its
agencies. The collateral will equal at least 100%
of the current market value of the loaned
securities at all times during which the
securities are loaned by marking to market daily,
and such loans will not exceed one-third of the
total value of the Portfolio's securities. Such
loans involve risks of delay in receiving
additional collateral or in recovering the
securities loaned or even loss of rights in the
collateral should the borrower of the securities
fail financially. However, such securities
lending will be made only when, in the Adviser's
judgment, the income to be earned from the loans
justifies the attendant risks. Loans are subject
to termination at the option of the Fund or the
borrower.
27
<PAGE>
Delayed Delivery Transactions The Fund may purchase securities on a when-issued
or delayed delivery basis and sell securities on
a delayed delivery basis. These transactions
involve a commitment by the Fund to purchase or
sell securities for a predetermined price or
yield, with payment and delivery taking place
more than seven days in the future, or after a
period longer than the customary settlement
period for that type of security. When delayed
delivery purchases are outstanding, the Fund will
set aside and maintain until the settlement date
cash, U.S. Government securities or liquid high
grade debt obligations in an amount sufficient to
meet the purchase price. When purchasing a
security on a delayed delivery basis, the Fund
assumes the rights and risks of ownership of the
security, including the risk of price and yield
fluctuations, and takes such fluctuations into
account when determining its net asset value, but
does not accrue income on the security until
delivery. When the Fund sells a security on a
delayed delivery basis, it does not participate
in future gains or losses with respect to the
security. If the other party to a delayed
delivery transaction fails to deliver or pay for
the security, the Fund could miss a favorable
price or yield opportunity or could suffer a
loss. A Portfolio will not invest more than 25%
of its total assets in when-issued and delayed
delivery transactions.
28
<PAGE>
Portfolio Turnover A Portfolio will not attempt to achieve, nor will
it be limited to, a predetermined rate of
portfolio turnover. Turnover rate is the lesser
of purchases or sales of portfolio securities for
a year, excluding all securities with maturities
of one year or less, divided by the monthly
average value of such securities. The turnover
rates of the Enhanced Equity Portfolio and the
Master Fixed Income Portfolio are not expected to
exceed 150%. The turnover of the Short-Term
Government Portfolio may be higher due to the
short-term maturities of the securities
purchased, but is not expected to exceed 300%.
For the years ended December 31, 1996 and 1995,
the portfolio turnover rates were 31.48% and
10.15% for the Short-Term Government Portfolio,
21.95% and 31.82% for the Master Fixed Income
Portfolio, and 179.47% and 10.15% for the
Enhanced Equity Portfolio. While higher portfolio
turnover (100% or more) can involve
correspondingly greater brokerage commissions and
other transaction costs than lower turnover, and
such commissions and costs must be borne by the
Portfolio and its shareholders, the brokerage
commissions associated with the Short-Term
Government Portfolio are expected to be
substantially less than the other Portfolios as a
percentage of assets, as short-term fixed income
securities generally trade on a net basis or with
a relatively small commission as a percentage of
the value of the security. High portfolio
turnover may also result in the realization of
substantial net short-term capital gains, and any
distributions resulting from such gains will be
ordinary income for federal income tax purposes.
It is the Adviser's opinion that such turnover is
not expected to affect the Short-Term Government
Portfolio's status as a regulated investment
company for federal tax purposes. See "Dividends,
Distributions and Taxes."
Borrowing Each Portfolio may borrow money from banks up to
a limit of 15% of the market value of its assets,
but only for temporary or emergency purposes. The
Portfolio would borrow money only to meet
redemption requests prior to the settlement of
securities already sold or in the process of
being sold by the Portfolio. To the extent that a
Portfolio borrows money prior to selling
securities, the Portfolio may be leveraged; at
such times, the Portfolio may appreciate or
depreciate in value more rapidly than if it did
not borrow. A Portfolio will repay any money
borrowed in excess of 5% of the market value of
its total assets prior to purchasing securities.
Investment Limitations Each of the Portfolios has adopted certain
additional limitations designed to reduce its
exposure to specific situations. These
limitations are fundamental policies that cannot
be changed without the approval of the holders of
a majority of the Portfolio's outstanding shares,
as defined in the Investment Company Act of 1940.
See "Investment Limitations" in the Statement of
Additional Information.
29
<PAGE>
MANAGEMENT OF THE FUND The Officers of the Fund manage its day to day
operations and are responsible to Fund's Board of
Trustees.
INVESTMENT ADVISER Analytic[bullet]TSA Global Asset Management,
Inc., 700 South Flower Street, Suite 2400, Los
Angeles, CA 90017, is the Adviser of the Fund.
The Adviser is a wholly owned subsidiary of
United Asset Management Corporation, a holding
company described under "Management of the Fund"
in the Statement of Additional Information.
The Adviser was founded in 1970 as Analytic
Investment Management, Inc. one of the first
independent investment counsel firms specializing
in the creation and continuous management of
optioned equity and optioned debt portfolios for
fiduciaries and other long term investors. It is
one of the oldest and largest independent
investment management firms in this specialized
area. In January 1996, the Adviser acquired and
merged with TSA Capital Management which
emphasizes U.S. and global tactical asset
allocation, currency management, quantitative
equity and fixed income management, as well as
option yield curve strategies. The Adviser
serves, among others, pension and profit-sharing
plans, endowments, foundations, corporate
investment portfolios, mutual savings banks, and
insurance companies, for which it manages in
excess of $1,000,000,000. It has also managed
another registered investment company since 1978.
Pursuant to an Investment Advisory Agreement with
the Fund, the Adviser, subject to the control and
direction of the Fund's Officers and Board of
Trustees, manages the Portfolios of the Fund in
accordance with each Portfolio's stated
investment objective and policies and makes
investment decisions for the Fund.
Short-Term Government and Master Fixed Income
Portfolios
Scott Barker, Greg McMurran and Bob Bannon have
been the portfolio managers for the Short-Term
Government and Master Fixed Income Portfolios
since November 1996. Mr. Barker has been a member
of the portfolio management and research team for
the Adviser since August 1995. He concurrently
serves as a research analyst with Analysis Group
with which he as been associated since October
1993. Previously, he was with Xontech, Inc. for
six years as a scientific analyst. Mr. McMurran
is the Chief Investment Officer of the Adviser
and has been with the firm since October of 1976
as a portfolio manager. Mr. Bannon is a managing
director of the Adviser specializing in the fixed
income area. He initially joined the firm in
January 1996 when TSA Capital Management was
merged with the Adviser. He was formerly a
managing director with TSA since April 1995.
Previously, he served as a senior bond strategist
with IDEA for four years. They are subject to the
supervision of the Adviser's investment
management committee.
30
<PAGE>
Enhanced Equity Portfolio
-------------------------
Dennis M. Bein, Harindra de Silva and Charles L.
Dobson have been the portfolio managers for the
Enhanced Equity Portfolio since November 1996.
Mr. Bien has been a member of the portfolio
management and research team for the Adviser
since August 1995. He concurrently serves as a
senior associate for Analysis Group, Inc. with
which he has been associated with since August
1990. Dr. de Silva is the President of the Fund
and of the Analytic Optioned Equity Fund and
serves as a managing director of the Adviser,
which he joined in May of 1995. He concurrently
serves as a principal of Analysis Group, which he
joined in March 1986. Mr. Dobson is the Executive
Vice President of the Fund and Analytic Optioned
Fund and has been a portfolio manager of the
Adviser since 1978. They are subject to the
supervision of the Adviser's investment
management committee.
Management As compensation for furnishing investment
Fees advisory, Fees management, and other services,
and costs and expenses assumed, pursuant to the
Investment Management Agreement each Portfolio of
the Fund pays the Adviser an annual fee based on
the average daily net assets of that Portfolio.
These annual fee schedules are:
Short-Term Government 0.30%
Master Fixed Income 0.45%
Enhanced Equity 0.60%
Distributor UAM Fund Distributors, Inc., a wholly-owned
subsidiary of United Asset Management
Corporation, is the distributor of the Fund's
shares. Its principal office is located at 211
Congress Street, Boston, Massachusetts 02110.
Under a Distribution Agreement with the Fund (the
"Distribution Agreement"), the Distributor, as
agent of the Fund, has agreed to use its best
efforts as sole distributor of Fund shares. The
Distributor does not receive any fee or other
compensation under the Distribution Agreement.
The Distribution Agreement provides that the Fund
will bear costs of registration of its shares
with the SEC and various states as well as the
printing of its prospectuses, its Statement of
Additional Information and its reports to
shareholders.
Administrative Services UAM Fund Services, Inc., a wholly-owned
subsidiary of United Asset Management
Corporation, performs and oversees all
administrative, fund accounting, dividend
disbursing and transfer agent services to the
Fund pursuant to a Fund Administration Agreement
with the Fund (the "Administration Agreement").
For its services UAM Fund Services receives a fee
based on net assets. UAM Fund Services' principal
office is located at 211 Congress Street, Boston,
Massachusetts 02110. UAM Fund Services has
subcontracted some of these services to Chase
Global Funds Services Company, an affiliate of
The Chase Manhattan Bank. Chase Global Funds
Services Company is located at 73 Tremont Street,
Boston, Massachusetts 02108.
Chase Global Funds Services Company is the
sub-dividend disbursing agent, sub-transfer agent
and sub-shareholder servicing agent. The
shareholder servicing phone number is (800)
374-2633. All other administrative and accounting
functions are performed by UAM Fund Services.
31
<PAGE>
Expenses In addition to management and service fees, each
Portfolio pays all costs and expenses of its
operations, including fees of Trustees not
affiliated with the Adviser, membership dues of
trade associations, custodian, legal and
accounting fees, interest charges, brokerage
commissions, federal and state taxes,
prospectuses and shareholder reports, expenses of
shareholder meetings, and costs of registration
and qualification of the shares of the Portfolio
under various federal and state laws and
maintaining and updating such registrations and
qualifications on a current basis. Any shared
expense of the Portfolios is generally
apportioned to each Portfolio based on its
relative total assets within the Fund unless some
other expense allocation method is determined by
the Board of Trustees to be more appropriate.
The Adviser has voluntarily agreed to reimburse
annual Portfolio expenses including advisory fees
(but excluding interest, taxes, and extraordinary
expenses) that exceed 0.60% and 1.0% of average
daily net assets for the Short-Term Government
and Enhanced Equity Portfolios respectively until
December 31, 1997. During 1996, the ratios of
operating expenses to average net assets in the
Short-Term Government Portfolio, Master Fixed
Income Portfolio, and Enhanced Equity Portfolio,
before expense reimbursements, were 0.76%, 0.97%
and 1.51%, respectively. In calculating Portfolio
expenses for purposes of such reimbursement, any
commission reimbursement from broker-dealers will
not be applied. After December 31, 1997, the
Adviser may voluntarily waive all or a portion of
its management fee and/or absorb certain expenses
of a Portfolio. Any such waiver or absorption
will have the effect of lowering the overall
expense ratio for a Portfolio and increasing the
overall total return and yield to investors at
the time any such amounts were waived and/or
absorbed.
Brokerage Under the terms of the Investment Advisory
Agreement, the Adviser is authorized to employ
broker-dealers to execute orders for the purchase
and sale of portfolio securities and for other
portfolio transactions who in its best judgment
can provide "best execution". In determining the
abilities of the broker-dealer to provide
execution of a particular portfolio transaction,
the Adviser will consider all relevant factors
including the execution capabilities required by
the transaction or transactions; the ability and
willingness of the broker-dealer to facilitate
each transaction by participation therein for its
own account; the familiarity with sources from or
to whom particular securities might be purchased
or sold; the quality and continuity of service
rendered by the broker-dealer with regard to a
Portfolio's other transactions; and any other
factors relevant to the selection of a
broker-dealer for a particular and related
transactions of a Portfolio. Provided that best
execution is obtained, the Adviser may consider
sales of the Portfolios' shares and the provision
of research services to the Adviser as factors in
the selection of broker-dealers to execute
portfolio transactions.
32
<PAGE>
In addition, the Fund may enter into agreements
whereby a portion of the commissions earned by a
broker-dealer on the transactions placed with a
broker-dealer will be reimbursed to the
Portfolios by the payment of all or a portion of
the Portfolios' custodian fee or other Portfolio
expense. Such indirect payment of expenses, if
any, will be in addition to any expense
reimbursement by the Adviser. The Fund has
entered into such agreements and with respect to
the Master Fixed Income and Enhanced Equity
Portfolios, payment of expenses aggregated
$15,140 and $3,920, respectively, for the year
ended December 31, 1996.
Fixed income securities are traded primarily in
the over-the-counter market. They are generally
traded on a net basis and do not normally involve
either brokerage commission or transfer taxes.
The cost of executing such portfolio transactions
will primarily consist of dealer spreads and
underwriting commissions. The Fund will always
attempt to deal with dealers where better prices
and execution are available. Securities may also
be purchased directly from the issuer.
THE SHARE PRICE The share price or "net asset value" per share of
OF EACH PORTFOLIO each Portfolio is computed once daily at 4:30
P.M. Eastern Time, after the close of trading of
the New York Stock Exchange and the various
option exchanges, or such other time as is
determined by or under the direction of the Board
of Trustees, on each day in which there is a
sufficient degree of trading in the securities
that might materially affect the Portfolio's net
asset value. The Portfolios will not be priced on
days when the New York Stock Exchange is closed.
In addition, the Short-Term Government and
Master Fixed Income Portfolios will not be priced
on days when the bond market is closed, such as
certain bank holidays, even though the New York
Stock Exchange may be open. The share price is
calculated by dividing the total value of the
Portfolio's assets, less total liabilities, by
the total outstanding shares of the Portfolio.
Expenses and interest on portfolio securities are
accrued daily.
Portfolio securities are valued based on market
quotations or, if not readily available, at fair
market value as determined in good faith under
procedures established by the Board of Trustees.
Bonds and fixed income securities may be valued
on the basis of prices provided by a pricing
service when such prices are believed by the
Board to reflect fair market value. See
"Portfolio Valuation" in the Statement of
Additional Information.
33
<PAGE>
DIVIDENDS, CAPITAL GAINS
AND TAXES
Distributions Dividends consisting of net investment income are
declared and payable to shareholders of record
daily by both the Short-Term Government and
Master Fixed Income Portfolios. Such dividends
are paid on the first business day of each month.
Dividends consisting of net investment income of
the Enhanced Equity Portfolio are declared and
payable to shareholders of record on the last
business day of each calendar quarter. For the
purpose of calculating such dividends, net
investment income consists of income accrued on
portfolio assets, less accrued expenses. In
addition, net realized capital gains of all
Portfolios, if any, are distributed annually.
The Fund's dividend and capital gains
distributions may be reinvested in additional
shares or received in cash. See "Selecting a
Distribution Option".
Tax Status of the Fund Each Portfolio of the Fund intends to qualify for
taxation as a "regulated investment company"
under the Internal Revenue Code so that it will
not be liable for federal income taxes on amounts
distributed to shareholders as dividends and
capital gains.
However, the Code contains a number of complex
tests relating to qualification which a Portfolio
might not meet in any particular year. For
example, if a Portfolio derives 30% or more of
its gross income from the sale of securities held
for less than 3 months, it may fail to qualify.
If a Portfolio did not so qualify, it would be
treated for tax purposes as an ordinary
corporation and receive no tax deduction for
payments made to shareholders.
Taxation of Shareholders Distributions paid by each of the Portfolios from
net investment income are taxable to shareholders
as ordinary income, whether received in cash or
reinvested in additional shares. Long-term
capital gains distributions are taxable to
shareholders as long-term capital gains,
regardless of how long such shareholders have
held their shares.
Any capital gain distribution paid by the Fund
has the effect of reducing the net asset value
per share on the reinvestment date by the amount
of the distribution. Therefore, a capital gain
distribution paid shortly after a purchase of
shares by a shareholder would represent, in
substance, a partial return of capital to the
shareholder (to the extent it is paid on the
shares so purchased), even though it would be
subject to income taxes as discussed above.
Accordingly, prior to purchasing shares, a
shareholder should carefully consider the impact
of dividends or capital gains distributions which
are expected to be or have been announced.
34
<PAGE>
For corporate investors, dividends paid by the
Short-Term Government Portfolio will generally
not qualify for the dividends received deduction,
a minimal amount of dividends paid by the Master
Fixed Income Portfolio will qualify for the
deduction, and some fraction of dividends by the
Enhanced Equity Portfolio will qualify for such
deduction. The Fund will notify its shareholders
annually of the tax status of its dividends and
capital gain distributions.
The sale of shares of the Fund is a taxable event
and may result in a capital gain or loss. A
capital gain or loss may be realized from an
ordinary redemption of shares or an exchange of
shares between Portfolios of the Fund.
Dividend distributions, capital gains
distributions, and capital gains or losses from
redemptions and exchanges may be subject to state
and local taxes. However, depending on provisions
of your state's tax law, the portion of a
Portfolio's income derived from "full faith and
credit" U.S. Treasury and agency obligations may
be exempt from state and local taxes. The Fund
will indicate each year the portion of a
Portfolio's income, if any, that may qualify for
this exemption.
The Fund is required to withhold 31% of taxable
dividends, capital gains distributions, and
redemption proceeds paid to shareholders who have
not complied with IRS taxpayer identification
regulations. Such withholding requirement may be
avoided by certifying on the Account Registration
your proper Social Security or Tax Identification
Number and further certifying that you are not
subject to backup withholding. Dividends, capital
gains distributions, and redemption proceeds paid
to foreign shareholders will generally be subject
to withholding at the rate of 30% (or lower
treaty rate). You should consult your own tax
adviser regarding specific questions about
federal, state, or local taxation.
GENERAL INFORMATION The Fund is a Delaware business trust organized
on November 18, 1992. The Declaration of Trust
permits the Trustees to issue an unlimited number
of shares of beneficial interest. The Board of
Trustees has the power to designate one or more
classes ("Portfolios") of shares of beneficial
interest and to classify or reclassify any
unissued shares with respect to such classes.
Presently the Fund is offering shares of the
three Portfolios described above.
35
<PAGE>
Shares of Beneficial Interest The shares of each Portfolio, when issued, are
fully paid and non-assessable, are redeemable at
the option of the holder, are fully transferable
and have no conversion or pre-emptive rights.
Shares are also redeemable at the option of the
Fund under certain circumstances (see "Redeeming
Shares"). Each share of a Portfolio is equal as
to earnings, expenses and assets of the Portfolio
and, in the event of liquidation of the
Portfolio, is entitled to an equal portion of all
of the Portfolio's net assets. Shareholders of
the Fund are entitled to one vote for each full
share held and fractional votes for fractional
shares held, and will vote in the aggregate and
not by Portfolio except as otherwise required by
law or when the Board of Trustees determines that
a matter to be voted upon affects only the
interest of the shareholders of a particular
Portfolio. Voting rights are not cumulative, so
that the holders of more than 50% of the shares
voting in any election of Trustees can, if they
so choose, elect all of the Trustees. While the
Fund is not required, and does not intend, to
hold annual meetings of shareholders, such
meetings may be called by the Trustees at their
discretion, or upon demand by the holders of 10%
or more of the outstanding shares of any
Portfolio for the purpose of electing or removing
Trustees.
As of July 31, 1997, Trust Company of Knoxville
held of record more than 25% of the outstanding
shares of Master Fixed Income Portfolio and may
be deemed a controlling of that Fund under the
1940 Act. Likewise, Prison Law Office held of
record more than 25% of the outstanding shares of
the Enhanced Equity and Short-Term Government
Portfolios and may be considered a controlling
person of these Portfolios under the 1940 Act.
Share Certificates All shares (including reinvested dividends and
capital gain distributions) are issued or
redeemed in full and fractional shares rounded to
the fourth decimal place. No share certificates
will be issued. Instead, an account will be
established for each shareholder and all shares
purchased will be held in book-entry form by the
Fund.
Shareholder Services Shareholder inquiries should be addressed to the
Fund's sub-shareholder servicing agent at:
Analytic Funds, c/o Chase Global Funds Services
Company, P.O. Box 2798, Boston, MA 02208;
telephone (800) 374-2633.
Confirmation and Statements Whenever a transaction takes place in an account,
a confirmation statement will be sent to the
shareholder of such transaction. This
confirmation statement will include complete
details of all transactions for the calendar year
to date. For purposes of confirming dividend
and/or capital gain distributions, shareholders
of the Short-Term Government and Master Fixed
Income Portfolios may expect statements at least
monthly, and shareholders of the Enhanced Equity
Portfolio may expect statements at least
quarterly.
Financial Statements The Fund will send to shareholders of each of the
Portfolios an unaudited semi-annual financial
statement. The annual financial statements of the
Fund will be audited by Deloitte & Touche LLP,
independent public accountants.
36
<PAGE>
Custodian The Fund's custodian is The Chase Manhattan Bank,
1211 Avenue of the Americas, New York, New York
10036.
Additional Information This Prospectus, including the Statement of
Additional Information which has been
incorporated by reference herein, does not
contain all the information set forth in the
Registration Statement filed by the Fund with the
Securities and Exchange Commission under the
Securities Act of 1933. Copies of the
Registration Statement may be obtained at a
reasonable charge from the Commission or may be
examined, without charge, at the office of the
Commission in Washington, D.C.
YIELD, TOTAL RETURN, AND From time to time the Fund may advertise the
OTHER CALCULATIONS "yield", "total return", and "average annual
total return" of one or more of the Portfolios.
Yield and return calculations are based on
historical results, do not take into account any
federal or state income taxes which may be
payable, and are not intended to indicate future
performance.
The "30-day yield" of a Portfolio is calculated
by dividing net investment income per share
earned during a thirty-day period by the net
asset value per share on the last day of the
period. Net investment income includes interest
and dividend income earned on the Portfolio's
securities after subtracting all expenses that
have been applied to all shareholder accounts.
The yield calculation assumes that net investment
income earned over thirty days is compounded
monthly for six months and then annualized.
Methods used to calculate advertised yields are
standardized for all stock and bond mutual funds.
37
<PAGE>
"Total return" and "average annual total return"
are more comprehensive measures of the
Portfolio's historical performance than the
"30-day yield". Total return measures both net
investment income and the effect of realized and
unrealized appreciation or depreciation of the
Portfolio on a hypothetical shareholder, assuming
reinvestment of all distributions into new
Portfolio shares. Specifically, the total return
for a stated period is calculated by assuming a
hypothetical investment in a Portfolio at the
beginning of a period; then, assuming
reinvestment of all distributions into new
Portfolio shares, the total return is calculated
as the percentage change in the total dollar
value of the investment over the period in
question. Average annual total return expresses
this same total return as an annualized rate
which, if compounded annually over the same
period, would result in the same total return.
These standardized performance measures present
historical returns. In addition, the Fund may
present non-standardized measures which relate to
the returns and risk or variability of the
returns of a Portfolio, including "standard
deviation of returns", "beta", "alpha", and
"duration". These measures are not standardized,
as they involve choices regarding the length of
historical measurement periods, the frequency of
such measurements, the choice of market
benchmarks, and other factors which are beyond
the scope of current SEC performance standards.
Hence, these measures may not be directly
comparable among different funds or different
measurers of the same funds. These risk
measurements are also based on historical results
and are not intended to be an indication of
future performance.
The Fund may also include comparative performance
information in advertising or marketing shares.
38
<PAGE>
SHAREHOLDER GUIDE
OPENING AN ACCOUNT To open a new account, either by mail or by wire,
complete and return a signed Account
Registration. Please indicate the Portfolio(s)
you have chosen and the respective amount(s) to
be invested.
Minimum Investments There is no minimum initial or subsequent
purchase of Portfolio shares by tax deferred
retirement plans (including IRA, SEP-IRA and
profit sharing and money purchase plans) or
Uniform Gifts to Minors Act accounts. For other
investors the initial minimum purchase is $5,000
invested in any proportion among the Portfolios
and there is no minimum for subsequent purchases.
PURCHASING SHARES Shares of the Portfolios are purchased directly
from the Fund with no sales charge or commission
at the net asset value per share next computed
after an order and payment are received by the
Fund. Any order received after 1:00 P.M. Pacific
Time will be processed at the next day's closing
net asset value.
Shares of a Portfolio may be purchased by
customers of broker-dealers or other financial
intermediaries ("Service Agents") which have
established a shareholder servicing relationship
with the Fund on behalf of their customers.
Service Agents may impose additional or different
conditions on purchases or redemptions of
Portfolio shares and may charge transaction or
other account fees. Each Service Agent is
responsible for transmitting to its customers a
schedule of any such fees and information
regarding additional or different purchase or
redemption conditions. Shareholders who are
customers of Service Agents should consult their
Service Agent for information regarding these
fees and conditions. Amounts paid to Service
Agents may include transaction fees and/or
service fees paid by the Fund from the subject
Portfolio's assets attributable to the Service
Agent, which would not be imposed if shares of
the Portfolio were purchased directly from the
Fund or its distributor. Service Agents may
provide shareholder services to their customers
that are not available to a shareholder dealing
directly with the Fund.
Service Agents may enter confirmed purchase
orders on behalf of their customers. If shares of
a Portfolio are purchased in this manner, the
Service Agent must receive your investment order
before the close of trading on the New York Stock
Exchange, and transmit it to the Fund's
Sub-Transfer Agent, Chase Global Funds Services
Company, prior to the close of their business day
to receive that day's share price. Proper payment
for the order must be received by the
Sub-Transfer Agent no later than the time when
the Portfolio is priced on the following business
day. Service Agents are responsible to their
customers and the Fund for timely transmission of
all subscription and redemption requests,
investment information, documentation and money.
The Fund reserves the right to reject any
purchase order or to suspend or modify the
continuous offering of its shares.
39
<PAGE>
By Mail Initial purchases of Fund shares may be made by
mailing a completed and signed Account
For initial investments, Registration Form, together with a check made
complete and sign an payable to The Analytic Series Fund (reference
Account Registration Form. Portfolio name), to:
For subsequent investments,
complete a Mail Remittance The Analytic Series Fund Street Address
Form. P.O. Box 2798 (overnight mail)
Boston, MA 02208 73 Tremont Street
(800) 374-2633 Boston, MA 02108
For subsequent purchases, complete the Mail
Remittance Form (located on a statement) and
return it to the above address with a check made
payable to The Analytic Series Fund (reference
Portfolio name).
By Wire Before wiring funds, you must telephone the
Fund's sub-transfer agent at (800) 374-2633 with
Telephone the Fund's the sending bank's name, date and amount being
sub-transfer agent at (800) wired to insure proper investment. There is no
374-2633 before wiring funds. charge by the Fund for wire purchases.
Federal funds wiring instructions are:
The Chase Manhattan Bank
ABA #021000021
UAM Funds
The Analytic Series Fund - (Name of Portfolio)
credit DDA 9102772952
Account Registration: (your name)
Account #: (your account number)
Please be sure your bank includes the name of the
Portfolio and your account's registration name
and, in the case of subsequent investments, the
account number assigned by the Fund.
Note: Federal funds wire purchase orders will be
accepted only when the Fund and Custodian Bank
are open for business.
FOR INITIAL PURCHASES ONLY: No purchases will be
processed until a completed and signed Account
Registration Form has been received.
40
<PAGE>
By Exchange You may open an account for a new Portfolio or
purchase additional shares in any Portfolio by
making an exchange from an existing Portfolio
account or from an existing account in the
Analytic Optioned Equity Fund. You may not open
an account by exchange unless you have completed
an account application.
If you open an account by exchange, the new
account will have identical registration and
special instructions (such as Distribution
Option, Telephone Redemption Instructions,
Telephone Exchange Privileges, and duplicate
confirmation/statements) as the existing account.
For further information concerning exchanges, see
"EXCHANGING SHARES".
41
<PAGE>
Selecting a Distribution You must select one of the three distribution
Options options by indicating so on the Account
Registration:
1. Automatic Reinvestment Option - Both dividends
and capital gains distributions will be
reinvested in additional Portfolio shares. This
option will be selected for you automatically
unless you specify one of the other options.
2. Cash Dividend Option - Your dividends will be
paid in cash and your capital gains distributions
will be reinvested in additional Portfolio
shares.
3. All Cash Option - Dividends and capital gains
distributions will be paid in cash.
To change your option, written instructions with
signature(s) guaranteed must be received by the
Fund's sub-transfer agent 5 business days prior
to the effective date of the change. For further
information concerning signature guarantees, see
"SIGNATURE GUARANTEES".
REDEEMING SHARES Shares are redeemed without charge at the net
asset value per share next computed after
instructions and required documents are received
in proper form. Any instructions received after
4:00 P.M. Eastern Time will be processed at the
next day's net asset value. See the discussions
below, under "By Telephone", "By Mail" and "By
Exchange" for information regarding the required
documents. To be in "proper form" the documents
must be complete and executed by all required
parties.
Any redemption may be more or less than your
cost, depending on the market value of the
securities held by the Portfolio. Payment will be
made as promptly as possible but in no event
later than 3 business days from the day the
redemption request is received. See "Redemption
of Shares" in the Statement of Additional
Information for certain restrictions that may
apply.
42
<PAGE>
By Telephone Provided that Telephone Redemption Privileges
have been established (by completing the
"Telephone Redemption Privileges" portion of the
Account Registration or by subsequent written
instructions with signature(s) guaranteed), a
shareholder may redeem all or part of his shares
by calling the Fund's sub-transfer agent at
(800) 374-2633.
No request for telephone redemption will be
accepted except where redemption proceeds are to
be remitted to a bank account that has been
predesignated in writing. The redemption proceeds
will be wired by the Fund without charge to the
bank designated in the instructions. Any changes
to the telephone redemption instructions must be
in writing with signature(s) guaranteed.
The Fund's sub-transfer agent will employ
procedures designed to provide reasonable
assurance that instructions communicated by
telephone are genuine and, if it does not do so,
it may be liable for any losses due to
unauthorized or fraudulent instructions. The
procedures employed by the sub-transfer agent
include requiring the following information at
the time of the telephone call:
Account number;
Registration of account; and
Social Security Number or Tax I.D.
NOTE: Neither the Fund nor the sub-transfer agent
is responsible for unauthorized telephone
redemptions by a person reasonably believed to be
a shareholder unless the sub-transfer agent has
received written notice canceling the telephone
redemption authorization. The Fund may change or
discontinue the telephone redemption privilege
without notice. For your protection, the Fund and
its agents reserve the right to record all calls.
The Fund reserves the right to refuse a telephone
redemption if it believes it is advisable to do
so. Telephone redemptions may be difficult to
implement during periods of drastic economic or
market changes, which may result in an unusually
high volume of telephone calls. If a shareholder
is unable to reach the Fund's sub-transfer agent
by telephone, shares may be redeemed in writing
as described below.
43
<PAGE>
By Mail A shareholder may redeem all or part of his
shares by written request to the Fund's
sub-transfer agent at the address set forth under
"Purchasing Shares -- By Mail" above. The written
request must be endorsed by the registered
owner(s) exactly as the account is registered,
including any special capacity of the registered
owner(s). Where the owner(s) have not arranged
with the Fund for redemption proceeds to be
remitted to a predesignated bank account, the
Fund requires that the signature(s) be
guaranteed. Fiduciaries, corporations, and other
entities may also be required to furnish
supporting documents.
By Exchange Shares may be redeemed by making an exchange into
another Analytic Series Fund Portfolio or for
shares of the Analytic Optioned Equity Fund. For
more information, see "EXCHANGING SHARES".
Delayed Payment In the event that the Fund is requested to redeem
shares for which it has not received good payment
(e.g., cash or cashier's check on a U.S. bank),
it may delay the mailing of a redemption check
until such time as it is determined that good
payment has been collected for the purchase of
such shares. In addition, the Fund reserves the
right to delay the mailing of a redemption check
where the shares to be redeemed have been
purchased by check within 15 days prior to the
date the redemption request is received, unless
the Fund has been advised that the check used for
investment has been cleared for payment by the
shareholder's bank. However, such delay will not
be longer than 15 days after the purchase date.
The Fund may suspend the redemption right or
postpone payment at times when the New York Stock
Exchange is closed or under certain other
circumstances permitted by the Securities and
Exchange Commission.
Payment-in-Kind The Fund has made an election with the Securities
and Exchange Commission to pay in cash all
redemptions requested by any shareholder of
record limited in amount during any 90-day period
to the lesser of $250,000 or 1% of the net assets
of the Fund at the beginning of such period. Such
commitment is irrevocable without the prior
approval of the Commission. Redemptions in excess
of the above limits may be paid in whole or in
part in readily marketable investment securities
or in cash, as the Trustees may deem advisable.
However, payment will be made wholly in cash
unless the Trustees believe that economic or
market conditions exist which would make such a
practice detrimental to the best interests of the
Fund. If redemptions are paid in investment
securities, such securities will be valued as set
forth under "The Share Price of Each Portfolio"
and a redeeming shareholder will normally incur
brokerage expenses if the shareholder converts
these securities to cash.
Backup Withholding The Fund is required to withhold 31% of
redemptions paid to shareholders who have not
complied with IRS taxpayer identification
regulations. You may avoid this withholding
requirement by certifying on the Account
Registration your proper Social Security or
Taxpayer Identification Number and by further
certifying that you are not subject to backup
withholding.
44
<PAGE>
Signature Guarantees To protect the shareholder's account and the Fund
from fraud, signature guarantees are required for
certain redemptions. The purpose of signature
guarantees is to verify the identity of the party
who has authorized the redemption. A guarantor
must be a commercial bank or trust company; a
broker or dealer, municipal securities broker or
dealer, or government securities broker or
dealer; a credit union; a national securities
exchange, registered securities association or
clearing agency; or a savings association.
Signature guarantees are required for:
any redemption request for an account where
the owner(s) have not arranged with the Fund for
redemption proceeds to be remitted to a
predesignated bank account;
transfers or exchanges between accounts which
are not identically registered;
the addition of, or change in the address and
wiring instruction for, financial institutions
designated to receive redemptions sent directly
into a shareholder's account; and
redemptions involving disputed or deceased
shareholder accounts.
The Fund reserves the right to request additional
information from, and make reasonable inquiries
of, any eligible guarantor institution.
Minimum Account Balance With the exception of qualified retirement plan
Requirement accounts, the Fund may liquidate any
shareholder's account whenever, due to
redemptions, the value of the account falls below
the minimum account balance of $1,000 and the
shareholder fails to purchase sufficient shares
to bring the value of the account to $1,000
within 90 days after receiving written notice
sent by the Fund.
EXCHANGING SHARES Should your investment goals change, you may
exchange your shares between the Portfolios in
the Fund or for shares of the Analytic Optioned
Equity Fund.
Exchanges are processed at the net asset value
per share next computed after the receipt of
instructions in proper form. Any instruction
received after 4:00 P.M. Eastern Time will be
processed at the next day's net asset value.
By Telephone Provided that Telephone Exchange Privileges have
been established (by completing the "Telephone
Exchange Privileges" portion of the Account
Registration or by subsequent written
instructions with signature(s) guaranteed), a
shareholder may exchange all or part of his
shares by calling the Fund's sub-transfer agent
at (800) 374-2633.
45
<PAGE>
The Fund's sub-transfer agent will employ
procedures designed to provide reasonable
assurance that instructions communicated by
telephone are genuine and, if it does not do so,
it may be liable for any losses due to
unauthorized or fraudulent instructions. The
procedures employed by the sub-transfer agent
include requiring the following information at
the time of the telephone call:
Account number;
Registration of account; and
Social Security Number or Tax I.D.
NOTE: Neither the Fund nor the sub-transfer agent
is responsible for unauthorized telephone
exchanges by a person reasonably believed to be a
shareholder unless the sub-transfer agent has
received written notice canceling the telephone
exchange authorization. The Fund may change or
discontinue the telephone exchange privilege
without notice. For your protection, the Fund and
its agents reserve the right to record all calls.
The Fund reserves the right to refuse a telephone
exchange if it believes it is advisable to do so.
Telephone exchanges may be difficult to implement
during periods of drastic economic or market
changes, which may result in an unusually high
volume of telephone calls. If a shareholder is
unable to reach the Fund's sub-transfer agent by
telephone, shares may be exchanged in writing as
described below.
By Mail A shareholder may exchange all or part of his
shares by written request to the Fund's
sub-transfer agent at the address set forth under
"Purchasing Shares -- By Mail" above. The written
request must be endorsed by the owner(s) exactly
as the account is registered, including any
special capacity of the registered owner(s). The
Fund requires that the signature(s) be
guaranteed.
Important Exchange Before you make an exchange you should consider
Information the following:
Please read the prospectus of the Fund or of
Analytic Optioned Equity Fund before making an
exchange.
An exchange is treated as a redemption and a
purchase and any gain or loss on the transaction
is taxable.
Recently purchased shares may not be exchanged
until payment for the purchase has been
collected. The Fund reserves the right to defer
honoring exchange requests where shares to be
exchanged have been purchased by check within 15
days prior to the date of the exchange request,
unless the Fund has been advised that such check
has been cleared for payment by the shareholder's
bank.
Exchanges are accepted only if the registrations
of the accounts are identical.
46
<PAGE>
The redemption and purchase price of shares
redeemed by exchange is the net asset value per
share of the respective Portfolios next computed
after the Fund receives instructions in proper
form.
No exchange can be made unless the shares to be
purchased have been registered in the state of
the purchaser.
Exchange Privilege Limitations The Fund's exchange privilege is not intended to
afford shareholders a way to speculate on
short-term market movements. Accordingly, in
order to prevent excessive use of the Exchange
Privilege that may potentially disrupt the
management of the Fund and increase transaction
costs, the Fund may establish a policy of
limiting excessive exchange activity.
WITHDRAWAL PLAN A shareholder may establish a Withdrawal Plan
under which the shareholder receives a check
monthly, quarterly, or annually in a
predetermined amount of not less than $100. All
income dividends and any realized gain
distributions attributable to the account will be
reinvested at net asset value on the payment
dates, as with other shareholder accounts, and
shares of the Portfolio(s) will be redeemed from
the account in order to make the required
withdrawal payment. If a date is not specified by
the shareholder, then monthly distributions under
the Withdrawal Plan will be processed on the
first business day of the month, quarterly
distributions will be processed on the last
business day of the calendar quarter, and annual
distributions will be processed on the last
business day of the calendar year. The
shareholder may change or terminate his
Withdrawal Plan instructions by notifying the
Fund in writing at the address set forth above
under "Purchasing Shares -- By Mail" at least 5
business days prior to the effective date of the
change.
Important Withdrawal Plan Withdrawal payments should not be considered
Information dividends, yield, or income on an investment,
since portions of each payment may consist of a
return of capital. Depending upon the size and
frequency of payments and fluctuations in value
of the Fund's shares redeemed, redemptions for
the purpose of making Withdrawal Plan
disbursements may reduce or even exhaust a
shareholder's account.
47
<PAGE>
THE ANALYTIC SERIES FUND
Investment Adviser
Analytic[bullet]TSA Global Asset Management, Inc.
700 South Flower Street, Suite 2400
Los Angeles, CA 90017
Transfer Agent, Dividend Disbursing Agent
And Shareholder Services Agent
UAM Fund Services, Inc.
c/o Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108
Distributor
UAM Fund Distributors, Inc.
211 Congress Street
Boston, MA 02110
Custodian
The Chase Manhattan Bank
1211 Avenue of the Americas
New York, NY 10036
Counsel
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, CA 90071
Independent Auditors
Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, CA 90017
No dealer, salesman or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Fund or the Adviser. This Prospectus does not
constitute any offer to sell or a solicitation of any offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction.
48
<PAGE>
PART B
THE ANALYTIC SERIES FUND
(800) 374-2633
STATEMENT OF ADDITIONAL INFORMATION
Dated October ____, 1997
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the Fund's current Prospectus dated October ____, 1997. To
obtain this Prospectus without charge, please call the Fund at the telephone
number above.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE
================================================================================
The Fund 2
- --------------------------------------------------------------------------------
Investment Objective and Policies 2
- --------------------------------------------------------------------------------
Investment Limitations 19
- --------------------------------------------------------------------------------
Purchase of Shares 23
- --------------------------------------------------------------------------------
Redemption of Shares 23
- --------------------------------------------------------------------------------
Management of the Fund 23
- --------------------------------------------------------------------------------
Principal Shareholders 26
- --------------------------------------------------------------------------------
Investment Advisory and Other Services 28
- --------------------------------------------------------------------------------
Portfolio Transactions 30
- --------------------------------------------------------------------------------
Taxation 31
- --------------------------------------------------------------------------------
Yield, Total Return, and Other Performance Statistics 35
- --------------------------------------------------------------------------------
Additional Information 39
- --------------------------------------------------------------------------------
Appendix-Description of Bond Ratings 41
- --------------------------------------------------------------------------------
B-1
<PAGE>
THE FUND
INVESTMENT OBJECTIVE AND POLICIES
Certain Investment Risks
All of the Portfolios are expected to have fluctuations in their net asset
values. However, the Short-Term Government Portfolio is expected to have the
lowest such volatility and the Enhanced Equity Portfolio is expected to have the
highest volatility of the three Portfolios.
To illustrate the historical volatility associated with i) short-term bonds, ii)
a diversified bond portfolio, and iii) a diversified common stock portfolio, the
following table sets forth the extremes for annualized total returns as well as
the average annual total return for three indexes representing these sectors of
the market:
One to Three Year Maturity U.S. Treasury Notes (1979-1996)
(Merrill Lynch 1 to 3 Year Treasury Index)
One Year Five Years Ten Years
-------- ---------- ---------
Best 21.2% 14.3% 11.4%
Worst 0.6 6.7 7.7
Average 9.5 9.8 9.6
U.S. Government and Corporate Bonds (1973-1996)
(Lehman Brothers Government/Corporate Bond Index)
One Year Five Years Ten Years
-------- ---------- ---------
Best 31.1% 18.0% 13.7%
Worst -3.5 3.3 7.5
Average 9.3 9.8 10.5
U.S. Common Stocks (1926-1996)
(Standard & Poor's 500 Composite Stock Index)
One Year Five Years Ten Years
-------- ---------- ---------
Best 54.0% 23.9% 20.1%
Worst -43.3 -12.5 -0.9
Average 12.7 10.4 10.8
The total returns shown should not be taken as an indication of future
performance of any Portfolio, but merely as an illustration of the variability
associated with different market sectors. The fluctuations in the total returns
of the above indexes are associated with various risks to which the Portfolios
in the Fund are also exposed, although to different degrees. These risks include
but are not limited to: i) interest rate risk, ii) credit risk, and iii) equity
risk.
Interest rate risk is the potential for a decline in bond prices due to rising
interest rates. In general, bond prices vary inversely with interest rates. When
interest rates rise, bond prices generally fall. Conversely, when interest rates
fall, bond prices generally rise. The change in price depends on several
factors, including the bond's maturity date. In general, bonds with longer
maturities are more sensitive to interest rates than bonds with shorter
maturities. Another name for interest rate risk is duration risk.
B-2
<PAGE>
As an illustration of interest rate risk, the table below shows the effect of a
sudden 2% change in interest rates on two bonds of varying maturities:
Percent Change in the Price of a Par Bond Yielding 6%
2% Increase In 2% Decrease In
Stated Maturity Interest Rates Interest Rates
--------------- -------------- --------------
Short-Term (2 years) -4% +4%
Intermediate-Term (10 years) -13% +16%
The chart is intended to provide you with guidelines for determining the degree
of interest rate risk you may be willing to assume. The yield and price changes
shown should not be taken as representative of a Portfolio's current or future
yield or expected changes in a Portfolio's share price.
In addition to interest rate risk, each Portfolio that holds fixed income
securities is subject to varying degrees of credit risk. Credit risk, also known
as default risk, is the possibility that a bond issuer will fail to make timely
payments of interest or principal to a Portfolio. The credit risk of a Portfolio
depends on the quality of its investments. Reflecting their higher risks,
lower-quality bonds generally offer higher yields (all other factors being
equal).
When a Portfolio holds mortgage-backed securities, it is also subject to
prepayment risk. Prepayment risk is the possibility that, as interest rates
fall, homeowners are more likely to refinance their home mortgages. When these
mortgages are refinanced, the principal on securities backed by these mortgages
is "prepaid" earlier than expected. If the Portfolio has paid a premium for such
securities, it will incur a loss, and the premium will be amortized over a
shorter period than anticipated at the time of purchase, thus reducing the
effective yield on the securities. If the Portfolio that holds these securities
wants to reinvest the unanticipated principal in new fixed income securities, it
will generally be at lower interest rates. This reduces the interest income of
the Portfolio. In addition, when interest rates fall, the market prices of the
mortgage-backed securities will not rise as much as comparable Treasury
securities, as bond market investors anticipate the increase in mortgage
prepayments.
A risk similar to prepayment risk, but generally associated with corporate
obligations, is call risk. Call provisions, common in many corporate bonds that
may be held by the Portfolio, allow bond issuers to redeem bonds prior to
maturity. When interest rates are falling, bond issuers often exercise call
provisions, paying off bonds that carry high stated interest rates and often
issuing new bonds at lower rates. For the Portfolio, the result would be that
bonds with high interest rates are "called", the amortization period for any
purchase premiums would be shorter than expected and the bonds must be replaced
with lower yielding instruments. In these circumstances, the income of the
Portfolio would decline.
Equity risk is the potential for price declines associated generally with common
stocks and equity-type investments. The magnitude of this risk associated with
any particular investment position can vary widely depending on a number of
factors, including the business of the issuer, market conditions in general, the
particular type of security, and the possibility that the position may be hedged
with other securities. The portion of equity risk that is particular to the
securities of a given issuer and uncorrelated to common stocks in general is
expected to be reduced by the diversification strategies of a Portfolio.
However, even well diversified common stock portfolios have significant total
equity risk, as illustrated by the table regarding "U.S. Common Stocks" above.
B-3
<PAGE>
Interest rate risk and credit risk for the Short-Term Government Portfolio
should be modest. Because of the short-term average weighted duration of this
Portfolio, it is expected to exhibit low to moderate price fluctuations as
interest rates change. Credit risk should be negligible for the Portfolio's
holding of US. Treasury securities. In relative terms, credit risk will be
slightly higher for the Portfolio's holding of US. Government agency
obligations. Even though they carry top (AAA) credit ratings from S & P or
Moody's, some agency obligations are not explicitly guaranteed by the U.S.
Government and so are perceived as somewhat riskier than comparable Treasury
securities. The Portfolio may also, to a limited extent, invest in the
securities of foreign governments. The Portfolio expects that these investments
will generally carry AAA and AA ratings from S & P or Moody's at the time of
purchase, although they may also be rated A or, if unrated, be determined by the
Adviser to be equivalent to such ratings. Accordingly, the Portfolio's holdings
of foreign securities exposes the Portfolio to more credit risk than if it
exclusively invested in U.S. Government securities. The Portfolio may also hold
mortgage-backed securities such as GNMA securities, which are backed by the full
faith and credit of the U.S. Government, but which expose the Portfolio to
prepayment risk.
The Master Fixed Income Portfolio has a higher degree of both interest rate risk
and credit risk than the Short-Term Government Portfolio. This Portfolio is
expected to exhibit moderate to high price fluctuations as interest rates
change, because the Portfolio will generally have significant holdings of both
intermediate-term and longer term bonds. The Portfolio will have various credit
risks through its holding of high grade (A or higher) obligations. When the
Portfolio makes a purchase of a debt security with a given quality rating, there
is the risk that the rating will be subsequently downgraded to either a lower
investment grade or a rating below high grade. Such a down-grading or its
anticipation is almost always accompanied by a drop in the market price of the
bond. In addition, even though a particular debt security may have a relatively
high quality rating from a rating agency, the issuer may still default on its
obligations to the Portfolio. This Portfolio is expected to normally have
significant holdings in mortgage-backed securities, which exposes it to
prepayment risk. It also is subject to call risk.
Reflecting these increased interest rate, credit, prepayment, and call risks,
the Master Fixed Income Portfolio will generally offer higher yields than the
Short-Term Government Portfolio. However, it is sometimes the case in the bond
market that shorter maturity bonds offer higher yields than longer maturity
bonds. This is known as an inverted yield curve environment. In such an
environment, it is possible that the Short-Term Government Portfolio may have,
for example, a higher 30-day yield than the Master Fixed Income Portfolio. No
matter what the yield curve environment, yields are not a comprehensive measure
of a Portfolio's performance nor a guide to expected future performance. More
comprehensive measures of a Portfolio's historical performance are its average
annual total return and its variability of total return.
The Short-Term Government Portfolio should have no equity risk, as the Portfolio
does not intend to acquire any investments with equity-type characteristics. The
Master Fixed Income Portfolio is expected to have low to moderate equity risk
through its use of convertible and synthetic convertible security positions and
its use of covered call and cash secured put investments. Convertible bonds are
hybrid securities that generally pay a fixed rate of interest but also may be
converted into a fixed amount of the common stock of the issuer; this
"conversion value" gives the security some equity risk. A synthetic convertible
investment is a combination investment in which the Portfolio purchases both (i)
high-grade cash equivalents, high grade debt obligations of an issuer or U.S.
Government securities and (ii) call options or warrants on the common stock of
the same or different issuer with some or all of the anticipated interest income
from the debt obligation that will be earned over the holding period of the
option or warrant. Since convertible securities often have credit ratings that
are below high grade, the Portfolio's use of synthetic convertible positions may
enable the Portfolio to receive both interest income and some equity exposure
without the typical credit risk of many convertible bonds or notes. See
"Convertible Securities, Synthetic Convertible Positions and Warrants". In
pursuit of its investment objective, the Portfolio may also invest in covered
call and cash secured put investments. Covered call and cash secured put
investments are equity positions hedged with options which are expected, on
average, to have similar average volatility over time to longer maturity
corporate or convertible bonds. The Portfolio will make such investments when it
expects to receive a higher total return than generally available from longer
term corporate bonds. Similarly to convertible bonds, these positions have both
equity and fixed income characteristics and expose the Portfolio to equity risk.
However, the Portfolio considers such risks when making such investments and
evaluates them in relation to their expected return and the objectives of the
Portfolio.
B-4
<PAGE>
The Enhanced Equity Portfolio is expected to be subject primarily to equity risk
and exhibit high to very high price fluctuations as is characteristic of common
stocks and equity funds in general. The price fluctuations of this Portfolio can
generally be expected to be greater than either the Short-Term Government
Portfolio or the Master Fixed Income Portfolio. The Portfolio's use of options,
futures, and foreign securities may also expose the Portfolio to certain risks
in addition to those normally associated with a domestic common stock portfolio.
Duration
The discussion in the Prospectus of the investment policies of the Short-Term
Government and Master Fixed Income Portfolios refer to the Portfolios' duration.
Duration is the weighted average life of a Portfolio's debt instruments measured
on a present value basis; it is generally superior to average weighted maturity
as a measure of a Portfolio's potential volatility due to changes in interest
rates.
Unlike a Portfolio's average weighted maturity, which takes into account only
the stated maturity date of the Portfolio's debt instruments, duration
represents a weighted average of both interest and principal payments,
discounted by the current yield-to-maturity of the securities. For example, a
four-year, zero-coupon bond, which pays interest only upon maturity (along with
principal), has both a maturity and duration of 4 years. However, a four-year
bond priced at par with an 8% coupon has a maturity of 4 years but a duration of
3.6 years (at an 8% yield), reflecting the bond's earlier payment of interest.
In general, a bond with a longer duration will fluctuate more in price than a
bond with a shorter duration. Also, for small changes in interest rates,
duration serves to approximate the resulting change in a bond's price. For
example, a sudden 1% change in interest rates will cause roughly a 4% move in
the price of a zero-coupon bond with a 4 year duration, whereas an 8% coupon
bond (with a 3.6 year duration) will change by approximately 3.6%.
Mortgage-Related Securities
Mortgage-related securities are interest in pools of mortgage loans made to U.S.
residential home buyers, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations. The Fund may also invest in debt
securities which are secured with collateral consisting of U.S. mortgage-related
securities, and in other types of mortgage-related securities.
U.S. Mortgage Pass-Through Securities. Interests in pools of mortgage-related
securities differ from other forms of debt securities, which normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. Instead, these securities provide a monthly
payment which consists of both interest and principal payments. In effect, these
payments are a "pass-through" of the monthly payments made by the individual
borrowers on their residential mortgage loans, net of any fees paid to the
issuer or guarantor of such securities. Additional payments are caused by
repayments of principal resulting from the sale of the underlying residential
property, refinancing or foreclosure, net of fees or costs which may be
incurred. Some mortgage-related securities (such as securities issued by the
GNMA) are described as "modified pass-through." These securities entitle the
holder to receive all interest and principal payments owed on the mortgage pool,
net of certain fees, at the scheduled payment dates regardless of whether or not
the mortgagor actually makes the payment.
The principal governmental guarantor of U.S. mortgage-related securities is the
Government National Mortgage Association. GNMA is a wholly owned United State
Government corporation within the department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the United
States Government, the timely payment of principal and interest on securities
issued by institutions approved by GNMA (such as savings and loan institutions,
commercial banks and mortgage bankers) and backed by pools of mortgages insured
by the Federal Housing Agency or guaranteed by the Veterans Administration.
Government-related guarantors include the FNMA and the FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders and
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional residential mortgages not insured or guaranteed by
any government agency from a list of approved seller/servicers which include
state and federally chartered savings and loan associations, mutual savings
banks, commercial banks and credit unions and mortgage bankers. FHLMC is a
government-sponsored corporation created to
B-5
<PAGE>
increase availability of mortgage credit for residential housing and owned
entirely by private stockholders. FHLMC issues participation certificates which
represent interests in conventional mortgages from FHLMC's national portfolio.
Pass-through securities issued by FNMA and participation certificates issued by
FHLMC are guaranteed as to timely payment of principal and interest by FNMA and
FHLMC, respectively, but are not backed by the full faith and credit of the U.S.
Government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may,
in addition, be the originators or servicers of the underlying mortgage loans as
well as the guarantors of the mortgage-related securities. Pools created by such
non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because they lack direct or indirect
government or agency guarantees of payment. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, pool insurance and letters of credit,
issued by governmental entities, private insurers, and mortgage poolers. Such
insurance and guarantees and the creditworthiness of the issuers thereof will be
considered in determining whether a mortgage-related security meets the Fund's
high grade investment quality standards. However, there can be no assurance that
private insurers or guarantors will meet their obligations. In addition, the
Fund may buy mortgage-related securities without insurance or guarantees if
through an examination of the loan experience and practices of the
originator/servicers and poolers the Adviser determines that the securities meet
the Fund's quality standards.
Although the underlying mortgage loans in a pool may have maturities of up to 30
years, the actual average life of the pool certificates typically will be
substantially less because the mortgages will be subject to normal principal
amortization and may be prepaid prior to maturity. Prepayment rates vary widely
and may be affected by changes in market interest rates. In periods of falling
interest rates, the rate of prepayment tends to increase, thereby shortening the
actual average life of the pool certificates. Conversely, when interest rates
are rising, the rate of prepayments tends to decrease, thereby lengthening the
actual average life of the certificates. Accordingly, it is not possible to
predict accurately the average life of a particular pool.
Although the market for mortgage pass-through securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable. The Fund will not purchase mortgage-related securities or
any other assets which are illiquid if, as a result, the Fund would exceed its
policy limitation on illiquid securities. (See "Investment Limitations".)
Foreign Mortgage-Related Securities. Foreign mortgage-related securities are
interests in pools of mortgage loans made to residential home buyers domiciled
in a foreign country. These include mortgage loans made by trust and mortgage
loan companies, credit unions, chartered banks, and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related, and private organizations (e.g., Canada Mortgage and Housing
Corporation and First Australian National Mortgage Acceptance Corporation
Limited). The mechanics of these mortgage-related securities are generally the
same as those issued in the United States. However, foreign mortgage markets may
differ materially from the U.S. mortgage market with respect to matters such as
the sizes of loan pools, prepayment experience, and maturities of loans. In
addition, foreign mortgage-related securities are subject to special currency
and other risks (see "Foreign Securities"). A Portfolio will not purchase any
foreign mortgage-related securities if as a result of such purchase more than 5%
of its net assets would be invested in such category of securities.
Collateralized Mortgage Obligations ("CMOs'). A domestic or foreign CMO is a
hybrid between a mortgage-backed bond and a mortgage pass-through security. Like
a bond, interest and prepaid principal is paid, in most cases, semi-annually.
CMOs may be collateralized by whole mortgage loans, but are more typically
collateralized by portfolios of mortgage pass-through securities guaranteed by
GNMA, FHLMC, FNMA or equivalent foreign entities.
B-6
<PAGE>
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life depend upon the prepayment experience
of the collateral. CMOs provide for a modified form of call protection through a
de facto breakdown of the underlying pool of mortgages according to how quickly
the loans are repaid. Monthly payment of principal received from the pool of
underlying mortgages, including prepayments, is first returned to investors
holding the shortest maturity class. Investors holding the longer maturity
classes receive principal only after the first class has been retired. A
Portfolio will not purchase any CMOs if as a result of such purchase more than
5% of its net assets would be invested in such category of securities.
Other Mortgage-Related Securities. Other mortgage-related securities include
securities of U.S. or foreign issuers that directly or indirectly represent a
participation in, or are secured by and payable from, mortgage loans on a real
property. These other mortgage-related securities may be equity or debt
securities issued by governmental agencies or instrumentalities or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, home builders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities. A Portfolio will not purchase
any other mortgage-related securities if as a result of such purchase more than
5% of its net assets would be invested in such category of securities.
B-7
<PAGE>
Zero-Coupon, Step-Coupon, and Pay-In-Kind Securities
Each Portfolio may from time to time invest in zero-coupon, step-coupon, and
pay-in-kind securities. These securities are debt securities that do not make
regular interest payments. Because such securities do not pay current income,
the price of these securities can be volatile when interest rates fluctuate (see
the discussion on "Duration" above). While these securities do not pay current
cash income, federal income tax law requires the holders of taxable zero-coupon,
step-coupon, and certain pay-in-kind securities to report as interest each year
the portion of the original discount (or deemed discount) on such securities
accruing that year. In order to qualify as a "regulated investment company"
under the Code, a Portfolio may be required to distribute a portion of such
discount, which would then become part of a shareholder's taxable income. A
Portfolio will not purchase any zero-coupon, step-coupon, or pay-in-kind
securities if as a result of such purchase more than 5% of its net assets would
be invested in such category of securities.
Securities of Supranational Organizations
Each Portfolio may invest in the debt obligations of supranational institutions,
which may be either U.S. dollar denominated or denominated in a foreign
currency. There are currently 14 supranational organizations, which may be
divided into two groups: (i) 12 multilateral lending institutions ("MLIs"), and
(ii) two other supranationals -- the European Coal and Steel Community and the
European Economic Community. The 14 supranationals are the largest group of
borrowers in the world. All supranationals are currently rated at least AA or
equivalent by at least one recognized rating agency, with most rated AAA. The
MLIs consist of five development finance institutions, six European multilateral
financing organizations, and Intelsat supported satellite system operations. The
MLIs are not the direct obligations of any one country, but are
sovereign-supported financial institutions whose creditworthiness depend upon
the member countries' willingness and ability to support their obligations and
their own financial strength and expertise. Continued support of a supranational
organization by its government members is subject to a variety of political,
economic and other factors. The voting power of each member country within a
particular supranational closely follows the financial obligations of that
country. MLIs include the African Development Bank, Asian Development Bank,
Council of Europe Resettlement Fund, European Bank for Reconstruction and
Development, European Investment Bank, Eurofima, Eutelsat, Intelsat,
Inter-American Development Bank, International Finance Corporation, Nordic
Investment Bank, and The World Bank.
B-8
<PAGE>
Options and Futures Contracts
The Fund may purchase and sell ("write") both put options and call options on
securities, securities indices and foreign currencies, enter into interest rate,
foreign currency and index futures contracts, and purchase and sell options on
such futures contracts ("futures options") for various reasons: to hedge
portfolio securities against adverse fluctuations, to adjust the level of market
exposure of a portfolio, to facilitate trading, to reduce transactions costs,
and/or to seek higher investment returns when a futures or option contract is
attractively priced relative to a typical Portfolio investment in the underlying
security or index or securities highly correlated to the underlying index, and
not for speculation. The Fund may purchase and sell foreign currency options for
purposes of increasing exposure to a foreign currency or to shift exposure to
foreign currency fluctuations from one country to another. If other types of
options, futures contracts, or futures options are traded in the future, the
Fund may also use those instruments, provided the Board of Trustees determines
that their use is consistent with the Fund's investment objectives, and their
use is consistent with restrictions applicable to options and futures contracts
currently eligible for use by the Fund.
Options on Securities or Indices. The Fund may purchase and write options on
securities and indices. An index is a statistical measure designed to reflect
specified facets of a particular financial or securities market, a specific
group of financial instruments or securities, or certain economic indicators
such as the Merrill Lynch 1 to 3 Year Global Government Bond Index, the JP
Morgan Global Government Bond Index, and the Lehman Brothers
Government/Corporate Index.
An option on a security (or an index) is a contract that gives the holder of the
option, in return for a premium, the right to buy from (in the case of a call)
or sell to (in the case of a put) the writer of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option (in the case of "American Style"
options) or at the expiration of the option (in the case of the "European Style"
options). The writer of a call or put option on a security is obligated upon
exercise of the option to deliver the underlying security upon payment of the
exercise price or to pay the exercise price upon delivery of the underlying
security, as the case may be. The writer of an option on an index is obligated
upon exercise of the option to pay the difference between the cash value of the
index and the exercise price multiplied by a specified multiplier for the index
option, such difference always being positive.
The Fund will write call options and put options only if they are "covered" as
defined in the Prospectus. If an option written by the Fund expires unexercised,
the Fund realizes a capital gain equal to the premium received at the time the
option was written. If an option purchased by the Fund expires unexercised, the
Fund generally realizes a capital loss equal to the premium paid, with the
exception that certain losses on put options purchased may be deferred for tax
accounting purposes. See "Taxation - Hedging Transactions".
Prior to the earlier of exercise or expiration, an option may be closed out by
an offsetting purchase or sale of an option of the same series (i.e., of the
same type, with respect to the same underlying security or index, and with the
same exercise price and expiration date). The Fund will realize a capital gain
from a closing purchase transaction if the cost of the closing option is less
than the premium received from writing the option; if it is more, the Fund will
realize a capital loss. If the premium received from a closing sale transaction
is more than the premium paid to purchase the option, the Fund will realize a
capital gain; if it is less, the Fund will realize a capital loss. The principal
factors affecting the market value of a put or a call option include supply and
demand, interest rates, the current market price of the underlying security or
index in relation to the exercise price of the option, the volatility of the
underlying security or index, and the time remaining until the expiration date.
The market value of a put or call option purchased by the Fund is an asset of
the Fund. The premium received for an option written by the Fund is recorded as
an asset and the associated liability is subsequently marked to market daily.
The value of an option purchased or written is marked to market daily and is
valued at the closing price on the exchange on which it is traded or, if not
traded on an exchange or no closing price is available, at the mean between the
last bid and asked prices.
B-9
<PAGE>
Risks Associated with Options on Securities and Indices. Several risks are
associated with transactions in options on securities and indices. For example,
significant differences between the securities and options markets could result
in an imperfect correlation between those markets, causing a given transaction
not to achieve its objectives. A decision as to whether, when and how to use
options involves the exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market behavior or
unexpected events.
There can be no assurance that a liquid market will exist when the Fund seeks to
close out an option position. If the Fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit. If the Fund were unable to close out a covered call
option that it had written on a security, it would not be able to sell the
underlying security unless the option expired without exercise. As the writer of
a covered call option, the Fund foregoes, during the option's life, the
opportunity to profit from increases in the market value of the security
covering the call option above the sum of the premium and the exercise price of
the call.
If trading were suspended in an option purchased by the Fund, the Fund would not
be able to close out the option. If restrictions on exercise were imposed, the
Fund might be unable to exercise an option it has purchased. Except to the
extent that a call option on an index written by the Fund is covered by an
option on the same index purchased by the Fund, movements in the index may
result in a loss to the Fund; however, such losses may be mitigated by changes
in the value of the Fund's securities during the period the option was
outstanding.
Foreign Currency Options. The Fund may buy or sell put and call options on
foreign currencies. A put or call option on a foreign currency gives the
purchaser of the option the right to sell or purchase a foreign currency at the
exercise price until the option expires. The Fund will use foreign currency
options separately or in combination to control currency volatility. Among the
strategies employed to control currency volatility is an option collar. An
option collar involves the purchase of a put option and the simultaneous sale of
a call option on the same currency with the same expiration date but with
different exercise (or "strike") prices. Generally, the put option will have an
out-of-the-money strike price, while the call option will have either an
at-the-money strike price or an in-the-money strike price. Currency options
traded on U.S. or other exchanges may be subject to position limits which may
limit the ability of the Fund to reduce foreign currency risk using such
options.
Combinations of Options. The Fund may employ certain combinations of put and
call options. A "straddle" involves the purchase of a put and call option on the
same security with the same exercise prices and expiration dates. A "strangle"
involves the purchase of a put option and a call option on the same security
with the same expiration dates but different exercise prices. A "collar"
involves the purchase of a put option and the sale of a call option on the same
security with the same expiration dates but different exercise prices. A
"spread" involves the sale of an option and the purchase of the same type of
option (put or call) on the same security with the same or different expiration
dates and different exercise prices. The Fund may, at the same time it employs
certain combination of options, also have a position in the underlying security,
and a holding of segregated collateral as part of its "coverage" of short
options. Hence, the Fund's entire position related to a particular security,
index, foreign currency, or future may be complex; however, the Fund will always
be in a covered position with respect to options sold by the Fund.
Futures Contracts and Options on Futures Contracts. The Fund may use interest
rate, foreign currency or index futures contracts. An interest rate or foreign
currency contract provides for the future sale by one party and purchase by
another party of a specified quantity of a financial instrument or foreign
currency at a specified price and time. A futures contract on an index is an
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to 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. Although the value of an index might be a
function of the value of a certain specified securities, no physical delivery of
these securities is made.
B-10
<PAGE>
A public market exists in futures contracts covering several indices as well as
a number of financial instruments and foreign currencies, including U.S.
Treasury bonds, U.S. Treasury notes, GNMA Certificates, three-month U.S.
Treasury bills, 90-day commercial paper, bank certificates of deposit,
Eurodollar certificates of deposit, the Australian dollar, the Canadian dollar,
the British pound, the German mark, the Japanese yen, the Swiss franc, and
certain multinational currencies such as the European Currency Unit ("ECU").
Other futures contracts are likely to be developed and traded in the future. The
Fund intends to enter primarily into futures contracts which are standardized
and traded on a U.S. or foreign exchange, board of trade, or similar entity, or
quoted on an automated quotation system. However, the Fund may also enter into
currency forward contracts, which are not exchange-traded (see "Foreign Currency
Transactions").
The Fund may also purchase and write call and put options on futures contracts.
Futures options possess many of the same characteristics as options on
securities and indices. A futures option gives the holder the right, in return
for the premium paid, to assume a long position (call) or short position (put)
in a futures contract at a specified exercise price at any time during the
period of the option. Upon exercise of a call option, the holder acquires a long
position in the futures contract and the writer is assigned the opposite short
position. In the case of a put option, the opposite is true.
As long as required by regulatory authorities, the Fund will use futures
contracts and futures options for hedging purposes and not for speculation. For
example, the Fund might use futures contracts to hedge against anticipated
changes in interest rates that might adversely affect either the value of the
Fund's securities or the price of the securities which the Fund intends to
purchase. The Fund's hedging activities may include sales of futures contracts
as an offset against the effect of expected increases in interest rates, and
purchases of futures contracts as an offset against the effect of expected
declines in interest rates. Although other techniques could be used to reduce
the Fund's exposure to interest rate fluctuations, the Fund may be able to hedge
its exposure more effectively and at a lower cost by using futures contracts and
futures options.
When a purchase or sale of a futures contract is made by the Fund, the Fund is
required to deposit with its Custodian (or futures commission merchant, if
legally permitted) a specified amount of cash or U.S. Government securities
("initial margin"). The margin required for a futures contract is set by the
exchange on which the contract is traded and may be modified during the term of
the contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. The Fund expects to earn interest income on its initial margin
deposits. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the fund pays
or receives cash, called "variation margin", equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by a Fund but is instead a
settlement between the Fund and the futures commission merchant of the amount
one would owe the other if the futures contract expired. In computing daily net
asset value, the Fund will mark to market its open futures positions.
The Fund is also required to deposit and maintain margin with respect to put and
call options on futures contracts written by it. Such margin deposits will vary
depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts
(contracts traded on the same exchange, on the same underlying security or
index, and with the same delivery month). If an offsetting purchase price is
less than the original sale price, the Fund realizes a capital gain; if it is
more, the Fund realizes a capital loss. Conversely, if an offsetting sale price
is more than the original purchase price, the Fund realizes a capital gain; if
it is less, the Fund realizes a capital loss. The transaction costs must also be
included in these calculations.
B-11
<PAGE>
Limitations on Use of Futures and Futures Options. The Fund will not enter into
a futures contract or futures option contract if, immediately thereafter, the
aggregate initial margin deposits relating to such positions plus premiums paid
by it for open futures option positions, less the amount by which any such
options are "in-the-money", would exceed 5% of the Fund's total assets. A call
option is "in-the-money" if the value of the futures contract that is the
subject of the option exceeds the exercise price. A put option is "in-the-money"
if the exercise price exceeds the value of the futures contract that is the
subject of the option.
When purchasing a futures contract, the Fund will maintain with its Custodian
(and mark to market on a daily basis) cash, U.S. Government securities, or other
highly liquid debt securities that, when added to the amounts deposited with a
futures commission merchant as margin, are equal to the market value of the
futures contract. Alternatively, the Fund may "cover" its position by purchasing
a put option on the same futures contract with a strike price as high or higher
than the price of the contract held by the Fund.
When selling a futures contract, the Fund will maintain with its Custodian (and
mark to market on a daily basis) liquid assets, that, when added to the amount
deposited with a futures commission merchant as margin, are equal to the market
value of the instruments underlying the contract. Alternatively, the Fund may
"cover" its position by owning the instruments underlying the contract (or, in
the case of an index futures contract, a portfolio with characteristics
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in liquid assets
with the Fund's Custodian).
When selling a call option on a futures contract, the Fund will maintain with
its Custodian (and mark to market on a daily basis) cash, U.S. Government
securities, or other highly liquid debt securities that, when added to the
amounts deposited with a futures commission merchant as margin, equal the total
market value of the futures contract underlying the call option. Alternatively,
the Fund may cover its position by entering into a long position in the same
futures contract at a price no higher than the strike price of the call option,
by owning the instruments underlying the futures contract (or, in the case of an
index futures contract, a portfolio with characteristics substantially similar
to that of the index on which the futures contract is based), or by holding a
separate call option permitting the fund to purchase the same futures contract
at a price not higher than the strike price of the call option sold by the Fund.
When selling a put option on a futures contract, the Fund will maintain with its
Custodian (and mark to market on a daily basis) cash, U.S. Government
securities, or other highly liquid debt securities that equal the purchase price
of the futures contract, less any margin on deposit. Alternatively, the Fund may
cover the position either by entering into a short position in the same futures
contract, or by owning a separate put option permitting it to sell the same
futures contract so long as the strike price of the purchased put option is the
same or higher than the strike price of the put option sold by the Fund.
In order to comply with currently applicable regulations of the Commodity
Futures Trading Commission ("CFTC") for exemption from the definition of a
"commodity pool", the Fund is limited in its futures trading activities to (i)
positions which constitute "bona fide hedging" positions within the meaning and
intent of applicable CFTC rules, and (ii) other positions for the establishment
of which the aggregate initial margin and premiums (less the amount by which any
such options are "in-the-money") do not exceed 5% of the investment company's
net assets.
B-12
<PAGE>
The requirements for qualification as a regulated investment company also may
limit the extent to which the Fund may enter into futures, futures options or
forward contracts. See "Taxation".
Risks Associated with Futures and Futures Options. There are several risks
associated with the use of futures contracts and futures options as hedging
techniques. A purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract. There can be no guarantee
that there will be a correlation between price movements in the hedging vehicle
and in the Fund securities being hedged. In addition, there are significant
differences between the securities and futures markets that could result in an
imperfect correlation, depending on circumstances such as variations in
speculative market demand for futures and futures options relative to the demand
for securities, technical influences in futures trading and futures options, and
differences between the financial instruments being hedged and the instruments
underlying the standard contracts available for trading in such respects as
interest rate levels, maturities, and creditworthiness of issuers. A decision as
to 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 interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during particular trading days and
therefore does not limit potential losses, because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time when the
Fund seeks to close out a futures contract or a futures option position, in
which event the Fund would remain obligated to meet margin requirements until
the position is closed. In addition, many of the contracts discussed above are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or
continue to exist.
OTC or Dealer Options. The Fund may engage in transactions involving OTC options
on securities, currencies, or indices as well as exchange-traded options.
Certain risks are specific to OTC options. While the Fund would look to a
clearing corporation to exercise exchange-traded options, if the Fund were to
purchase an OTC option it would rely on the counter-party (typically a broker,
bank, or other financial institution) from whom it purchased the option to
perform if the option were exercised. Failure by the counter-party to do so
would result in the loss of the premium paid by the Fund as well as loss of the
expected benefit of the transaction.
B-13
<PAGE>
Exchange-traded options generally have a continuous liquid market while OTC
options may not. Consequently, the Fund may generally be able to realize the
value of a OTC option it has purchased only by exercising or reselling the
option to the counter-party who issued it. Similarly, when the Fund writes a OTC
option, the Fund may generally be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the
counter-party to whom the Fund originally wrote the option. While the Fund will
seek to enter into OTC options only with counter-parties who will agree to and
are expected to be capable of entering into closing transactions with the Fund,
there can be no assurance that the Fund will be able to liquidate a OTC option
at a favorable price at any time prior to expiration. Unless the Fund, as a
covered OTC call option writer, is able to effect a closing purchase
transaction, it will not be able to liquidate securities (or other assets) used
as cover until the option expires or is exercised. In the event of insolvency of
the counter-party, the Fund may be unable to liquidate a OTC option. With
respect to options written by the Fund, the inability to enter into a closing
transaction may result in material losses to the Fund. For example, since the
Fund must maintain a secured position with respect to any call option on a
security it writes, the Fund may not sell the assets which it has segregated to
secure the position while it is obligated under the option. This requirement may
impair the Fund's ability to sell portfolio securities at a time when such sale
might be advantageous.
The Staff of the SEC has taken the position that purchased OTC options and the
assets used to secure written OTC options are illiquid securities. The Fund may
treat the cover used for written OTC options as liquid if the counter-party
agrees that the Fund may repurchase the OTC option it has written for a maximum
price to be calculated by a predetermined formula. In such cases, the OTC option
would be considered illiquid only to the extent the maximum purchase price under
the formula exceeds the intrinsic value of the option. Accordingly, the Fund
will treat OTC options as subject to the Fund's limitation on unmarketable
securities. If the SEC changes its position on the liquidity of OTC options, the
Fund will change its treatment of such instruments accordingly.
Foreign Currency Transactions
The Fund may enter into forward foreign currency exchange contracts ("forward
contracts") to attempt to minimize the risk to the Fund from adverse changes in
the relationship between the U.S. dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and privately traded by
currency traders and their customers. The Fund may sell a forward contract, for
example, when it purchases a foreign security denominated in a foreign currency,
in an attempt to remove the effect of exchange rate changes on the value of the
position. Such exchange rate changes, had their effect not been removed, may
have been either favorable or unfavorable to the Fund. Removing or partially
removing the effect of such currency rate changes does not remove other sources
of price variation in a security, due to the type of security and its exposure
to various risks.
Precise matching of the amount of forward currency contracts and the value of
the Fund's securities denominated in such currencies will not generally be
possible, since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and the date it matures.
Prediction of short-term currency market movements is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
The Fund will not enter into such forward contracts or maintain a net exposure
to such contracts where the consummation of the contracts would obligate the
Fund to deliver an amount of foreign currency in excess of the value of the
Fund's portfolio securities or other assets denominated in that currency. Under
normal circumstances, consideration of the prospect for currency parities will
be incorporated into the longer term investment decision made with regard to
overall diversification strategies. However, the Adviser believes that it is
important to have the flexibility to enter into such forward contracts when it
determined that the best interests of the Fund will be served by doing so.
At the maturity of a forward contract, the Fund may either sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same maturity date, the same amount of the foreign currency.
B-14
<PAGE>
It may be necessary for the Fund to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of the foreign currency the Fund is
obligated to deliver.
If the Fund retains a portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline during the period between the
date the Fund enters into a forward contract for the sale of a foreign currency
and the date it enters into an offsetting contract for the purchase of the
foreign currency, the Fund will realize a gain to the extent the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to purchase. Should forward prices increase, the Fund will suffer a loss to the
extent the price of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.
The Fund's dealings in forward foreign currency exchange contracts will be
limited to the transactions described above. Use of forward currency contracts
to hedge against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. Additionally, although
such contracts tend to minimize the risk of loss due to a decline in the value
of the hedged currency, they also tend to limit any potential gain which might
results from an increase in the value of that currency.
Although the Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. Foreign exchange dealers do not charge a fee for conversion, but
they do realize a profit based on the difference (the "spread") between the
prices at which they are buying and selling various currencies. Thus, a dealer
may offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange should the Fund desire to resell that currency to the
dealer.
Covered Short Sales
As discussed in the Prospectus, the Fund may make covered short sales of
securities to hedge against market risks. Generally, the Fund expects to make
such sales in connection with the Fund's option and futures strategies. For
example, the Fund may engage in option spreads in which it is both the purchaser
and the covered writer of the same type of option (puts or calls) on the same
underlying security with the options having different exercise prices and/or
expiration dates. When the Fund enters into such a spread involving two put
options, it is sometimes advantageous to enter into a "synthetic put" position
instead of purchasing the put option which is the long side of the spread. A
synthetic put position is created by a short sale of the underlying security
which is hedged or covered by long position in a call option with the same terms
as the put option being synthesized.
The Fund may also make short sales which are covered or hedged by securities
convertible or exchangeable into an equal number of shares of the securities
sold short or by holdings of the same security (known as "short sales against
the box"). Short sales against the box may be made for the purpose of receiving
a portion of the interest earned by the executing broker from the proceeds of
such a sale and/or to defer the realization of gain or loss for Federal income
tax purposes. The Fund will segregate in a special account with its Custodian or
broker an equal amount of the securities sold short or securities convertible
into or exchangeable for such securities. The extent to which the Fund may make
such short sales may be limited by the Code's requirements for qualification as
a regulated investment company. (See "Taxation").
B-15
<PAGE>
Convertible Securities, Synthetic Convertible Positions, and Warrants
The Master Fixed Income Portfolio and the Enhanced Equity Portfolio may invest
in securities which may be exchanged for, converted into or exercised to acquire
a predetermined number of shares of common stock of the same or a different
issuer at the option of the Portfolio during a specified time period. Such
securities include convertible securities (i.e., convertible preferred stock and
convertible debentures) and warrants. A convertible security is generally a
fixed income security which is senior to common stock in an issuer's capital
structure, but is usually subordinated to similar non-convertible securities. In
addition, the Portfolio may create a synthetic convertible position in which the
Portfolio purchases both (i) high-grade cash equivalents or a high grade
convertible fixed income security of an issuer (or U.S. Government securities)
and (ii) call options or warrants on the common stock of the same or different
issuer with some or all of the anticipated interest from the debt obligation
that will be earned over the holding period of the option or warrant.
In general, the market value of a convertible security is at least the higher of
its "investment value" (i.e., its value as a fixed income security) or its
"conversion value" (i.e., its value upon conversion into its underlying common
stock). As a fixed income security, a convertible security tends to increase in
value when interest rates decline and tends to decrease in value when interest
rates rise. However, the price of a convertible security tends to increase as
the market value of the underlying stock rises, whereas it tends to decrease as
the market value of the underlying stock declines. While no securities
investment is without some risk, investments in convertible securities and
synthetic convertible positions generally entail less risk than investments in
common stock of the same issuer.
Investments in warrants involve certain risks, including the possible lack of a
liquid market for resale of the warrants, potential price fluctuations as a
result of speculation or other factors, and failure of the price of the
underlying security to reach or have reasonable prospects of reaching a level at
which the warrant can be prudently exercised (in which event the warrant may
expire without being exercise, resulting in a loss of the Portfolio's entire
investment therein).
Illiquid Securities
Under the Fund's investment restrictions, the Fund may not invest more than 15%
of the value of its net assets in securities that at the time of purchase have
legal or contractual restrictions on resale or are otherwise illiquid. See
"Investment Limitations". The Investment Adviser will monitor the amount of
illiquid securities in each Portfolio to ensure compliance with the Fund's
investment limitations. In the absence of a readily available market for such
securities, the restrictions on resale may cause such securities to be
considered illiquid.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them, resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
B-16
<PAGE>
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities, and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the Securities and Exchange
Commission (the "Commission") under the Securities Act, the Company's Board of
Trustees may determine that such securities are not illiquid securities,
notwithstanding their legal or contractual restrictions on resale. In all other
cases, however, securities subject to restrictions on resale will be deemed
illiquid.
Investment Grade Bonds
See the Appendix for a description of securities ratings. The "high grade"
investment standard which the Fund uses only includes the highest three
categories for debt over one year maturity (A or better) and A-1 or equivalent
for short term maturities. The rating agencies themselves generally define
investment grade to include the top four categories for debt over one year
maturity. Subsequent to its purchase by a Portfolio, a security may be assigned
a lower rating or cease to be rated. In addition to considering ratings assigned
by the rating services in connection with its selection of investments for the
Portfolios, the Adviser will consider, among other things, information
concerning the financial history and conditions of the issuer and its revenue
and expense prospects.
Debt obligations in the BBB or equivalent category have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with respect to higher grade bonds.
Debt obligations that are below investment grade are likely to be subject to
greater market fluctuation and to greater risk of loss of income and principal
due to default than investments of higher rated fixed income securities. Such
high-yielding securities generally tend to reflect short-term corporate and
market developments to a greater extent than higher rated securities, which
react more to fluctuations in the general level of interest rates. The Adviser
seeks to reduce risk to the investor by diversification, credit analysis and
attention to current developments in trends of both the economy and financial
market. However, while diversification reduces the effect on the Portfolios of
any single investment, it does not reduce the overall risk of investing in lower
rated securities. In no event will the Portfolios invest in any security rated
below CCC or equivalent at the time of purchase.
Lending of Portfolios Securities
For the purpose of realizing income, each Portfolio may lend securities with a
value of up to 30% of its total assets to broker-dealers, institutional
investors or other persons. The Fund will have the right to call each loan and
obtain the securities on five business days' notice or, in connection with
securities trading on foreign markets, within a longer period of time which
coincides with the normal settlement period for purchases and sales of such
securities in such foreign markets. Loans will only be made to persons deemed by
the Adviser to be of good standing in accordance with standards approved by the
Board of Trustees and will not be made unless, in the judgment of the Adviser,
the consideration to be earned from such loans would justify the risk.
B-17
<PAGE>
Borrowing
The Fund may borrow for temporary, extraordinary or emergency purposes, or for
the clearance of transactions. The Investment Company Act of 1940 (the "1940
Act") requires the Fund to maintain continuous asset coverage (that is, total
assets including borrowings, less liabilities exclusive of borrowings) of 300%
of the amount borrowed. If the 300% asset coverage should decline as a result of
market fluctuations or other reasons, the Fund may be required to sell some of
its portfolio holdings within three days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. As a matter of operating policy, the
Fund will not borrow in excess of 15% of its total assets (see "Investment
Limitations"). To avoid the potential leveraging effects of the Fund's
borrowings, investments will not be made while borrowings are in excess of 5% of
the Fund's total assets. Money borrowed will be subject to interest costs which
may or may not be recovered by appreciation of the securities purchased. The
Fund also may be required to maintain minimum average balances in connection
with any such borrowing or to pay a commitment or other fee to maintain a line
of credit, either of which would increase the cost of borrowing over the stated
interest rate.
Foreign Securities
There are special risks in investing in foreign securities in addition to those
relating to investments in U.S. securities.
Political and Economic Factors. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, diversification and balance of payments
position. The internal politics of certain foreign countries may not be as
stable as those of the United States.
Governments in certain foreign countries continue to participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could include restrictions on
foreign investment, nationalization, expropriation of goods or imposition of
taxes, and could have a significant effect on market prices of securities and
payment of interest. The economies of many foreign countries are heavily
dependent upon international trade and are accordingly affected by the trade
policies and economic conditions of their trading partners. Enactment of these
trading partners of protectionist trade legislation could have a significant
adverse effect upon the securities markets of such countries.
Currency Fluctuations. The Fund will invest in securities denominated in foreign
currencies. Accordingly, a change in the value of any such currency against the
U.S. dollar will result in a corresponding change in the U.S. dollar value of
the Fund's assets denominated in that currency. Such changes will also affect
the Fund's income. The value of the Fund's assets may also be affected
significantly by currency restrictions and exchange control regulations enacted
from time to time.
Market Characteristics. The Fund may invest in foreign bonds, stocks or other
debt or equityrelated securities. While the foreign stocks or equity-related
securities may be exchange traded, the Fund expects that most foreign debt
securities in which the Fund invests will be purchased in over-the-counter
markets or on bond exchanges located in the countries in which the principal
offices of the issuers of the various securities are located, if that is the
best available market. Foreign stock or bond markets may be more volatile than
those in the United States. While growing in volume, they usually have
substantially less volume than U.S. markets, and the Fund's portfolio securities
may be less liquid and more volatile than U.S. securities. Moreover, settlement
practices for transactions in foreign markets may differ from those in United
States markets, and may include delays beyond periods customary in the United
States.
B-18
<PAGE>
Transactions in options on securities, futures contracts, futures options,
currency contracts and options on currencies may not be regulated as effectively
on foreign exchanges as similar transaction in the United States, and may not
involve clearing mechanisms and related guarantees. The value of such positions
also could be adversely affected by the imposition of different exercise terms
and procedures and margin requirements than in the United States.
The value of the Fund's portfolio positions may also be adversely impacted by
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the United States.
Legal and Regulatory Matters. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
Taxes. The interest payable on certain of the Fund's foreign portfolio
securities may be subject to foreign withholding taxes, thus reducing the net
amount of income available for distribution to the Fund's shareholders. A
shareholder otherwise subject to United States federal income taxes may, subject
to certain limitations, be entitled to claim a credit or deduction for U.S.
federal income tax purposes for his proportionate share of such foreign taxes
paid by the Fund. (See "Other Taxation").
INVESTMENT LIMITATIONS
The Fund has adopted the investment restrictions described below. Fundamental
policies of the Fund may not be changed without the approval of the lesser of
(1) 67% of the Portfolio's shares present at a meeting of shareholders if the
holders of more than 50% of the outstanding shares are present in person or by
proxy or (2) more than 50% of the Portfolio's outstanding shares. Operating
policies are subject to change by the Board of Trustees without shareholder
approval. Any investment restriction which involves a maximum percentage of
securities or assets will not be considered to be violated unless an excess
occurs immediately after, and is caused by, an acquisition of securities of
assets of, or borrowings by, the Fund.
Fundamental Policies
As a matter of fundamental policy, a Portfolio may not:
(1) Industry Concentration. Purchase securities of issuers conducting their
principal business activities in the same industry if, immediately after the
purchase and as a result thereof, the value of the Portfolio's investments in
that industry would constitute 25% or more of its total assets, provided that:
(i) this limitation does not apply to obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities; (ii) utility companies
will be divided according to their services (for example, gas, gas transmission,
electric, electric and gas, and telephone will each be considered a separate
industry); and (iii) financial service companies will be classified according to
the end users of their services (for example, automobile finance, bank finance,
and diversified finance will be considered as separate industries). For purposes
of this policy, the Adviser classifies companies into approximately forty
industries based on their primary business and financial characteristics.
(2) Oil, Gas, Real Estate. Invest directly in real estate, oil, gas, or other
mineral exploration or development programs; however, this limitation will not
prevent the purchase of securities of companies engaged in such activities or
secured by interests in such activities.
(3) Loans. Make loans, except that the Portfolio may (i) purchase money market
securities and enter into repurchase agreements, (ii) acquire bonds, debentures,
notes and other debt securities, and (iii) lend portfolio securities in an
amount not to exceed 30% of its total assets.
(4) Margin. Purchase securities on margin, except that the Portfolio may (i) use
short-term credit necessary for clearance of purchases of portfolio securities,
and (ii) make margin deposits in connection with futures contracts and options
on futures contracts.
B-19
<PAGE>
(5) Single Issuer Diversification. With respect to 75% of its total assets,
purchase securities of issuer (except securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities) if, as a result, more than
5% of the value of its assets would be invested in the securities of any single
issuer or it would own more than 10% of the voting securities of any issuer.
(6) Underwriting. Underwrite securities issued by other persons, except to the
extent that the Portfolio may be deemed to be an underwriter within the meaning
of the Securities Act in connection with the purchase and sale of its portfolio
securities in the ordinary course of pursuing its investment program.
(7) Borrowing. Borrow money, except as a temporary measure for extraordinary or
emergency purposes or for the clearance of transactions, and then only in
amounts not exceeding 15% of its total assets valued at market (for this
purpose, delayed delivery transactions covered by segregated accounts are not
considered to be borrowings).
Operating Policies
As a matter of operating policy, a Portfolio may not:
(1) Commodities. Purchase or sell commodities or commodity contracts, except
that a Portfolio may (i) enter into financial and currency futures contracts and
options on such futures contracts, (ii) enter into forward foreign currency
exchange contracts (the Fund does not consider such contracts to be
commodities), and (iii) invest in instruments which have the characteristics of
both futures contracts and securities.
(2) Illiquid Securities. Purchase a security if, as a result of such purchase,
more than 15% of the value of the Portfolio's net assets would be invested in
illiquid securities or other securities that are not readily marketable,
including repurchase agreements which do not provide for payment within seven
days.
(3) Investment Companies. Purchase securities of open-end or closed-end
investment companies except in compliance with the 1940 Act.
(4) Ownership of Portfolio Securities by Officers and Directors. Purchase or
retain the securities of any issuer if, to the knowledge of the Trust's
management, any officers and Trustees of the Trust and of the Adviser who own
beneficially more than 0.5% of the outstanding securities of such issuer,
together own beneficially more than 5% of such securities.
(5) Unseasoned Issuers. Purchase securities (other than obligations issued or
guaranteed by the U.S. Government or any foreign government, their agencies or
instrumentalities) if, as a result, more than 5% of the value of the Portfolio's
net assets would be invested in the securities of issuers which at the time of
purchase had been in operation for less than three years (for this purpose, the
period of operation of any issuer will include the period of operation of any
predecessor or unconditional guarantor of such issuer).
B-20
<PAGE>
Investment Strategy of Enhanced Equity Portfolio
Since 1996, the Adviser has been using a proprietary model with more than 50
factors based on work pioneered by Professor Robert A. Haugen to manage the
Enhanced Equity Portfolio. Using this model, the Adviser constructs a portfolio
of stocks that it believes has the following attractive characteristics: high
return on equity and earnings growth; high cash flow to price ratio and earnings
to price ratio; positive price momentum over the last six to twelve months; low
"beta" and return volatility; and high trading volume and low bid/ask price
spreads.
Such a portfolio of stocks cannot be constructed by simply "screening" an equity
data base for individual issues each of which meets all of the desired
characteristics. For example, companies with high profitability generally do not
have low valuations. The Adviser believes that the statistical modeling process
developed by Professor Haugen enables it to assemble a portfolio of securities
that in the aggregate has the desired characteristics (a portfolio with an
overall profile that Professor Haugen has called the profile of a "super
stock").
The Adviser believes that this approach, which has been discussed in leading
academic journals, has significant ability to identify portfolios of attractive
stocks. The Adviser believes that its disciplined multi-factor approach will
result in more consistent value added over a market cycle than traditional
strategies which focus on a single style or factor (e.g. value, growth, small
cap, or earnings momentum). However, because there are risks inherent in all
securities investments, there is no assurance that the Enhanced Equity
Portfolio's investment objective will be achieved.
Using factors from each of the five categories described above, the Adviser
determines the relative attractiveness (expected return) of each security from a
universe of approximately 1,100 of the largest publicly traded domestic equity
securities. Once these relative expected returns are calculated, a portfolio is
constructed from the entire universe with the following constraints and
objectives:
Targeted Return -- Expected portfolio return is typically targeted as 3%
higher than the annual return on the stocks comprising the Standard &
Poor's 500 Stock Price Index (the "S&P 500").
Industry Weightings -- Typically, industry sector weightings are
constrained to closely match those of the S&P 500, deviating no more
than 1% above or below the S&P 500 weightings.
Size -- Average market capitalization is typically targeted to be
greater than $15 billion.
Growth -- Using specific accounting-related variables, such as return on
equity, the portfolio is constrained to have higher earnings growth than
the average growth of securities in the universe.
Value -- Using specific accounting-related variables, such as the ratio
of cash flow to price, the portfolio is constrained to be of higher
value than securities in the universe(i.e., its cash flow and earnings
are priced relatively cheaply by the market).
Maximum Issuer Weighting -- The market value of the stock of any issuer,
when added to the portfolio, is constrained to be no greater than 3% of
the aggregate market value of the portfolio. The weighting of the stock
of an issuer may increase due to the relative performance of the stock
during the period in which it is held, but under no circumstances will
the weighting of any stock exceed 5% of the aggregate market value of
the portfolio.
Liquidity -- The size of the Portfolio's position in each security is
evaluated relative to the total outstanding shares of the issuer, the
market "float" and the trading volume to ensure that all positions
remain liquid and that the Adviser's periodic rebalancing of the
portfolio does not significantly impact the price of the security.
Number of Stocks -- The number of stocks held by the Portfolio will
typically range between 60 and 90.
The Adviser seeks to control overall portfolio risk by using a mathematical
model designed to minimize portfolio risk relative to that of the overall stock
market. The Adviser uses an [optimizer] to ensure that it accurately takes into
account the
B-21
<PAGE>
relationship among industries, sectors, and individual securities in
order to capture maximum diversification benefits given its expected return
target.
The Adviser monitors the stocks held by the Portfolio on a real-time basis using
its proprietary portfolio management system. All holdings are monitored for new
developments in terms of news events (such as lawsuits or takeover bids) as well
as significant changes in fundamental factors. Expected returns are updated
monthly and are used to reoptimize the portfolio. The Adviser enters into
portfolio trades only when it believes the incremental return more than exceeds
the associated transaction costs. The targeted annual portfolio turnover ranges
from 100-120%.
B-22
<PAGE>
PURCHASE OF SHARES
Each Portfolio reserves the right in its sole discretion (i) to suspend the
offering of its shares, and (ii) to reduce or waive the minimum for initial and
subsequent investments where certain economies can be achieved in sales of the
Portfolio's shares. In addition to cash, the Fund may accept securities as
payment for shares in any Portfolio at the applicable net asset value per share.
The Fund will only consider accepting securities which: (1) meet the investment
objective and policies of the Portfolio accepting the securities; (2) will be
acquired for investment and not for resale; (3) are liquid securities and not
restricted as to transfer either by law or market liquidity; and (4) have a
readily ascertainable value.
REDEMPTION OF SHARES
Each Portfolio may suspend redemption privileges or postpone the date of payment
(i) during any period that the New York Stock Exchange is closed, or trading on
the Exchange is restricted as determined by the Commission, (ii) during any
period when an emergency exists as defined by the rules of the Commission as a
result of which it is not reasonably practicable for a Portfolio to dispose of
securities owned by it, or fairly to determine the value of its assets, and
(iii) for such other periods as the Commission may permit.
MANAGEMENT OF THE FUND
The officers of the Fund manage its day to day operations and are responsible to
the Fund's Board of Trustees. The following is a list of Trustees and officers
of the Fund and their principal occupations during the past five years. The
mailing address of the Trustees and officers of the Fund is 700 South Flower
Street, Suite 2400, Los Angeles, CA 90017. (* indicates a director who is an
interested person of the Fund, as defined under the Investment Company Act of
1940.)
MICHAEL F. KOEHN* - Chairman of the Board of Trustees.
President and Chief Executive Officer of the Adviser, Director of Analytic
Optioned Equity Fund and President of Analysis Group, Inc., a consulting firm
providing economic and financial consulting services. He earned a Ph.D. in
Finance at the Wharton School, University of Pennsylvania.
MICHAEL D. BUTLER - Trustee.
Director of Analytic Optioned Equity Fund. Professor emeritus of Social
Sciences, former Dean of Undergraduate Studies at the University of California
at Irvine and former member of the Society of Fellows, Harvard University.
B-23
<PAGE>
ROBERTSON WHITTEMORE - Trustee.
Director of Analytic Optioned Equity Fund, Inc.; and Partner, Encore of La
Jolla, retail clothing store. Former real estate broker; attorney, President of
La Jolla Town Council, trustee of Combined Arts and Education Council of San
Diego, and Executive Director of the San Diego Community Foundation. He earned
his B.A. from Yale University, and his J.D. and M.B.A. from the University of
California at Berkeley.
HARINDRA de SILVA, Ph.D., CFA - President.
Managing Director and Treasurer of the Adviser and President of Analytic
Optioned Equity Fund, Inc. He holds a B.S. from the University of Manchester at
Manchester England, a M.B.A. from Simon School at Rochester New York and he
earned his Ph.D. in Finance from the University of California at Irvine. He
concurrently serves as a principal of Analysis Group, Inc., which he joined in
1986.
CHARLES L. DOBSON - Executive Vice President and Secretary.
Director, Secretary and Portfolio Manager of the Adviser and Executive Vice
President and Secretary of Analytic Optioned Equity Fund, Inc. He holds a B.A.
in Economics and M.S. in Administration from the University of California,
Irvine.
B-24
<PAGE>
GREGORY M. MC MURRAN - Treasurer.
Chief Investment Officer of the Adviser and Treasurer of the Analytic Optioned
Equity Fund, Inc. He has been with the Adviser as a Portfolio Manager since
October 1976. He holds a B.A. in economics from the University of California at
Irvine and a M.A. in economics from California State University at Fullerton.
MARIE NASTASI ARLT - Senior Vice President.
Chief Operating Officer and Secretary of the Adviser and Senior Vice President
of Analytic Optioned Equity Fund, Inc. She holds a B.A. from California State
University, Fullerton. She concurrently serves as Vice President of
Analytic[bullet]TSA Investors, Inc. Formerly she served as Managing Director and
Executive Vice President of TSA Capital Management.
ANGELO A. CALVELLO - Senior Vice President
Director of Business Developement of the Adviser and Senior Vice President of
Analytic Optioned Equity Fund, Inc. He earned a B.A., M.A. and Ph.D. in
Philosophy from DePaul University at Chicago, Illinois. Formerly, he served as
Executive Vice President at Credit Agricole Futures and Vice President of The
Chicago Mercantile Exchange.
Officers and directors of the Fund who are affiliates of the Adviser receive no
fee or salary from the Fund. Each director who is not an affiliate of the
Adviser receives an annual fee of $2,000 plus $1,000 per meeting attended and
reimbursement for expenses. For the fiscal year ended December 31, 1996, total
compensation received by the three directors who are not affiliates of the
Adviser is as follows:
<TABLE>
<CAPTION>
Aggregate Pension/Retirement Total Compensation From
Compensation from Benefits Accrued as Estimated Annual Analytic Optioned Equity
The Analytic Series Part of Fund Benefits from Fund and The Analytic
Name Fund Expenses Retirement Series Fund
_______________ ______________ ______________ _____________ _________________
<S> <C> <C> <C> <C>
Michael D. Butler $5,000 None None $10,000
Robertson Whittemore $5,060 None None $10,120
Robert E. Villagrana $3,020 None None $6,040
</TABLE>
B-25
<PAGE>
PRINCIPAL SHAREHOLDERS
The following tables show, as of July 31, 1997 the beneficial ownership of each
Portfolio's common stock by all officers and Trustees of the Fund (as a group)
and the record ownership of shares by each person known to the Fund to be a
record owner of more than 5% of the issued and outstanding common stock of a
Portfolio. Except for shares held by officers and Trustees, the Fund has no
information regarding beneficial ownership of such shares.
Short-Term Government Portfolio (Total Shares Outstanding 101,145)
Name and Address Number of Shares Percentage
Analytic TSA Global Asset Management Inc. 42,602 42.11%
FAO Prison Law Office
700 South Flower Street
Los Angeles, CA 90017
Analytic TSA Global Asset Management Inc. 15,392 15.21%
UAM Profit Sharing Plan
700 South Flower Street
Suite 2400
Los Angeles, CA 90017
R. Borzilleir 7,772 7.68%
VMEP
4 Landmark Square
Stamford, CT 06901
Tucker Anthony, Inc. 5,953 5.88%
VMEP NHC Pension
4 Landmark Square
Stamford, CT 06901
All Officers and Trustees of the Fund as a group owned less than 1% of the
Fund's outstanding shares as of July 31, 1997.
B-26
<PAGE>
Master Fixed Income Portfolio (Total Shares Outstanding 3,118,342)
Name and Address Number of Shares Percentage
Analytic/TSA Global Asset Management, Inc. 2,752,459 88.26%
FBO Trust Company of Knoxville
700 South Flower Street
Suite 2400
Los Angeles, CA 90017
All Officers and Trustees of the Fund as a group owned less than 1% of the
Fund's outstanding shares as of July 31, 1997.
Enhanced Equity Portfolio (Total Shares Outstanding 459,397)
Name and Address Number of Shares Percentage
Analytic TSA Global Asset Management, Inc. 123,628 26.91%
FAO Prison Law Office
700 South Flower Street
Suite 2400
Los Angeles, CA 90017
Analytic TSA Global Asset Management, Inc. 111,137 24.19%
FBO Mountain Grove Cemetery Association
700 South Flower Street
Suite 2400
Los Angeles, CA 90017
Analytic TSA Global Asset Management, Inc. 40,454 8.80%
UAM Profit Sharing Plan
700 South Flower Street
Suite 2400
Los Angeles, CA 90017
All Officers and Trustees of the Fund as a group 43,223 9.40%
B-27
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
The Investment Adviser
Analytic Investment Management, Inc. acquired and merged with TSA Capital
Management Corporation January 31, 1996, and became Analytic[bullet]TSA Global
Asset Management, Inc. Analytic[bullet]TSA Global Asset Management, Inc. (the
"Adviser") is the investment adviser of the Fund pursuant to an Investment
Advisory Agreement between the Fund and the Adviser, dated November 23, 1992
(the "Advisory Agreement"). The Advisory Agreement was approved by the Board of
Trustees, including the unanimous vote of the Fund's Trustees who are not
parties to the agreement or "interested persons" of the Fund on April 2, 1997 at
a meeting called for the purpose of voting on such approval.
The Adviser is a wholly owned subsidiary of United Asset Management Corporation
("UAMC"). UAMC was organized in 1980 by its President and principal stockholder,
Norton H. Reamer, for the purpose of acquiring firms engaged in the
institutional investment management business.
The officers and directors of the Advisor are:
Roger G. Clarke Chariman of the Board
Michael F. Koehn Member of the Board, President and Chief
Executive Officer
Gregory M. McMurran Chief Investment Officer
Robert Bannon Managing Director
Harindra de Silva Managing Director and Treasurer
Marie Nastasi Arlt Chief Operating Officer and Secretary
The Investment Management Agreement
Pursuant to an Investment Management Agreement with the Fund, the Adviser,
subject to the control and direction of the Fund's Officers and Board of
Trustees, manages the Portfolios of the Fund in accordance with each Portfolio's
stated investment objective and policies, and makes investment decisions for the
Fund. At its expense, the Adviser provides the office space and all necessary
office facilities, equipment, and personnel for providing these services to the
Fund.
As compensation for furnishing investment advisory, management and other
services, and expenses assumed, pursuant to the Investment Management Agreement,
the Short-Term Government, Master Fixed Income, and Enhanced Equity Portfolios
pay the Adviser an annual fee equal to 0.30%, 0.45% and 0.60% of average daily
net assets, respectively. For the year ended December 31, 1996 the Adviser
voluntarily agreed to reimburse expenses that exceeded 0.60%, 0.80%, and 1.00%
of average daily net assets for the Short-Term Government, Master Fixed Income,
and Enhanced Equity Portfolios, respectively. For the year ended December 31,
1995, the Adviser voluntarily agreed to reimburse expenses that exceeded 0.50%,
0.70%, and 0.80% of average daily net assets for the Short-Term Government,
Master Fixed Income, and Enhanced Equity Portfolios, respectively. After such
reimbursements, for the year ended December 31, 1996, the Short-Term Government
Portfolio paid $36,314, the Master Fixed Income Portfolio paid $70,152, and the
Enhanced Equity Portfolio paid $3,860 advisory fees. For the year ended December
31, 1995, the Master Fixed Income Portfolio paid $9,100, and the Short-Term
Government and Enhanced Equity Portfolios paid no advisory fees.
B-28
<PAGE>
Under the Management Agreement, any liability of the Adviser to the Fund and its
shareholders is limited to situations involving its own willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties and obligations
under the Advisory Agreement.
The Management Agreement may not be assigned by the Adviser and will terminate
automatically upon assignment. It may be terminated without penalty with respect
to any Portfolio upon 60-days' written notice by either party or by a vote of a
majority of the Portfolio's outstanding voting securities (as defined in the
1940 Act). The Management Agreement may be amended with respect to any Portfolio
by a vote of a majority of the Trustees of the Fund, including a majority of the
disinterested trustees, cast in person at a meeting called for that purpose,
subject to approval by the vote of a majority of the Portfolio's outstanding
voting securities.
Administrative Services
UAM Fund Services, Inc., a wholly-owned subsidiary of UAMC, has agreed to
perform and oversee all administrative, fund accounting, dividend disbursing and
transfer agent services to the Fund pursuant to a Fund Administration Agreement
with the Fund (the "Administration Agreement") dated on or about May 15, 1997.
UAM Fund Services has subcontracted some of these services to Chase Global Funds
Services Company, an affiliate of The Chase Manhattan Bank.
The Fund pays UAM Fund Services a two part monthly fee: a Fund specific fee, at
the annual rate of 0.04% of net assets which is retained by UAM Fund Services
and a sub-administration fee which UAM Fund Services in turn pays to Chase
Global Funds Services. Chase Global Funds Services' monthly fee for its services
is calculated on an annualized basis as follows:
0.19 of 1% of the first $200 million of total net assets of the Fund
0.11 of 1% on the next $800 million of total net assets
0.07 of 1% on total net assets over $1 billion up to $3 billion
0.05 of 1% on total net assets over $3 billion
The Fund is subject to a graduated minimum fee schedule which starts at $2,000
per month and increases to $70,000 annually after eighteen months. If a separate
class of shares is added, its minimum annual fee increases by $20,000.
The fees paid to Chase Global Funds Services are the responsibility of UAM Fund
Services, and not the Fund.
B-29
<PAGE>
Under the Fund Administration Agreement, any liability of UAM Fund Services to
the Fund and its shareholders is limited to situations involving its own willful
misfeasance, bad faith, gross negligence or reckless disregard of duties. In
addition, the Fund has agreed to indemnify UAM Fund Services against certain
matters, including all expenses arising out of actions of UAM Fund Services
pursuant to the Administration Agreement (other than those involving UAM Fund
Services' willful misfeasance, bad faith, gross negligence or reckless disregard
of duties).
UAM Fund Services may assign its obligations under the Fund Administration
Agreement to subcontractors approved by the Board of Trustees, but no such
assignment will relieve UAM Fund Services of its obligations to the Fund. The
Agreement may be terminated without penalty upon 60-days' written notice by
either party.
Distributor
UAM Fund Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary of
UAMC, distributes shares of the Fund. Under the Distribution Agreement (the
"Distribution Agreement"), the Distributor, as agent of the Fund, agrees to use
its best efforts as sole distributor of Fund shares. The Distributor does not
receive any fee or other compensation under the Agreement. The Agreement
continues in effect as long as it is approved at least annually by the Fund's
Board of Trustees. Those approving the Agreement must include a majority of
Trustees who are not interested persons of any party to the Agreement.
The term and termination provisions of the Distribution Agreement are similar to
those of the Fund's Investment Management Agreement. In addition, it contains
provisions limiting the liability of, and providing indemnification to, the
Distributor, that are similar to those of the Fund Administration Agreement,
except that nothing in the Agreement protects the Distributor from any
liabilities which it may have under the Securities Act of 1933 or the Investment
Company Act of 1940.
PORTFOLIO TRANSACTIONS
Provided that best execution is obtained, the Adviser may consider sales of the
Portfolios' shares and the provision of research services to the Adviser as
factors in the selection of broker-dealers to execute portfolio transactions,
and may enter into agreements whereby a portion of the commissions earned by a
broker-dealer on the transactions placed with a broker-dealer will be reimbursed
to the Portfolios by the payment of all or a portion of the Portfolios'
expenses, including custodian fees. Research services furnished by brokers
through which a Portfolio affects portfolio transactions may be used by the
Adviser servicing all of its accounts. Similarly, research services furnished by
brokers through which the Adviser's other accounts affect portfolio transactions
may be used in servicing a Portfolio. During the years ended December 31, 1996
and 1995, the aggregate commissions paid were $0 by the Short-Term Government
Portfolio, $27,017 and $8,587 by the Master Fixed Income Portfolio and $24,710
and $2,360 by the Enhanced Equity Portfolio. None of these amounts were directed
to brokers because of research services provided to the Adviser.
If a Portfolio effects a closing transaction with respect to an option purchased
or written by it, normally such transaction will be executed by the same
broker-dealer who executed the opening purchase or sale of the option, except
where the Portfolio utilizes a clearing agent. Likewise, if an option written or
purchased by a Portfolio is exercised, normally the sale or purchase of the
underlying securities will be executed by the same broker-dealer or clearing
agent who executed the opening purchase or sale of the option.
The Adviser currently manages separate accounts aggregating in excess of
$1,000,000,000 which employ investment strategies similar to those used by the
Portfolios. At times, investment decisions may be made to purchase or sell the
same investment security for a Portfolio and one or more of the other clients
advised by the Adviser. When two or more of such clients are simultaneously
engaged in the purchase or sale of the same security or option, the transactions
will be allocated as to amount and price in a manner considered equitable to
each and so that each receives, to the extent practicable, the average price or
premium for such transaction. There may be circumstances in which such
simultaneous transactions would be disadvantageous to a Portfolio with respect
to price and availability of securities. In other cases, however, it is believed
that transactions would be advantageous to a Portfolio.
Portfolio Valuation
B-30
<PAGE>
Each Portfolio's share price or net asset value per share is calculated by
dividing the total value of the Portfolio's assets, less total liabilities, by
the total outstanding shares of the Portfolio. Portfolio securities which are
traded on a national securities exchange are valued at the last sale price or if
there is no recent last sale, at the mean between the current bid and asked
prices. All other securities not so traded are valued at the mean between the
last current bid and asked prices if market quotations are available. Futures
contracts are valued daily at the official settlement price of the exchange on
which they are traded. Other securities and assets are valued at fair value in
accordance with methods determined in good faith by the Fund's Board of
Trustees.
TAXATION
Each Portfolio has elected to be treated and intends to qualify annually as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"), and will be treated as a corporate entity for such purposes. To
qualify as a regulated investment company, a Portfolio must, among other things,
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
(including gains from options, futures and forward contracts) derived with
respect to its business of investing in such stock, securities or currencies
("Qualifying Income Test"); (b) derive in each taxable year less than 30% of its
gross income from the sale or other disposition of certain assets held less than
three months, namely (1) stocks or securities, (2) options, futures, or forward
contracts (other than those on foreign currencies), and (3) foreign currencies
(or options, futures, and forward contracts on foreign currencies) not directly
related to its business of investing in stocks or securities; (c) diversify its
holdings so that, at the end of each quarter of the taxable year, (i) at least
50% of the market value of the Portfolio's assets is represented by cash, U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Portfolio's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities or the securities of other regulated investment companies (the
"Diversification Test")); and (d) distribute at least 90% of its investment
company taxable income (which includes dividends, interest and net short-term
capital gains in excess of any net long-term capital losses) each taxable year.
The Treasury Department is authorized to promulgate regulations under which
gains from foreign currencies (and options, futures, and forward contracts on
foreign currency) would constitute qualifying income for purposes of the
Qualifying Income Test only if such gains are directly relating to investing in
stocks or securities. To date, such regulations have not been issued.
B-31
<PAGE>
As a regulated investment company, a Portfolio will not be subject to U.S.
federal income tax on its investment company taxable income and net capital
gains (any net long-term capital gains in excess of the sum of net short-term
capital losses and any capital loss carryovers from prior years) designated by
the Fund as capital gain dividends, if any, that it distributes to shareholders.
The Short Term Government Portfolio and the Master Fixed Income Portfolio intend
to distribute to their shareholders substantially all of their investment
company taxable income monthly and any net capital gains annually. The Enhanced
Equity Portfolio intends to distribute to its shareholders substantially all of
its investment company taxable income quarterly and any net capital gains
annually. In addition, amounts not distributed by a Portfolio on a timely basis
in accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To avoid the tax, a Portfolio must distribute
during each calendar year an amount equal to the sum of (1) at least 98% of its
ordinary income and net capital gain (not taking into account any capital gains
or losses as an exception) for the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses (and adjusted for certain ordinary
losses) for the twelve month period ending on December 31 of the calendar year,
and (3) all ordinary income and capital gains for previous years that were not
distributed during such years. A distribution will be treated as paid on
December 31 of the calendar year if it is declared by a Portfolio in December of
that year to shareholders of record on a date in such a month and paid by a
Portfolio during January of the following year. Such distributions will be
taxable to shareholders (other than those not subject to federal income tax) in
the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received. To avoid application of
the excise tax, the Portfolios intend to make their distributions in accordance
with the calendar year distribution requirement.
Distributions
Dividends paid out of a Portfolio's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Distributions received by
tax-exempt shareholders will not be subject to federal income tax to the extent
permitted under the applicable tax exemption.
For corporate investors, dividends paid by the Short Term Government Portfolio
will generally not qualify for the dividends received deduction, a minimal
amount of dividends paid by the Master Fixed Income Portfolio will qualify for
the deduction, and some fraction of dividends by the Enhanced Equity Portfolio
will qualify for such deduction. Distributions of net capital gains, if any, are
taxable as long-term capital gains, regardless of how long the shareholder has
held a Portfolio's shares and are not eligible for the dividends received
deduction. The tax treatment of dividends and distributions will be the same
whether a shareholder reinvests them in additional shares or elects to receive
them in cash.
Hedging Transactions
Many of the options, futures contracts and forward contracts used by the
Portfolios are "Section 1256 contracts". Any gains or losses on Section 1256
contracts are generally considered 60% long-term and 40% short-term capital
gains or losses ("60/40") although certain foreign currency gains and losses
from such contracts may be treated as ordinary in character. Also, Section 1256
contracts held by a Portfolio at the end of each taxable year (and, for purposes
of the 4% excise tax, on certain other dates as prescribed under the Code) are
"marked to market" with the results that unrealized gains or losses are treated
as though they were realized and the resulting gain or loss is treated as
ordinary or 60/40 gain or loss, depending on the circumstances.
Generally, the hedging transactions and certain other transactions in options,
futures and forward contracts undertaken by the Portfolios, may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Portfolio. In addition, losses
realized by a Portfolio on position that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences of transactions in options, futures and
forward contracts to the Portfolios are not entirely clear. The transactions may
increase the amount of short-term capital gain realized by a Portfolio which is
taxed as ordinary income when distributed to shareholders.
B-32
<PAGE>
A Portfolio may make one or more of the elections available under the Code which
are applicable to straddles. If a Portfolio makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the elections made. The rules applicable under certain of the elections
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not engage in such hedging transactions.
The 30% limit on gains from the disposition of certain options, futures, and
forward contracts held less than three months and the qualifying income and
diversification requirements applicable to a Portfolio's assets may limit the
extent to which a Portfolio will be able to engage in transaction in options,
futures contracts or forward contracts.
Sales of Shares
Upon disposition of shares of the Fund (whether by redemption, sale or
exchange), a shareholder will realize a gain or loss. Such gain or loss will be
capital gain or loss if the shares are capital assets in the shareholder's
hands, and will be long-term or short-term generally depending upon the
shareholder's holding period for the shares. Any loss realized on a disposition
will be disallowed to the extent the shares disposed of are replaced within a
period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized by a shareholder on a
disposition of shares held by the shareholder for six months or less will be
treated as a long-term capital loss to the extent of any distributions of
capital gain dividends received by the shareholder with respect to such shares.
Backup Withholding
The Fund may be required to withhold for U.S. federal income taxes 31% of all
taxable distributions payable to shareholders who fail to provide the Fund with
their correct taxpayer identification number or to make required certifications,
or who have been notified by the Internal Revenue Service that they are subject
to backup withholding. Corporate shareholders and certain other shareholders
specified in the Code generally are exempt from such backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against the shareholder's U.S. federal tax liability.
Other Taxation
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time a Portfolio accrues interest or other receivables
or accrues expenses or other liabilities denominated in a foreign currency and
the time the Portfolio actually collects such receivables or pays such
liabilities generally are treated as ordinary income or loss. Similarly, on
disposition of debt securities denominated in a foreign currency and on
disposition of certain futures contracts, forward contracts and options, gains
or losses attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains and losses,
referred to under the Code as "Section 988" gains or losses, may increase or
decrease the amount of a Portfolio's investment company taxable income to be
distributed to its shareholders as ordinary income.
B-33
<PAGE>
Income received by a Portfolio from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. In addition, the Adviser intends to manage the Fund with the intention of
minimizing foreign taxation in cases where it is deemed prudent to do so. If
more than 50% of the value of a Portfolio's total assets at the close of its
taxable year consists of securities of foreign corporation, a Portfolio will be
eligible to elect to "pass-through" to the Portfolio's shareholders the amount
of foreign income and similar taxes paid by the Portfolio. If this election is
made, a shareholder generally subject to tax will be required to include in
gross income (in addition to taxable dividends actually received) his pro rata
share of the foreign income taxes paid by the Portfolio, and may be entitled
either to deduct (as an itemized deduction) his or her pro rate share of foreign
taxes in computing his taxable income or to use it (subject to limitations) as a
foreign tax credit against his or her U.S. federal income tax liability. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions. Each shareholder will be notified within 60 days after the close of
the Fund's taxable year whether the foreign taxes paid by the Portfolio will
"pass-through" for that year. The Fund does not currently expect to be eligible
for such "pass-through" election under current operating policies and
limitations on holdings of foreign securities.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the shareholder's U.S. tax attributable to his or her total foreign
source taxable income. For this purpose, if the pass-through election is made,
the source of the Fund's income will flow through to shareholders of the Fund.
With respect to such election, gains from the sale of securities will be treated
as derived from U.S. sources and certain currency fluctuation gains, including
fluctuation gains from foreign currency denominated debt securities, receivables
and payable will be treated as ordinary income derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign source
passive income, and to certain other types of income. Shareholders may be unable
to claim a credit for the full amount of their proportionate share of the
foreign taxes paid by the Fund. The foreign tax credit is modified for purposes
of the Federal alternate minimum tax and can be used to offset only 90% of the
alternative minimum tax imposed on corporations and individuals and foreign
taxes generally are not deductible in computing alternative minimum taxable
income.
Some of the debt securities (with a fixed maturity date of more than one year
from the date of issuance) that may be acquired by a Portfolio may be treated as
debt securities that are issued originally at a discount. Generally, the amount
of the original issue discount ("OID") is treated as interest income and is
included in income over the term of the debt security, even though payment of
that amount is not received until a later time, usually when the debt security
matures. A portion of the OID includible in income with respect to certain
high-yield corporate debt securities may be treated as a dividend for Federal
income tax purposes.
Some of the debt securities (with a fixed maturity date of more than one year
form the date of issuance) that may be acquired by a Portfolio in the secondary
market may be treated as having market discount. Generally, any gain recognized
on the disposition of, and any partial payment of principal on, a debt security
having market discount issued after July 18, 1984 is treated as ordinary income
to the extent the gain, or principal payment, does not exceed the "accrued
market discount" on such debt security. Market discount generally accrues in
equal daily installments. The Fund may make one or more of the elections
applicable to debt securities having market discount, which could affect the
character and timing of recognition of income.
Some of the debt securities (with a fixed maturity date of one year or less from
the date of issuance) that may be acquired by a Portfolio may be treated as
having an acquisition discount, or OID in the case of certain types of debt
securities. Generally, a Portfolio will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. A Portfolio may make one or more of the elections applicable
to debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to shareholders
representing discount on debt securities that is currently includible in income,
even though cash representing such income may not have been received by the
Fund. Cash to pay such dividends may be obtained from sales proceeds of
securities held by the Fund.
Distributions also may be subject to additional state, local and foreign taxes,
depending on each shareholder's particular situation. Under the laws of various
states, distributions of investment company taxable income generally are taxable
to shareholders even though all or a substantial portion of such distributions
may be derived from interest on certain Federal obligations which, if the
interest were received directly by a resident of such state, would be exempt
form such state's income tax ("qualifying Federal obligations"). However, some
states may exempt all or a portion of such distributions from income
B-34
<PAGE>
tax to the extent the shareholder is able to establish that the distribution is
derived from qualifying Federal obligations. Moreover, for state income tax
purposes, interest on some Federal obligations generally is not exempt from
taxation, whether received directly by a shareholder or through distributions of
investment company taxable income (for example, interest on FNMA Certificates
and GNMA Certificates). The Fund will provide information annually to
shareholders indicating the amount and percentage of the Fund's dividend
distribution which is attributable to interest on Federal obligations, and will
indicate to the extent possible from what types of Federal obligations such
dividends are derived. Shareholders are advised to consult their own tax
advisers with respect to the particular tax consequences to them of an
investment in the Fund.
YIELD, TOTAL RETURN, AND OTHER PERFORMANCE STATISTICS
Performance
As noted in each Prospectus, each Portfolio may from time to time quote various
standardized performance figures to illustrate the Portfolios' past performance.
They may occasionally cite statistics to reflect volatility or risk.
Performance quotations by investment companies are subject to rules adopted by
the Securities and Exchange Commission ("SEC"). These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Portfolios be
accompanied by certain standardized performance information computed as required
by the SEC. Current yield and average annual compounded total return quotations
used by the Portfolios are based on the new standardized methods of computing
performance mandated by the SEC. An explanation of those and other methods used
by the Portfolios to compute or express performance follows.
Total Return
The average annual total return is determined by finding the average annual
compounded rates of return over 1, 5, and 10-year periods (to the extent
applicable) that would equate an initial hypothetical $1,000 investment to its
ending redeemable value. The calculation assumes all income dividends and
capital gains are reinvested at net asset value. The quotation assumes the
account was completely redeemed at the end of each 1, 5, and 10-year period and
the deduction of all applicable charges and fees.
The average annual total return is calculated according to the Securities and
Exchange Commission formula:
P(1+T)^n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5, or 10-year periods at the end of the 1, 5,
or 10-year periods (or fractional portion thereof)
The Portfolios may quote total rates of return in addition to their average
annual total returns. Such quotations are computed in the same manner as each
Portfolio's average annual compounded rate, except that such quotations will be
based on each Fund's actual return for a specified period as opposed to its
average return over 1, 5, and 10-year periods (or fractional portion thereof).
B-35
<PAGE>
The total returns for each Portfolio for the various periods have been:
<TABLE>
<CAPTION>
Short Term Government Master Fixed Income
Portfolio Portfolio Enhanced Equity
Portfolio
<S> <C> <C> <C>
1 year
1/1/96 - 12/31/96 5.28% 5.69% 22.95%
From public inception
7/1/93 - 12/31/96 5.02% 6.88% 17.01%
</TABLE>
Yield
Current yield reflects the income per share earned by a Portfolio's portfolio
investments.
Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the share price on the last day of the
period and annualizing the result. Expenses accrued for the period include any
fees charged to all shareholders of a Portfolio during the base period. Yield is
calculated according to the formula:
Yield = 2[(a-b/cd+1)^6-1]
where
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive income distributions
d = the share price on the last day of the period
The 30-day yield for the Short-Term Government and Master Fixed Income
Portfolios at March 31, 1997 is 5.50% and 5.53%, respectively.
Current Distribution Rate
Yield which is calculated according to a formula prescribed by the SEC is not
indicative of the amounts which were or will be paid to a Portfolio's
shareholders. Amounts paid to shareholders are reflected in the quoted "current
distribution rate." The current distribution rate is computed by dividing the
total amount of dividends per share paid by a portfolio during the past twelve
months by a current maximum offering price. Under certain circumstances, such as
when there has been a change in the amount of dividend payout, or a fundamental
change in investment policies, it might be appropriate to annualize the
dividends paid over the period such policies were in effect, rather than using
the dividends during the past twelve months. The current distribution rate
differs from the current yield computation because it may include distributions
to shareholders from sources other than portfolio security dividends and
interest, such as short-term capital gains and is calculated over a different
period of time.
Volatility
Occasionally statistics may be used to specify a Portfolio's volatility or risk.
Measures of volatility or risk are generally used to compare a Portfolio's net
asset value or performance relative to a market index. One measure of volatility
is beta. Beta is the volatility of a Portfolio relative to the total market as
represented by the Standard & Poor's 500 Stock Index. A beta of more than 1.00
indicates volatility greater than the market, and a beta of less than 1.00
indicates volatility less than the market. Sometimes beta may be calculated
relative to a different market index. Another measure of volatility or risk is
standard deviation. Standard deviation is used to measure variability of net
asset value or total return around an average, over a specified period of time.
The premise is that greater volatility connotes greater risk undertaken in
achieving performance.
Other Performance Quotations
B-36
<PAGE>
One measure of performance that adjusts for risk is alpha. Alpha is a measure of
the difference between a Portfolio's performance and a market index portfolio
with the same beta.
Sales literature referring to the use of a Portfolio as a potential investment
for Individual Retirement Accounts (IRAs), Business Retirement Plans, and other
tax-advantaged retirement plans may quote a total return based upon compounding
of dividends on which is it presumed no federal income tax applies.
Regardless of the method used, past performance is not necessarily indicative of
future results, but is an indication of the return to shareholders only for the
limited historical period used.
Comparisons
To help investors better evaluate how an investment in the Portfolios might
satisfy their investment objective, advertisements and other materials regarding
the Portfolios may discuss various measures of a Portfolio's performance as
reported by various financial publications. Materials may also compare
performance (as calculated above) to performance as reported by other
investments, indices, and averages. The following publications, indices, and
averages, among others, may be used:
a) The Dow Jones Composite Average or its component averages - an unmanaged
index composed of 30 blue-chip industrial corporation stocks (Dow Jones
Industrial Average), 15 utilities company stocks (Dow Jones Utilities Average),
and 20 transportation company stocks. Comparisons of performance assume
reinvestment of dividends.
b) Standard and Poor's 500 Stock Index or its component indices - an unmanaged
index composed of 400 industrial stocks, 40 financial stocks, 40 utilities
stocks, and 20 transportation stocks. Comparisons of performance assume
reinvestment of dividends.
c) The New York Stock Exchange composite or component indices - unmanaged
indices of all industrial, utilities, transportation, and finance stocks listed
on the New York Stock Exchange.
d) Wilshire 5000 Equity Index - represents the return on the market value of all
common equity securities for which daily pricing is available. Comparisons of
performance assume reinvestment of dividends.
e) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis - measure total return and average current yield for the
mutual fund industry, and rank individual mutual fund performance over specified
time periods, assuming reinvestment of all distributions, exclusive of any
applicable sales charges.
f) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
g) Financial publications: The Wall Street Journal and Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money magazines - provide
performance statistics over specified time periods.
h) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services, in major expenditure groups.
i) Stocks, Bonds Bills, and Inflation, published by Ibbotson Associates -
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.
j) Savings and Loan Historical Interest Rates - as published in the U.S. Savings
& Loan League Fact Book.
k) Historical data supplied by the research departments of First Boston
Corporation, The J.P. Morgan companies, Salomon Brothers, Merrill Lynch, Lehman
Brothers, Smith Barney Shearson and Bloomberg L.P.
B-37
<PAGE>
l) Standard & Poor's 100 Stock Index - an unmanaged index based on the prices of
100 blue-chip stocks, including 92 industrials, one utility, two transportation
companies, and five financial institutions. The S & P 100 Stock Index is a
smaller more flexible index for options trading.
In assessing such comparisons of performance an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to a Portfolio, that the averages are generally unmanaged. In
addition there can be no assurance that a Portfolio will continue this
performance as compared to such other averages.
B-38
<PAGE>
ADDITIONAL INFORMATION
The Custodian
The Fund's Custodian is The Chase Manhattan Bank, 1211 Avenue of the Americas,
New York, NY 10036. Pursuant to the terms of the Custodian Agreement, the Fund
will forward to the Custodian the proceeds of each purchase of Portfolio shares.
The Custodian will hold such proceeds and make disbursements therefrom in
accordance with the terms of the Custodian Agreement. It will retain possession
of the securities purchased with such proceeds and maintain appropriate records
with respect to receipt and disbursements of money, receipt and release of
securities, and all other transactions of the Custodian with respect to the
securities and other assets of each Portfolio.
Transfer, Dividend Disbursing and Shareholder Servicing Agent
UAM Fund Services, Inc. is responsible for performing and overseeing all
administrative, fund accounting, dividend disbursing and transfer agent services
for the Fund. UAM Fund Services has also contracted certain of these services to
Chase Global Funds Services Company. Chase Global Funds Services will act as the
Fund's sub-dividend disbursing agent, sub-transfer agent and sub-shareholder
servicing agent (see "Investment Advisory and Other Services").
B-39
<PAGE>
Independent Auditors
Deloitte & Touche LLP, 1000 Wilshire Boulevard, Los Angeles, CA 90017, serves as
independent auditors to the Fund. The services provided by the firm include the
audit of the financial statements of the Fund and services related to other
filings made with the Securities and Exchange Commission.
Legal Counsel
The Fund's legal counsel is Paul, Hastings, Janofsky & Walker LLP, 555 South
Flower Street, Los Angeles, California 90071.
Financial Statements
The financial statements in the Fund's 1996 Annual Report to Shareholders are
incorporated in this Statement of Additional Information by reference. Such
financial statements have been audited by the Fund's independent auditors,
Deloitte & Touche LLP, whose report thereon also appears in such Annual Report
and is incorporated herein by reference. Such financial statements have been
incorporated hereby in reliance upon such reports given upon their authority as
experts in accounting and auditing. Copies of the Fund's 1996 Annual Report to
Shareholders may be obtained at no charge by telephoning the Fund at the number
on the front page of this Statement of Additional Information.
B-40
<PAGE>
APPENDIX - DESCRIPTION OF BOND RATINGS
Standard & Poor's Bond Ratings
A Standard & Poor's corporate rating is a current assessment of the credit
worthiness of an obligor with respect to a specific obligation. This assessment
may take into consideration obligors such as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by Standard & Poor's from other sources it considers reliable. Standard & Poor's
does not perform an audit in connection with any rating and may, on occasion,
rely on unaudited financial information. The ratings may be changed, suspended,
or withdrawn as a result of changes in, or unavailability of, such information,
or for other circumstances.
The ratings are based, in varying degrees, on the following considerations.
1. Likelihood of default -- capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA Bonds have the highest rating assigned by Standard & Poor's. Capacity to pay
interest and repay principal is extremely strong.
AA Bonds have a very strong capacity to pay interest and repay principal and
differs from the highest rated issues only in small degree.
A Bonds have a strong capacity to pay interest and repay principal although it
is somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher rated categories.
BBB Bonds are regarded as having an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for bonds in this category
than in higher rated categories.
BB, B, CCC, CC and C Bonds are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the least degree of
speculation and C the highest degree of speculation. While such debt will likely
have some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions. A C rating is
typically applied to debt subordinated to senior debt which is assigned an
actual or implied CCC rating. It may also be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are continued.
B-41
<PAGE>
Moody's Bond Ratings
Aaa Bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edged". Interest
payments are protected by a large or by an exceptionally stable margin and
principal as 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 are judged to be of high quality by all standards. Together with the
Aaa group they comprise what are generally 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 term
risks appear somewhat larger than in Aaa securities.
A Bonds 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 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.
Ba Bonds are judged to have speculative elements; their future cannot be
considered as well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes Bonds in
this class.
B Bonds generally lack characteristics of desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa Bonds are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.
Fitch Investors Service, Inc. Bond Ratings
The Fitch Bond Rating provides a guide to investors in determining the
investment risk associated with a particular security. The rating represents its
assessment of the issuer's ability the obligations of a specific debt issue.
Fitch bond ratings are not recommendations to buy, sell or hold securities since
they incorporate no information on market price or yield relative to other debt
instruments.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the record of the issuer and of
any guarantor, as well as the political and economic environment that might
affect the future financial strength and credit quality of the issuer.
Bonds which have the same rating are of similar but not necessarily identical
high grade investment quality since the limited number of rating categories
cannot fully reflect small differences in the degree of risk. Moreover, the
character of the risk factor varies from industry to industry and between
corporate, health care and municipal obligations.
In assessing credit risk, Fitch Investors Service relies on current information
furnished by the issuer and/or guarantor and other sources which it considers
reliable. Fitch does not perform an audit of the financial statements used in
assigning a rating.
B-42
<PAGE>
Ratings may be changed, withdrawn, or suspended at any time to reflect changes
in the financial condition of the issuer, the status of the issue relative to
other debt of the issuer, or any other circumstance that Fitch considers to have
a material effect on the credit of the obligor.
AAA rated bonds are considered to be investment grade and of the
highest credit quality. The obligor has an extraordinary
ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.
AA rated bonds are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and
repay principal, while very strong, is somewhat less than for
AAA rated securities or more subject to possible change over
the term of the issue.
A rated bonds are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and
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 rated bonds are considered to be investment grade and of
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 weaken this ability than bonds
with higher ratings.
BB rated bonds are considered speculative and of low investment
grade. The obligor's ability to pay interest and repay
principal is not strong and is considered likely to be
affected over time by adverse economic changes.
B rated bonds are considered highly speculative. Bonds in this
class are lightly protected as to the obligor's ability to
pay interest over the life of the issue and repay principal
when due.
CCC rated bonds may have certain identifiable characteristics
which, if not remedied, could lead to the possibility of
default in either principal or interest payments.
Duff & Phelps, Inc. Long-Term Ratings
These ratings represent a summary opinion of the issuer's long-term fundamental
quality. Rating determination is based on qualitative and quantitative factors
which may vary according to the basic economic and financial characteristics of
each industry and each issuer. Important considerations are vulnerability to
economic cycles as well as risks related to such factors as competition,
government action, regulation, technological obsolescence, demand shifts, cost
structure, and management depth and expertise. The projected viability of the
obligor at the trough of the cycle is a critical determination.
Each rating also takes into account the legal form of the security, (e.g., first
mortgage bonds, subordinated debt, preferred stock, etc.). The extent of rating
dispersion among the various classes of securities is determined by several
factors including relative weightings of the different security classes in the
capital structure, the overall credit strength of the issuer, and the nature of
covenant protection. Review of indenture restrictions is important to the
analysis of a company's operating and financial constraints.
B-43
<PAGE>
The Credit Rating Committee formally reviews all ratings once per quarter (more
frequently, if necessary).
Rating
Scale Definition
================================================================================
AAA Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
- --------------------------------------------------------------------------------
AA+ High credit quality. Protection factors are strong. Risk
AA modest, but may vary slightly from time to time because of
AA- economic conditions.
- --------------------------------------------------------------------------------
A+ Protection 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
BBB sufficient for prudent investment. Considerable variability in
BBB- risk during economic cycles.
- --------------------------------------------------------------------------------
BB+ Below investment grade but deemed likely to meet obligations
BB when due. Present or prospective financial factors fluctuate
BB- according to industry conditions or company fortunes. Overall
quality may move up or down frequently within this category.
- --------------------------------------------------------------------------------
B+ Below investment grade and possessing risk that obligations
B will not be met when due. Financial protection factors will
B- fluctuate widely according to economic cycles, industry
conditions and/or company fortunes. Potential exists for
frequent changes in the rating within this category or into a
higher or lower rating grade.
- --------------------------------------------------------------------------------
CCC Well below investment grade securities. Considerable
uncertainty exists as to timely payment of principal, interest
or preferred dividends. Protection factors are narrow and risk
can be substantial with unfavorable economic/industry
conditions, and/or with unfavorable company developments.
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<PAGE>
SHORT-TERM RATINGS
Standard & Poor's Commercial Paper Ratings
A Standard & Poor's 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. The categories are as follows:
A Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues within this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1 Designation indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics are designated A-1+.
A-2 Designation indicates that the capacity for timely payment is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
A-3 Designation indicates a satisfactory capacity for timely payment. Issues
with this designation, however, are somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
B Issues are regarded as having only an adequate capacity for timely payment.
They are, however, somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
C Issues have a doubtful capacity for payment.
Moody's Commercial Paper Ratings
Moody's rates commercial paper as either Prime, which contains three categories,
or Not Prime. The commercial paper ratings are as follows:
P-1 Issuers (or related supporting institutions) have a superior capacity for
repayment of short-term promissory obligations, normally evidenced by the
following characteristics: (i) leading market positions in well established
industries, (ii) high rates of return on funds employed, (iii) conservative
capitalization structures with moderate reliance on debt and ample asset
protection, (iv) broad margins in earnings coverage of fixed financial charges
and high internal cash generation, and (v) well established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers (or related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations, normally evidenced by many of
the characteristics of a P-1 rating, but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
P-3 Issuers (or related supporting institutions) have an acceptable capacity for
repayment of short-term promissory obligations. The effect of industry
characteristics and market composition may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and the requirement for relatively high financial leverage.
Adequate alternate liquidity is maintained.
Not Prime Issuers (or related supporting institutions) do not fall within any of
the Prime rating categories.
B-45
<PAGE>
Fitch Investors Service, Inc. Short-Term 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 investment notes. Although the
credit analysis is similar to Fitch's bond rating analysis, the short-term
rating places greater emphasis on the existence of liquidity necessary to meet
the issuer's obligations in a timely manner. Fitch's short-term ratings are as
follows:
Fitch-1+ (Exceptionally Strong Credit Quality) Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.
Fitch-1 (Very Strong Credit Quality) Issues assigned this rating
reflect an assurance of timely payment only slightly less
in degree than issues rated Fitch-1+.
Fitch-2 (Good Credit Quality) Issues carrying this rating have a
satisfactory degree of assurance for timely payment but
the margin of safety is not as great as the two higher
categories.
Fitch-3 (Fair Credit Quality) Issues carrying his rating have
characteristics suggesting that the degree of assurance
for timely payment is adequate, however, near-term adverse
change is likely to cause these securities to be rated
below investment grade.
Fitch-S (Weak Credit Quality) Issues carrying this rating have
characteristics suggesting a minimal degree of assurance
for timely payment and are vulnerable to near term adverse
changes in financial and economic conditions.
Duff & Phelps, Inc. Short-Term Ratings
Duff & Phelps' short-term ratings are consistent with the rating criteria
utilized by money market participants. The ratings apply to all obligations with
maturities of under one year, including commercial paper, the uninsured portion
of certificates of deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit and current maturities of long-term
debt. Asset-backed commercial paper is also rated according to this scale.
Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds, including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligors reliance on short-term funds on an ongoing basis.
A. Category 1: High Grade
Duff 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.
Duff 1 Very high certainty of timely payment. Liquidity
factors are excellent and supported by good
fundamental protection factors. Risk factors are
minor.
Duff 1- High certainty of timely payment. Liquidity
factors are strong and supported by good
fundamental protection factors. Risk factors are
very small.
B. Category 2: Good Grade
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<PAGE>
Duff 2 Good certainty of timely payment. Liquidity
factors and company fundamentals are sound.
Although ongoing funding needs may enlarge total
financing requirements, access to capital markets
is good. Risk factors are small.
C. Category 3: Satisfactory Grade
Duff 3 Satisfactory liquidity and other protection
factors qualify issue as investment grade. Risk
factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
D. Category 4: Non-investment Grade
Duff 4 Speculative investment characteristics. Liquidity
is not sufficient to insure against disruption in
debt service. Operating factors and market access
may be subject to a high degree of variation.
B-47
<PAGE>
PART C
OTHER INFORMATION
Item 24: FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(1) The following information is included in Part A - Prospectus:
Financial Highlights
(2) The following information is included in Part B - Statement
of Additional Information:
Registrant's Statements of Assets and Liabilities including
Schedules of Portfolio Investments, Statements of Changes in
Net Assets, Statements of Operations, related notes, and
Independent Auditors' Report are included as part of
Registrant's Annual Report to Shareholders for the period
ended December 31, 1996, and are incorporated by reference in
Part B.
(b) Exhibits
1.1 Certificate of Trust of Registrant -- filed as Exhibit 1.1
to the Form N-1A Registration Statement of registrant on
December 15, 1992 (the "Registration Statement") and
incorporated herein by reference,
1.2 Amendment to Certificate of Trust of Registrant - filed as
Exhibit 1.2 to Pre-Effective Amendment No. 1 to the Form
N-1A Registration Statement of the registrant on April 23,
1993 ("Pre-Effective Amendment No. 1") and incorporated
herein by reference.
1.3 Amended and Restated Declaration of Trust of Registrant -
filed as Exhibit 1.3 to Pre-Effective Amendment No. 1 and
incorporated herein by reference.
1.4 Amendment of Amended and Restated Declaration of Trust of
Registrant - filed as Exhibit 1.4 to Pre-Effective Amendment
No. 6 and incorporated herein by reference.
2 Bylaws of Registrant -- filed as Exhibit 2 to the
Registration Statement and incorporated herein by reference.
3 None
4 None
5 Investment Management Agreement between Registrant and
Analytic Investment Management, Inc. dated November 30, 1992
-- filed as Exhibit 5 to the Registration Statement and
incorporated herein by reference.
5.1 Amendment to Investment Management Agreement between
Registrant and Analytic Investment Management, Inc. dated
March 18, 1993 - filed as Exhibit 5.1 to Pre-Effective
Amendment No. 1 and incorporated herein by reference.
6 Distribution Agreement between Registrant and UAM Fund
Distributors, Inc. dated May 1, 1997.
7 None
8 Form of Custodian Agreement between Registrant and The Chase
Manhattan Bank.
9.1 Fund Administration Agreement between Registrant and UAM
Fund Services, Inc. dated May 16, 1997.
9.2 Mutual Funds Service Agreement between UAM Fund Services,
Inc. and Chase Global Funds Services Company dated May 16,
1997.
10 Opinion and Consent of Counsel - included as part of
Registrant's Form 24f-2 Notice filed February 27,1997 and
incorporated herein by reference.
11 Consent of Independent Auditors
C-1
<PAGE>
12 Not applicable.
13 Investment Representations of Initial Investor - filed as
Exhibit 13 to Pre-Effective Amendment No. 1 and incorporated
herein by reference.
14 Analytic Individual Retirement Account Disclosure Statement
and Application to Participate -- filed as Exhibit 14 to
Post-Effective Amendment No. 1 to the Form N-1A Registration
Statement of Registrant on February 15, 1994, and
incorporated herein by reference.
15 None.
16 Schedule of Computation of Performance and Yield Quotations
in Registration Statement -- filed as Exhibit 16 to Post
Effective Amendment No. 2 to the Form N-1A Registration
Statement of Registrant on April 29, 1994 and incorporated
herein by reference.
17 Financial data schedule.
18 None.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
By reason of its common Board of Directors and investment
adviser, Analytic Optioned Equity Fund, Inc., a California
corporation which is registered as a diversified, open-end
management investment company under the 1940 Act, may be deemed
to be under common control with the Registrant. In addition, at
July 18, 1997, Trust Company of Knoxville, a Tennessee trust
company, owned 74.90% of the Registrant's shares and may be
deemed to be controlling persons of the Registrant under the 1940
Act.
Item 26: NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
Number of Record
Holders As of
Portfolio Title of Class July 31,
1997
===========================================================================
<S> <C> <C>
Short-Term Government Shares of Beneficial Interest 54
Master Fixed Income Shares of Beneficial Interest 68
Enhanced Equity Shares of Beneficial Interest 122
</TABLE>
Item 27. INDEMNIFICATION
Section 5.2 of Registrant's Declaration of Trust provides for
indemnification of Registrant's trustees and officers against
liabilities incurred by them in connection with the defense or
disposition of any action or proceeding in which they may be
involved or with which they may be threatened, while in office or
thereafter, by reason of being or having been in such office,
except with respect to matters as to which it has been determined
that they acted with willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of their office ("Disabling Conduct").
Section 7 of Registrant's Investment Management Agreement limits
the liability of Registrant's Adviser in connection with
performing its obligations under the Agreements, except with
respect to matters involving its Disabling Conduct.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore,
C-2
<PAGE>
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such trustee,
officer, or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
During the two years ended December 31, 1996, Analytic[bullet]TSA
Global Asset Management, Inc. (the "Adviser") has engaged only in
the business of acting as investment adviser to fiduciaires and
other long-term investors. It also acts as adviser to Analytic
Optioned Equity Fund, Inc., an open-end, diversified registered
investment company. During such period, the other substantial
business, professions, vocations or employments of the directors
or officers of the Adviser have been as follows:
<TABLE>
<CAPTION>
Name Office Other Employment
<S> <C> <C>
Roger G. Clarke Chairman of the Board of President of Analytic[bullet]TSA Investors
Directors (wholly owned subsidiary of Adviser)
and Director of Investment Securities
of the Church of Jesus Christ of Latter
Day Saints, since January 1996.
Formerly, Managing Director, President,
Chief Executive Officer and Chief
Investment Officer of TSA Capital
Management
Michael F. Koehn Member of the Board of Director of Analytic Optioned Equity Fund;
Directors, President and Trustee of The Analytic Series Fund; Co-founder
Chief Executive Officer and President of Analysis Group, Inc.
Gregory M. McMurran Chief Investment Officer Treasurer of Analytic Optioned Equity
Fund and The Analytic Series Fund
Harindra de Silva Managing Director President of Analytic Optioned Equity
and Treasurer Fund and The Anaytic Series Fund.
President of AG Risk Management and
Principal of Analysis Group
Robert J. Bannon Managing Director Portfolio Manager of Analytic[bullet]TSA
Investors (wholly owned subsidiary of
Adviser) since March, 1996. Formerly,
Senior Vice President and Senior
Investment Strategist of TSA Capital
Management.
C-3
<PAGE>
Marie Nastasi Arlt Chief Operating Officer Senior Vice President of Analytic
and Secretary Optioned Equity Fund and The Analytic
Series Fund. Secretary, Treasurer,
Principal and Vice President of
Analytic[bullet]TSA Investors (wholly owned
subsidiary of Adviser). Formerly,
Executive Vice President, Managing
Director, Principal, Treasurer and
Secretary of TSA Capital Management.
</TABLE>
The business address of such persons is 700 South Flower Street, Suite 2400,
Los Angeles, CA 90017
C-4
<PAGE>
Item 29. PRINCIPAL UNDERWRITERS
(a) UAM Fund Distributors, Inc. (the "Distributor"), the firm
which acts as sole distributor of the Registrant's shares, also
acts as distributor for UAM Funds Trust, UAM Funds, Inc. and The
Analytic Optioned Equity Fund, Inc.
(b) The information required with respect to each Director and
officer of the Distributor is incorporated by reference to
Schedule A of Form BD filed by the Distributor pursuant to the
Securities and Exchange Act of 1934 (SEC File No. 8-41126).
(c) Not applicable
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder will be maintained at the offices of
the Registrant and its investment adviser(700 South Flower
Street, Suite 2400, Los Angeles, CA 90017), the Registrant's
sub-transfer agent, sub-dividend disbursing agent and
sub-shareholder servicing agent (Chase Global Funds Services
Company, 73 Tremont Street, Boston, MA 02108) and the
Registrant's Custodian bank (The Chase Manhattan Bank, 4 Chase
MetroTech Center, Brooklyn, NY 11245).
Item 31. MANAGEMENT SERVICES
Not applicable
Item 32. Undertakings
Registrant hereby undertakes that if it is requested by the
holders of at least 10% of its outstanding shares to call a
meeting of shareholders for the purpose of voting upon the
question of removal of a Trustee, it will do so and will assist
in communications with other shareholders as required by Section
16(c) of the Investment Company Act of 1940.
In addition, Registrant undertakes to furnish each person to whom
a prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
C-5
<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 Los Angeles, and State of California,
on the 20th day of August, 1997.
THE ANALYTIC SERIES FUND
(Registrant)
By /s/ Michael F. Koehn
----------------------------------
Michael F. Koehn, Chairman
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
/s/ Harindra de Silva
- -----------------------------------
Harindra de Silva President
August 20, 1997
/s/ Gregory M. McMurran
- -----------------------------------
Gregory M. McMurran Treasurer (Chief Financial
Officer) August 20, 1997
/s/ Michael F. Koehn
- -----------------------------------
Michael F. Koehn Chairman of the Board of
Trustees August 20, 1997
/s/ Michael D. Butler
- -----------------------------------
Michael D. Butler* Trustee
August 20, 1997
/s/ Robertson Whittemore
- -----------------------------------
Robertson Whittemore* Trustee
August 20, 1997
*By /s/ Marie Nastasi Arlt August 20, 1997
-----------------------
Marie Nastasi Arlt
Attorney-in-fact
C-6
<PAGE>
EXHIBIT INDEX
THE ANALYTIC SERIES FUND
EXHIBIT DESCRIPTION PAGE
6 Distribution Agreement C-8
8 Form of Custodian Agreement C-12
9.1 Fund Administration Agreement C-35
9.2 Mutual Funds Service Agreement C-54
11 Consent of Independent Auditors C-80
17 Financial Data Schedule
C-7
DISTRIBUTION AGREEMENT
BETWEEN
UAM FUND DISTRIBUTORS, INC.
AND
THE ANALYTIC SERIES FUND
THIS AGREEMENT entered into the 1st day of May, 1997, by and between
THE ANALYTIC SERIES FUND, a Delaware business trust (the "Fund"), and UAM FUND
DISTRIBUTORS, INC., a Massachusetts corporation (the "Distributor").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements of the
parties hereto, the parties intending to be bound, mutually covenant and agree
with each other as follows:
1. The Fund hereby appoints the Distributor as agent of the Fund to
effect the sale and public distribution of shares of the capital stock of the
Fund.
2. The Fund shall not compensate the Distributor for services it
renders on behalf of the Fund.
3. The Distributor shall be the agent for the Fund for the sale of
its shares either through dealers or otherwise and the Fund agrees that it will
not sell any shares to any person except to fill orders for the shares received
through the Distributor; provided, however, that the foregoing shall not apply:
(a) to shares issued or sold in connection with the merger or consolidation of
any other investment company with the Fund or the acquisition by purchase or
otherwise of all or substantially all of the assets of any investment company or
substantially all of the outstanding shares of any such company by the Fund; (b)
to shares which may be offered by the Fund to its stockholders for reinvestment
of cash distributed from capital gains or net investment income of the Fund; (c)
to shares which may be issued to shareholders of a series of the Fund who
exercise any exchange privilege set forth in a Prospectus of the Fund; (d) to
shares issued to existing stockholders as the result of a stock split; (e) to
shares which the Fund otherwise may issue directly to registered stockholders
pursuant to authority of its Board of Trustees; or (f) shares sold in any
jurisdiction in which the Distributor is not registered as a broker-dealer.
4. The Fund hereby authorizes the Distributor to sell its shares in
accordance with the following schedule of prices:
The applicable price will be the respective public offering price
applicable to each portfolio of the Fund next effective after receipt and
acceptance by the Fund of a proper offer to purchase, determined in
accordance with the Declaration of Trust, By-Laws, Registration Statement
and Prospectus for the portfolios of the Fund.
5. Orders for the purchase of shares placed by the Distributor shall
be subject to the provisions of paragraphs (f) and (g) of Section 26 of the
Rules of Fair Practice of the NASD, the provisions of which are hereby
incorporated by reference.
C-8
<PAGE>
6. The Fund agrees to prepare and file registration statements with
the Securities and Exchange Commission and the Securities Departments of various
states and other jurisdictions in which the shares may be offered, at its own
expense, and do such other things and to take such other actions as may be
mutually agreed upon by and between the parties as shall be reasonably necessary
in order to effect the registration and the sale of the Fund's shares. The
Distributor shall cooperate with the Fund in the preparation and filing of
applications for registration and qualification of the shares under applicable
law.
7. With respect to the apportionment of costs between the Fund and
the Distributor of activities with which both are concerned, the following will
apply:
(a) At its own expense, the Fund shall pay all costs incurred
in the preparation and mailing of the Fund's current Prospectuses, Statements of
Additional Information and reports to stockholders.
(b) The Distributor will pay the costs incurred in printing
and mailing copies of Prospectuses to prospective investors.
(c) The Distributor will pay advertising and promotional
expenses, including the costs of literature sent to prospective investors.
(d) The Distributor will pay the costs of any additional
copies of Fund financial and other reports and other Fund literature supplied to
the Distributor by the Fund for sales promotion purposes.
8. Normally, the Fund shall not exercise any direction or control
over the time and place of solicitation, the persons to be solicited, or the
manner of solicitation; but the Distributor agrees that solicitations shall be
in a form acceptable to the Fund and shall be subject to such terms and
conditions as may be prescribed from time to time by the Fund, the Registration
Statement, the Prospectuses, the Declaration of Trust, and By-Laws of the Fund,
and shall not violate any provision of the laws of the United States or any
other jurisdiction to which solicitations are subject, or violate any rule or
regulation promulgated by any lawfully constituted authority to which the Fund
or Distributor may be subject.
9. (a) The Fund appoints and designates the Distributor as agent
of the Fund and the Distributor accepts such appointment as such agent, to
repurchase shares of the Fund in accordance with the provisions of the Articles
of Incorporation and By-Laws of the Fund.
(b) In connection with such redemptions or repurchases the
Fund authorizes and designates the Distributor to take any action, to make any
adjustments in net asset value, and to make any arrangements for the payment of
the redemption or repurchase price authorized or permitted to be taken or made
in accordance with the Investment Company Act of 1940 and as set forth in the
By-Laws and then current Prospectuses of the Fund.
(c) The authority of the Distributor under this paragraph 9
may, with the consent of the Fund, be redelegated in whole or in part to another
person or firm.
(d) The authority granted in this paragraph 9 may be suspended
by
C-9
<PAGE>
the Fund at any time or from time to time pursuant to the provisions of its
Declaration of Trust until further notice to the Distributor. The President or
any Vice President of the Fund shall have the power granted by said provisions.
After any such suspension the authority granted to the Distributor by this
paragraph 9 shall be reinstated only by a written instrument executed by the
Fund's President or any Vice President.
10. The Distributor shall keep and maintain adequate records in
respect of its activities which further the sale of shares.
11. The Distributor agrees that it will not place orders for more
shares than are required to fill the requests received by it as agent of the
Fund and that it will expeditiously transmit all such orders to the Fund.
12. (a) This Agreement shall become effective as of the date
hereof and shall continue in effect for a period of more than one year from its
effective date only as long as such continuance is approved, at least annually,
by a vote of the Board of Trustees of the Fund, and of the Trustees who are not
"interested persons" of the Fund, cast in person at a meeting called for the
purpose of voting on such Agreement.
(b) This Agreement may be terminated at any time, without the
payment of any penalty, by vote of a majority of the members of the Board of
Trustees of the Fund who are not interested persons of the Fund or by vote of a
majority of the outstanding voting securities of the Fund on not more than sixty
days' written notice to the Distributor. This Agreement shall automatically
terminate in the event of its assignment by the Distributor unless the United
States Securities and Exchange Commission has issued an order exempting the Fund
and the Distributor from the provisions of the Investment Company Act of 1940,
as amended, which would otherwise have effected the termination of this
Agreement.
13. No amendment to this Agreement shall be executed or become
effective unless its terms have been approved in the manner described in
paragraph 12(a) above for approval of this Agreement.
14. The Fund and the Distributor hereby each agree that all
literature and publicity issued by either of them referring directly or
indirectly to the Fund or to the Distributor shall be submitted to and receive
the approval of the Fund and the Distributor before the same may be used by
either party.
15. The Distributor agrees to use its best efforts in effecting the
sale and public distribution of the shares of the Fund and to perform its duties
in redeeming the shares of the Fund, but nothing contained in this Agreement
shall make the Distributor or any of its officers and trustees or shareholders
liable for any loss sustained by the Fund or the Fund's officers, trustees or
shareholders, or by any other person on account of any act done or omitted to be
done by the Distributor under this Agreement; provided, that nothing herein
contained shall protect the Distributor against any liability to the Fund or to
any of its shareholders to which the Distributor would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the performance
of its duties as Distributor or by reason of its reckless disregard of its
obligations or duties as Distributor under this Agreement. Nothing in this
Agreement shall protect the Distributor from any liabilities which it may have
under the Securities Act of 1933 or the Investment Company Act of 1940.
C-10
<PAGE>
16. As used in this Agreement the terms "interested persons,"
"assignment," and "majority of the outstanding voting securities" shall have the
respective meanings specified in the Investment Company Act of 1940 as now in
effect.
17. This Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts, except to the extent such laws are preempted
by the Investment Company Act of 1940.
18. Any notice required to be given hereunder shall be sent via
first class mail to the address of the party as set forth above.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers on the day and year above written.
Attest: THE ANALYTIC SERIES FUND
/s/ Deborah Sheflin /s/ Harindra de Silva
- ----------------------- ----------------------------
Name:
Title:
Attest: UAM FUND DISTRIBUTORS, INC.
/s/ Michael De Fao /s/ Gary French
- ----------------------- ----------------------------
Gary French, President
C-11
EXHIBIT 8
FORM OF
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective August __, 1997, and is between THE CHASE
MANHATTAN BANK (the "Bank") and THE ANALYTIC SERIES FUND (the "Customer").
1. Customer Accounts.
The Bank agrees to establish and maintain the following accounts
("Accounts"):
(a) A custody account in the name of the Customer ("Custody Account") for
any and all stocks, shares, bonds, debentures, notes, mortgages or other
obligations for the payment of money, bullion, coin and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same or evidencing or representing any other rights or
interests therein and other similar property whether certificated or
uncertificated as may be received by the Bank or its Subcustodian (as defined in
Section 3) for the account of the Customer ("Securities"); and
(b) A deposit account in the name of the Customer ("Deposit Account") for
any and all cash in any currency received by the Bank or its Subcustodian for
the account of the Customer, which cash shall not be subject to withdrawal by
draft or check.
The Customer warrants its authority to: 1) deposit the cash and Securities
("Assets") received in the Accounts and 2) give Instructions (as defined in
Section 11) concerning the Accounts. The Bank may deliver securities of the same
class in place of those deposited in the Custody Account.
Upon written agreement between the Bank and the Customer, additional
Accounts may be established and separately accounted for as additional Accounts
under the terms of this Agreement.
2. Maintenance of Securities and Cash at Bank and Subcustodian Locations.
Unless Instructions specifically require another location acceptable to
the Bank:
(a) Securities will be held in the country or other jurisdiction in which
the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and
(b) Cash will be credited to an account in a country or other jurisdiction
in which such cash may be legally deposited or is the legal currency for the
payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
If available and not contrary to instructions, cash will be held in an interest
bearing account. To the extent Instructions are issued and the Bank can comply
with such Instructions, the Bank is authorized to maintain cash balances on
deposit for the Customer with itself or one of its affiliates at such
C-12
<PAGE>
reasonable rates of interest as may from time to time be paid on such accounts,
or in non-interest bearing accounts as the Customer may direct, if acceptable to
the Bank.
If the Customer wishes to have any of its Assets held in the custody of an
institution other than the established Subcustodians as defined in Section 3 (or
their securities depositories), such arrangement must be authorized by a written
agreement, signed by the Bank and the Customer.
3. Subcustodians and Securities Depositories.
The Bank may act under this Agreement through the subcustodians listed in
Schedule A of this Agreement with which the Bank has entered into subcustodial
agreements ("Subcustodians"). The Customer authorizes the Bank to hold Assets in
the Accounts in accounts which the Bank has established with one or more of its
branches or Subcustodians. The Bank and Subcustodians are authorized to hold any
of the Securities in their account with any securities depository in which they
participate.
The Bank reserves the right to add new, replace or remove Subcustodians.
The Customer will be given reasonable notice by the Bank of any amendment to
Schedule A. Upon request by the Customer, the Bank will identify the name,
address and principal place of business of any Subcustodian of the Customer's
Assets and the name and address of the governmental agency or other regulatory
authority that supervises or regulates such Subcustodian.
4. Use of Subcustodian.
(a) The Bank will identify the Assets on its books as belonging to the
Customer.
(b) A Subcustodian will hold such Assets together with assets belonging to
other customers of the Bank in accounts identified on such Subcustodian's books
as special custody accounts for the exclusive benefit of customers of the Bank.
(c) Any Assets in the Accounts held by a Subcustodian will be subject only
to the instructions of the Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian will be subject only to
the instructions of such Subcustodian.
(d) Any agreement the Bank enters into with a Subcustodian for holding its
customer's assets shall provide that such assets will not be subject to any
right, charge, security interest, lien or claim of any kind in favor of such
Subcustodian except for safe custody or administration, and that the beneficial
ownership of such assets will be freely transferable without the payment of
money or value other than for safe custody or administration. The foregoing
shall not apply to the extent of any special agreement or arrangement made by
the Customer with any particular Subcustodian.
5. Deposit Account Transactions.
(a) The Bank or its Subcustodians will make payments from the Deposit
Account upon receipt of Instructions which include all information required by
the Bank.
(b) In the event that any payment to be made under this Section 5 exceeds
the funds available in the Deposit Account, the Bank, in its discretion, may
advance the Customer such excess amount which shall be deemed a loan payable on
demand, bearing interest at the rate customarily charged by the Bank on similar
loans.
C-13
<PAGE>
(c) If the Bank credits the Deposit Account on a payable date, or at any
time prior to actual collection and reconciliation to the Deposit Account, with
interest, dividends, redemptions or any other amount due, the Customer will
promptly return any such amount upon oral or written notification: (i) that such
amount has not been received in the ordinary course of business or (ii) that
such amount was incorrectly credited. If the Customer does not promptly return
any amount upon such notification, the Bank shall be entitled, upon oral or
written notification to the Customer, to reverse such credit by debiting the
Deposit Account for the amount previously credited. The Bank or its Subcustodian
shall have no duty or obligation to institute legal proceedings, file a claim or
a proof of claim in any insolvency proceeding or take any other action with
respect to the collection of such amount, but may act for the Customer upon
Instructions after consultation with the Customer.
6. Custody Account Transactions.
(a) Securities will be transferred, exchanged or delivered by the Bank or
its Subcustodian upon receipt by the Bank of Instructions which include all
information required by the Bank. Settlement and payment for Securities received
for, and delivery of Securities out of, the Custody Account may be made in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the expectation of
receiving later payment and free delivery. Delivery of Securities out of the
Custody Account may also be made in any manner specifically required by
Instructions acceptable to the Bank.
(b) The Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Securities with respect to any sale,
exchange or purchase of Securities. Otherwise, such transactions will be
credited or debited to the Accounts on the date cash or Securities are actually
received by the Bank and reconciled to the Account.
(i) The Bank may reverse credits or debits made to the Accounts in its
discretion if the related transaction fails to settle within a reasonable
period, determined by the Bank in its discretion, after the contractual
settlement date for the related transaction.
(ii) If any Securities delivered pursuant to this Section 6 are returned
by the recipient thereof, the Bank may reverse the credits and debits of
the particular transaction at any time.
7. Actions of the Bank.
The Bank shall follow Instructions received regarding assets held in the
Accounts. However, until it receives Instructions to the contrary, the Bank
will:
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items which
call for payment upon presentation, to the extent that the Bank or Subcustodian
is actually aware of such opportunities.
(b) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of Securities.
(c) Exchange interim receipts or temporary Securities for definitive
Securities.
(d) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the Bank or any
Subcustodian.
C-14
<PAGE>
(e) Issue statements to the Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
The Bank will send the Customer an advice or notification of any transfers
of Assets to or from the Accounts. Such statements, advices or notifications
shall indicate the identity of the entity having custody of the Assets. Unless
the Customer sends the Bank a written exception or objection to any Bank
statement within sixty (60) days of receipt, the Customer shall be deemed to
have approved such statement. In such event, or where the Customer has otherwise
approved any such statement, the Bank shall, to the extent permitted by law, be
released, relieved and discharged with respect to all matters set forth in such
statement or reasonably implied therefrom as though it had been settled by the
decree of a court of competent jurisdiction in an action where the Customer and
all persons having or claiming an interest in the Customer or the Customer's
Accounts were parties.
All collections of funds or other property paid or distributed in respect
of Securities in the Custody Account shall be made at the risk of the Customer.
The Bank shall have no liability for any loss occasioned by delay in the actual
receipt of notice by the Bank or by its Subcustodians of any payment, redemption
or other transaction regarding Securities in the Custody Account in respect of
which the Bank has agreed to take any action under this Agreement.
8. Corporate Actions; Proxies; Tax Reclaims.
(a) Corporate Actions. Whenever the Bank receives information concerning
the Securities which requires discretionary action by the beneficial owner of
the Securities (other than a proxy), such as subscription rights, bonus issues,
stock repurchase plans and rights offerings, or legal notices or other material
intended to be transmitted to securities holders ("Corporate Actions"), the Bank
will give the Customer notice of such Corporate Actions to the extent that the
Bank's central corporate actions department has actual knowledge of a Corporate
Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a rights
issue, stock dividend, stock split or similar Corporate Action is received which
bears an expiration date, the Bank will endeavor to obtain Instructions from the
Customer or its Authorized Person, but if Instructions are not received in time
for the Bank to take timely action, or actual notice of such Corporate Action
was received too late to seek Instructions, the Bank is authorized to sell such
rights entitlement or fractional interest and to credit the Deposit Account with
the proceeds or take any other action it deems, in good faith, to be appropriate
in which case it shall be held harmless for any such action.
(b) Proxy Voting. The Bank shall provide proxy voting services, if elected
by the Customer, in accordance with the terms of the proxy voting services rider
hereto. Proxy voting services may be provided by the Bank or, in whole or in
part, by one or more third parties appointed by the Bank (which may be
affiliates of the Bank).
(c) Tax Reclaims.
(i) Subject to the provisions hereof, the Bank will apply for a reduction
of withholding tax and any refund of any tax paid or tax credits which
apply in each applicable market in respect of income payments on
Securities for the benefit of the Customer which the Bank believes may be
available to such Customer.
(ii) The provision of tax reclaim services by the Bank is conditional upon
the Bank receiving from the beneficial owner of Securities (A) a
declaration of its identity and place of residence and (B) certain other
documentation (pro forma copies of which are available from
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<PAGE>
the Bank). The Customer acknowledges that, if the Bank does not receive
such declarations, documentation and information, additional United
Kingdom taxation will be deducted from all income received in respect of
Securities issued outside the United Kingdom and that U.S. non-resident
alien tax or U.S. backup withholding tax will be deducted from U.S. source
income. The Customer shall provide to the Bank such documentation and
information as it may require in connection with taxation, and warrants
that, when given, this information shall be true and correct in every
respect, not misleading in any way, and contain all material information.
The Customer undertakes to notify the Bank immediately if any such
information requires updating or amendment.
(iii) The Bank shall not be liable to the Customer or any third party for
any tax, fines or penalties payable by the Bank or the Customer, and shall
be indemnified accordingly, whether these result from the inaccurate
completion of documents by the Customer or any third party, or as a result
of the provision to the Bank or any third party of inaccurate or
misleading information or the withholding of material information by the
Customer or any other third party, or as a result of any delay of any
revenue authority or any other matter beyond the control of the Bank.
(iv) The Customer confirms that the Bank is authorized to deduct from any
cash received or credited to the Deposit Account any taxes or levies
required by any revenue or governmental authority for whatever reason in
respect of the Securities or Cash Accounts.
(v) The Bank shall perform tax reclaim services only with respect to
taxation levied by the revenue authorities of the countries notified to
the Customer from time to time and the Bank may, by notification in
writing, at its absolute discretion, supplement or amend the markets in
which the tax reclaim services are offered. Other than as expressly
provided in this sub-clause, the Bank shall have no responsibility with
regard to the Customer's tax position or status in any jurisdiction.
(vi) The Customer confirms that the Bank is authorized to disclose any
information requested by any revenue authority or any governmental body in
relation to the Customer or the Securities and/or Cash held for the
Customer.
(vii) Tax reclaim services may be provided by the Bank or, in whole or in
part, by one or more third parties appointed by the Bank (which may be
affiliates of the Bank); provided that the Bank shall be liable for the
performance of any such third party to the same extent as the Bank would
have been if it performed such services itself.
9. Nominees.
Securities which are ordinarily held in registered form may be registered
in a nominee name of the Bank, Subcustodian or securities depository, as the
case may be. The Bank may without notice to the Customer cause any such
Securities to cease to be registered in the name of any such nominee and to be
registered in the name of the Customer. In the event that any Securities
registered in a nominee name are called for partial redemption by the issuer,
the Bank may allot the called portion to the respective beneficial holders of
such class of security in any manner the Bank deems to be fair and equitable.
The Customer agrees to hold the Bank, Subcustodians, and their respective
nominees harmless from any liability arising directly or indirectly from their
status as a mere record holder of Securities in the Custody Account.
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<PAGE>
10. Authorized Persons.
As used in this Agreement, the term "Authorized Person" means employees or
agents including investment managers as have been designated by written notice
from the Customer or its designated agent to act on behalf of the Customer under
this Agreement. Such persons shall continue to be Authorized Persons until such
time as the Bank receives Instructions from the Customer or its designated agent
that any such employee or agent is no longer an Authorized Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, facsimile transmission, bank
wire or other teleprocess or electronic instruction or trade information system
acceptable to the Bank which the Bank believes in good faith to have been given
by Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Bank may specify.
Unless otherwise expressly provided, all Instructions shall continue in full
force and effect until canceled or superseded.
Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but the Customer will hold the
Bank harmless for the failure of an Authorized Person to send such confirmation
in writing, the failure of such confirmation to conform to the telephone
instructions received or the Bank's failure to produce such confirmation at any
subsequent time. The Bank may electronically record any Instructions given by
telephone, and any other telephone discussions with respect to the Custody
Account. The Customer shall be responsible for safeguarding any testkeys,
identification codes or other security devices which the Bank shall make
available to the Customer or its Authorized Persons.
12. Standard of Care; Liabilities.
(a) The Bank shall be responsible for the performance of only such duties
as are set forth in this Agreement or expressly contained in Instructions which
are consistent with the provisions of this Agreement as follows:
(i) The Bank will use reasonable care with respect to its obligations
under this Agreement and the safekeeping of Assets. The Bank shall be
liable to the Customer for any loss which shall occur as the result of the
failure of a Subcustodian to exercise reasonable care with respect to the
safekeeping of such Assets to the same extent that the Bank would be
liable to the Customer if the Bank were holding such Assets in New York.
In the event of any loss to the Customer by reason of the failure of the
Bank or its Subcustodian to utilize reasonable care, the Bank shall be
liable to the Customer only to the extent of the Customer's direct
damages, to be determined based on the market value of the property which
is the subject of the loss at the date of discovery of such loss and
without reference to any special conditions or circumstances.
(ii) The Bank will not be responsible for any act, omission, default or
the solvency of any broker or agent which it or a Subcustodian appoints
unless such appointment was made negligently or in bad faith.
(iii) The Bank shall be indemnified by, and without liability to the
Customer for any action taken or omitted by the Bank whether pursuant to
Instructions or otherwise within the scope of this Agreement if such act
or omission was in good faith, without negligence. In performing its
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<PAGE>
obligations under this Agreement, the Bank may rely on the genuineness of
any document which it believes in good faith to have been validly
executed.
(iv) The Customer agrees to pay for and hold the Bank harmless from any
liability or loss resulting from the imposition or assessment of any taxes
or other governmental charges, and any related expenses with respect to
income from or Assets in the Accounts.
(v) The Bank shall be entitled to rely, and may act, upon the advice of
counsel (who may be counsel for the Customer) on all matters and shall be
without liability for any action reasonably taken or omitted pursuant to
such advice.
(vi) The Bank need not maintain any insurance solely for the
benefit of the Customer.
(vii) Without limiting the foregoing, the Bank shall not be liable for any
loss which results from: 1) the general risk of investing, or 2) investing
or holding Assets in a particular country including, but not limited to,
losses resulting from nationalization, expropriation or other governmental
actions; regulation of the banking or securities industry; currency
restrictions, devaluations or fluctuations; and market conditions which
prevent the orderly execution of securities transactions or affect the
value of Assets.
(viii) Neither party shall be liable to the other for any loss due to
forces beyond their control including, but not limited to strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear
fusion, fission or radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that the Bank shall have no duty or
responsibility to:
(i) question Instructions or make any suggestions to the Customer or an
Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to investments or the
retention of Securities;
(iii) advise the Customer or an Authorized Person regarding any default in
the payment of principal or income of any security other than as provided
in Section 5(c) of this Agreement;
(iv) evaluate or report to the Customer or an Authorized Person regarding
the financial condition of any broker, agent or other party to which
Securities are delivered or payments are made pursuant to this Agreement;
(v) review or reconcile trade confirmations received from brokers. The
Customer or its Authorized Persons (as defined in Section 10) issuing
Instructions shall bear any responsibility to review such confirmations
against Instructions issued to and statements issued by the Bank.
(c) The Customer authorizes the Bank to act under this Agreement
notwithstanding that the Bank or any of its divisions or affiliates may have a
material interest in a transaction, or circumstances are such that the Bank may
have a potential conflict of duty or interest including the fact that the Bank
or any of its affiliates may provide brokerage services to other customers, act
as financial advisor to the issuer of Securities, act as a lender to the issuer
of Securities, act in the same transaction as agent for more than one customer,
have a material interest in the issue of Securities, or earn profits from any of
the activities listed herein.
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<PAGE>
13. Fees and Expenses.
The Customer agrees to pay the Bank for its services under this Agreement
such amount as may be agreed upon in writing, as set forth in the attached Fee
Schedule together with the Bank's reasonable out-of-pocket or incidental
expenses, including, but not limited to, legal fees. The Bank shall have a lien
on and is authorized to charge any Accounts of the Customer for any amount owing
to the Bank under any provision of this Agreement.
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the administration of the
Customer's trading and investment activity, the Bank is authorized to enter into
spot or forward foreign exchange contracts with the Customer or an Authorized
Person for the Customer and may also provide foreign exchange through its
subsidiaries, affiliates or Subcustodians. Instructions, including standing
instructions, may be issued with respect to such contracts but the Bank may
establish rules or limitations concerning any foreign exchange facility made
available. In all cases where the Bank, its subsidiaries, affiliates or
Subcustodians enter into a foreign exchange contract related to Accounts, the
terms and conditions of the then current foreign exchange contract of the Bank,
its subsidiary, affiliate or Subcustodian and, to the extent not inconsistent,
this Agreement shall apply to such transaction.
(b) Certification of Residency, etc. The Customer certifies that it is a
resident of the United States and agrees to notify the Bank of any changes in
residency. The Bank may rely upon this certification or the certification of
such other facts as may be required to administer the Bank's obligations under
this Agreement. The Customer will indemnify the Bank against all losses,
liability, claims or demands arising directly or indirectly from any such
certifications.
(c) Access to Records. The Bank shall allow the Customer's independent
public accountant reasonable access to the records of the Bank relating to the
Assets as is required in connection with their examination of books and records
pertaining to the Customer's affairs. Subject to restrictions under applicable
law, the Bank shall also obtain an undertaking to permit the Customer's
independent public accountants reasonable access to the records of any
Subcustodian which has physical possession of any Assets as may be required in
connection with the examination of the Customer's books and records.
(d) Governing Law; Successors and Assigns. This Agreement shall be
governed by the laws of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Bank.
(e) Entire Agreement; Applicable Riders. Customer represents that
the Assets deposited in the Accounts are (Check one):
|_| Employee Benefit Plan or other assets subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA");
|X| Mutual Fund assets subject to certain Securities and Exchange
Commission ("SEC") rules and regulations;
|_| Neither of the above.
This Agreement consists exclusively of this document together with
Schedule A and the following Rider(s) [Check applicable rider(s)]:
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<PAGE>
|X| ERISA
|X| MUTUAL FUND
|X| PROXY VOTING
|X| SPECIAL TERMS AND CONDITIONS
There are no other provisions of this Agreement and this Agreement
supersedes any other agreements, whether written or oral, between the parties.
Any amendment to this Agreement must be in writing, executed by both parties.
(f) Severability. In the event that one or more provisions of this
Agreement are held invalid, illegal or unenforceable in any respect on the basis
of any particular circumstances or in any jurisdiction, the validity, legality
and enforceability of such provision or provisions under other circumstances or
in other jurisdictions and of the remaining provisions will not in any way be
affected or impaired.
(g) Waiver. Except as otherwise provided in this Agreement, no failure or
delay on the part of either party in exercising any power or right under this
Agreement operates as a waiver, nor does any single or partial exercise of any
power or right preclude any other or further exercise, or the exercise of any
other power or right. No waiver by a party of any provision of this Agreement,
or waiver of any breach or default, is effective unless in writing and signed by
the party against whom the waiver is to be enforced.
(h) Notices. All notices under this Agreement shall be effective when
actually received. Any notices or other communications which may be required
under this Agreement are to be sent to the parties at the following addresses or
such other addresses as may subsequently be given to the other party in writing:
Bank: The Chase Manhattan Bank
4 Chase MetroTech Center
Brooklyn, NY 11245
Attention: Global Custody Division
or telex:_______________________________
Customer: The Analytic Series Fund
700 South Flower Street
Suite 2400
Los Angeles, CA 90017
or telex:_______________________________
(i) Termination. This Agreement may be terminated by the Customer or the
Bank by giving sixty (60) days written notice to the other, provided that such
notice to the Bank shall specify the names of the persons to whom the Bank shall
deliver the Assets in the Accounts. If notice of termination is given by the
Bank, the Customer shall, within sixty (60) days (or such other amount of days
as is contemplated by the Extension Notice) following receipt of the notice,
deliver to the Bank Instructions specifying the names of the persons to whom the
Bank shall deliver the Assets. In either case the Bank will deliver the Assets
to the persons so specified, after
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<PAGE>
deducting any amounts which the Bank determines in good faith to be owed to it
under Section 13. If within sixty (60) days following receipt of a notice of
termination by the Bank, the Bank does not receive Instructions from the
Customer specifying the names of the persons to whom the Bank shall deliver the
Assets, the Bank, at its election, may deliver the Assets to a bank or trust
company doing business in the State of New York to be held and disposed of
pursuant to the provisions of this Agreement, or to Authorized Persons, or may
continue to hold the Assets until Instructions are provided to the Bank.
THE ANALYTIC SERIES FUND
By:_________________________
Title:______________________
Date:_______________________
THE CHASE MANHATTAN BANK
By:_________________________
Title:______________________
Date:_______________________
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SCHEDULE A
FEE SCHEDULE TO GLOBAL CUSTODY
AGREEMENT BETWEEN THE ANALYTIC SERIES FUND
AND THE CHASE MANHATTAN BANK
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<PAGE>
STATE OF)
: ss.
COUNTY OF)
On this day of, 199, before me personally came, to me known, who being by
me duly sworn, did depose and say that he/she resides in at, that he/she is a
of, the entity described in and which executed the foregoing instrument; that he
knows the seal of said entity, that the seal affixed to said instrument is such
seal, that it was so affixed by order of said entity, and that he/she signed
his/her name thereto by like order.
-----------------
Sworn to before me this
day of.
Notary
My Commission Expires
C-23
<PAGE>
STATE OF)
: ss.
COUNTY OF)
On this day of, 199, before me personally came, to me known, who being by
me duly sworn, did depose and say that he/she resides in at, that he/she is, the
corporation described in and which executed the foregoing instrument; the he/she
knows the seal of said corporation, that the seal affixed to said instrument is
such corporate seal, that it was so affixed by order of the Board of Directors
of said corporation, and that he signed his name thereto by like order.
Sworn to before me this
day of, 199.
Notary
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<PAGE>
ERISA Rider to Global Custody Agreement
Between The Chase Manhattan Bankand
THE ANALYTIC SERIES FUND
effective August __, 1997
Customer represents that the Assets being placed in the Bank's custody are
subject to ERISA. It is understood that in connection therewith the Bank is a
service provider and not a fiduciary of the plan and trust to which the assets
are related. The Bank shall not be considered a party to the underlying plan and
trust and the Customer hereby assumes all responsibility to assure that
Instructions issued under this Agreement are in compliance with such plan and
trust and ERISA.
This Agreement will be interpreted as being in compliance with the
Department of Labor Regulations Section 2550.404b-1 concerning the maintenance
of indicia of ownership of plan assets outside of the jurisdiction of the
district courts of the United States.
The following modifications are made to the Agreement:
Section 3. Subcustodians and Securities Depositories.
Add the following language to the end of Section 3:
As used in this Agreement, the term Subcustodian and the term securities
depositories include a branch of the Bank, a branch of a qualified U.S.
bank, an eligible foreign custodian, or an eligible foreign securities
depository, where such terms shall mean:
(a) "qualified U.S. bank" shall mean a U.S. bank as described
in paragraph (a)(2)(ii)(A)(1) of the Department of Labor
Regulations Section 2550.404b-1;
(b) "eligible foreign custodian" shall mean a banking institution
incorporated or organized under the laws of a country other than the
United States which is supervised or regulated by that country's
government or an agency thereof or other regulatory authority in the
foreign jurisdiction having authority over banks; and
(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under the
laws of a country other than the United States, which is supervised
or regulated by that country's government or an agency thereof or
other regulatory authority in the foreign jurisdiction having
authority over such depositories or clearing agencies and which is
described in paragraph (c)(2) of the Department of Labor Regulations
Section 2550.404b-1.
Section 4. Use of Subcustodian.
Subsection (d) of this section is modified by deleting the last sentence.
Section 5. Deposit Account Payments.
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<PAGE>
Subsection (b) is amended to read as follows:
(b) In the event that any payment made under this Section 5 exceeds the
funds available in the Deposit Account, such discretionary advance shall
be deemed a service provided by the Bank under this Agreement for which it
is entitled to recover its costs as may be determined by the Bank in good
faith.
Section 10. Authorized Persons.
Add the following paragraph at the end of Section 10:
Customer represents that: a) Instructions will only be issued by or for a
fiduciary pursuant to Department of Labor Regulation Section 404b-1
(a)(2)(i) and b) if Instructions are to be issued by an investment
manager, such entity will meet the requirements of Section 3(38) of ERISA
and will have been designated by the Customer to manage assets held in the
Customer Accounts ("Investment Manager"). An Investment Manager may
designate certain of its employees to act as Authorized Persons under this
Agreement.
Section 14(a). Foreign Exchange Transactions.
Add the following paragraph at the end of Subsection 14(a):
Instructions to execute foreign exchange transactions with the Bank, its
subsidiaries, affiliates or Subcustodians will include (1) the time period
in which the transaction must be completed; (2) the location i.e., Chase
New York, Chase London, etc. or the Subcustodian with whom the contract is
to be executed and (3) such additional information and guidelines as may
be deemed necessary; and, if the Instruction is a standing Instruction, a
provision allowing such Instruction to be overridden by specific contrary
Instructions.
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<PAGE>
Mutual Fund Rider to Global Custody Agreement
Between The Chase Manhattan Bank and
THE ANALYTIC SERIES FUND
effective August ___, 1997
Customer represents that the Assets being placed in the Bank's custody are
subject to the Investment Company Act of 1940 (the Act), as the same may be
amended from time to time.
Except to the extent that the Bank has specifically agreed to comply with
a condition of a rule, regulation, interpretation promulgated by or under the
authority of the SEC or the Exemptive Order applicable to accounts of this
nature issued to the Bank (Investment Company Act of 1940, Release No. 12053,
November 20, 1981), as amended, or unless the Bank has otherwise specifically
agreed, the Customer shall be solely responsible to assure that the maintenance
of Assets under this Agreement complies with such rules, regulations,
interpretations or exemptive order promulgated by or under the authority of the
Securities Exchange Commission.
The following modifications are made to the Agreement:
Section 3. Subcustodians and Securities Depositories.
Add the following language to the end of Section 3:
The terms Subcustodian and securities depositories as used in this
Agreement shall mean a branch of a qualified U.S. bank, an eligible
foreign custodian or an eligible foreign securities depository, which are
further defined as follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S. bank as defined in
Rule 17f-5 under the Investment Company Act of 1940;
(b) "eligible foreign custodian" shall mean (i) a banking institution or
trust company incorporated or organized under the laws of a country other
than the United States that is regulated as such by that country's
government or an agency thereof and that has shareholders' equity in
excess of $200 million in U.S. currency (or a foreign currency equivalent
thereof), (ii) a majority owned direct or indirect subsidiary of a
qualified U.S. bank or bank holding company that is incorporated or
organized under the laws of a country other than the United States and
that has shareholders' equity in excess of $100 million in U.S. currency
(or a foreign currency equivalent thereof) (iii) a banking institution or
trust company incorporated or organized under the laws of a country other
than the United States or a majority owned direct or indirect subsidiary
of a qualified U.S. bank or bank holding company that is incorporated or
organized under the laws of a country other than the United States which
has such other qualifications as shall be specified in Instructions and
approved by the Bank; or (iv) any other entity that shall have been so
qualified by exemptive order, rule or other appropriate action of the SEC;
and
(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under the laws of
a country other than the United States, which operates (i) the central
system for handling securities or equivalent book-entries in that country,
or (ii) a transnational system for the central handling of securities or
equivalent book-entries.
The Customer represents that its Board of Directors has approved each of
the Subcustodians listed in Schedule A to this Agreement and the terms of the
subcustody agreements between the Bank and each
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<PAGE>
Subcustodian, which are attached as Exhibits I through of Schedule A, and
further represents that its Board has determined that the use of each
Subcustodian and the terms of each subcustody agreement are consistent with the
best interests of the Fund(s) and its (their) shareholders. The Bank will supply
the Customer with any amendment to Schedule A for approval. The Customer has
supplied or will supply the Bank with certified copies of its Board of Directors
resolution(s) with respect to the foregoing prior to placing Assets with any
Subcustodian so approved.
Section 11. Instructions.
Add the following language to the end of Section 11:
Deposit Account Payments and Custody Account Transactions made pursuant to
Section 5 and 6 of this Agreement may be made only for the purposes listed
below. Instructions must specify the purpose for which any transaction is
to be made and Customer shall be solely responsible to assure that
Instructions are in accord with any limitations or restrictions applicable
to the Customer by law or as may be set forth in its prospectus.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions;
(b) When Securities are called, redeemed or retired, or otherwise become
payable;
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment;
(d) Upon conversion of Securities pursuant to their terms into other
securities;
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities;
(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses;
(g) In connection with any borrowings by the Customer requiring a pledge
of Securities, but only against receipt of amounts borrowed;
(h) In connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any
restrictions applicable to the Customer;
(i) For the purpose of redeeming shares of the capital stock of the
Customer and the delivery to, or the crediting to the account of, the
Bank, its Subcustodian or the Customer's transfer agent, such shares to be
purchased or redeemed;
(j) For the purpose of redeeming in kind shares of the Customer against
delivery to the Bank, its Subcustodian or the Customer's transfer agent of
such shares to be so redeemed;
(k) For delivery in accordance with the provisions of any agreement among
the Customer, the Bank and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"), relating to compliance
with the rules of The Options Clearing Corporation and of any registered
national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Customer;
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<PAGE>
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only
upon payment to the Bank of monies for the premium due and a receipt for
the Securities which are to be held in escrow. Upon exercise of the
option, or at expiration, the Bank will receive from brokers the
Securities previously deposited. The Bank will act strictly in accordance
with Instructions in the delivery of Securities to be held in escrow and
will have no responsibility or liability for any such Securities which are
not returned promptly when due other than to make proper request for such
return;
(m) For spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from Securities or related
transactions;
(n) For other proper purposes as may be specified in Instructions issued
by an officer of the Customer which shall include a statement of the
purpose for which the delivery or payment is to be made, the amount of the
payment or specific Securities to be delivered, the name of the person or
persons to whom delivery or payment is to be made, and a certification
that the purpose is a proper purpose under the instruments governing the
Customer; and
(o) Upon the termination of this Agreement as set forth in Section 14(i).
Section 12. Standard of Care; Liabilities.
Add the following subsection (c) to Section 12:
(c) The Bank hereby warrants to the Customer that in its opinion, after
due inquiry, the established procedures to be followed by each of its
branches, each branch of a qualified U.S. bank, each eligible foreign
custodian and each eligible foreign securities depository holding the
Customer's Securities pursuant to this Agreement afford protection for
such Securities at least equal to that afforded by the Bank's established
procedures with respect to similar securities held by the Bank and its
securities depositories in New York.
Section 14. Access to Records.
Add the following language to the end of Section 14(c):
Upon reasonable request from the Customer, the Bank shall furnish the
Customer such reports (or portions thereof) of the Bank's system of
internal accounting controls applicable to the Bank's duties under this
Agreement. The Bank shall endeavor to obtain and furnish the Customer with
such similar reports as it may reasonably request with respect to each
Subcustodian and securities depository holding the Customer's assets.
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<PAGE>
GLOBAL PROXY SERVICE RIDER
To Global Custody Agreement
Between
THE CHASE MANHATTAN BANK
AND
THE ANALYTIC SERIES FUND (the "Customer")
dated August ___, 1997
1. Global Proxy Services (the "Services") shall be provided for the countries
listed in the procedures and guidelines ("Procedures") furnished to
Customer, as the same may be amended by the Bank from time to time on
prior notice to Customer. The Procedures are incorporated by reference
herein and form a part of this Rider.
2. The Services shall consist of those elements as set forth in the
Procedures, and shall include (a) notifications ("Notifications") by the
Bank to Customer of the dates of pending shareholder meetings, resolutions
to be voted upon and the return dates as may be received by the Bank or
provided to the Bank by its Subcustodians or third parties, and (b) voting
by the Bank of proxies based on Customer Directions. Original proxy
materials or copies thereof shall not be provided. Notifications shall
generally be in English and, where necessary, shall be summarized and
translated from such non-English materials as have been made available to
the Bank or its Subcustodian. In this respect the Bank's only obligation
is to provide information from sources it believes to be reliable and/or
to provide materials summarized and/or translated in good faith. the Bank
reserves the right to provide Notifications, or parts thereof, in the
language received. Upon reasonable advance request by Customer, backup
information relative to Notifications, such as annual reports, explanatory
material concerning resolutions, management recommendations or other
material relevant to the exercise of proxy voting rights shall be provided
as available, but without translation.
3. While the Bank shall attempt to provide accurate and complete
Notifications, whether or not translated, the Bank shall not be liable for
any losses or other consequences that may result from reliance by Customer
upon Notifications where the Bank prepared the same in good faith.
4 Notwithstanding the fact that the Bank may act in a fiduciary capacity
with respect to Customer under other agreements or otherwise under the
Agreement, in performing Services the Bank shall be acting solely as the
agent of Customer, and shall not exercise any discretion with regard to
such Services.
5. Proxy voting may be precluded or restricted in a variety of circumstances,
including, without limitation, where the relevant Financial Assets are:
(i) on loan; (ii) at registrar for registration or reregistration; (iii)
the subject of a conversion or other corporate action; (iv) not held in a
name subject to the control of the Bank or its Subcustodian or are
otherwise held in a manner which precludes voting; (v) not capable of
being voted on account of local market regulations or practices or
restrictions by the issuer; or (vi) held in a margin or collateral
account.
6 Customer acknowledges that in certain countries the Bank may be unable to
vote individual proxies but shall only be able to vote proxies on a net
basis (e.g., a net yes or no vote given the voting instructions received
from all customers).
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7. Customer shall not make any use of the information provided hereunder,
except in connection with the funds or plans covered by this Agreement,
and shall in no event sell, license, give or otherwise make the
information provided hereunder available, to any third party, and shall
not directly or indirectly compete with the Bank or diminish the market
for the Services by provision of such information, in whole or in part,
for compensation or otherwise, to any third party.
8. The names of Authorized Persons for Services shall be furnished to the
Bank in accordance with ss.10 of the Agreement. Fees for the Services
shall be agreed as set forth in ss.13 of the Agreement.
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SPECIAL TERMS AND CONDITIONS RIDER
----------------------------------
GLOBAL CUSTODY AGREEMENT
WITH THE ANALYTIC SERIES FUND
DATE August __, 1997
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DOMESTIC ONLY
SPECIAL TERMS AND CONDITIONS RIDER
Domestic Corporate Actions and Proxies
With respect to domestic U.S. and Canadian Securities (the latter if held in
DTC), the following provisions will apply rather than the provisions of Section
8 of the Agreement and the Global Proxy Service rider:
The Bank will send to the Customer or the Authorized Person for a Custody
Account, such proxies (signed in blank, if issued in the name of the
Bank's nominee or the nominee of a central depository) and communications
with respect to Securities in the Custody Account as call for voting or
relate to legal proceedings within a reasonable time after sufficient
copies are received by the Bank for forwarding to its customers. In
addition, the Bank will follow coupon payments, redemptions, exchanges or
similar matters with respect to Securities in the Custody Account and
advise the Customer or the Authorized Person for such Account of rights
issued, tender offers or any other discretionary rights with respect to
such Securities, in each case, of which the Bank has received notice from
the issuer of the Securities, or as to which notice is published in
publications routinely utilized by the Bank for this purpose.
Fees
The fees referenced in Section 13 of this Agreement cover only domestic and
euro-dollar holdings. There will be no Schedule A to this Agreement, as there
are no foreign assets in the Accounts.
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DOMESTIC AND GLOBAL
SPECIAL TERMS AND CONDITIONS RIDER
Domestic Corporate Actions and Proxies
With respect to domestic U.S. and Canadian Securities (the latter if held in
DTC), the following provisions will apply rather than the pertinent provisions
of Section 8 of the Agreement and the Global Proxy Service rider:
The Bank will send to the Customer or the Authorized Person for a Custody
Account, such proxies (signed in blank, if issued in the name of the
Bank's nominee or the nominee of a central depository) and communications
with respect to Securities in the Custody Account as call for voting or
relate to legal proceedings within a reasonable time after sufficient
copies are received by the Bank for forwarding to its customers. In
addition, the Bank will follow coupon payments, redemptions, exchanges or
similar matters with respect to Securities in the Custody Account and
advise the Customer or the Authorized Person for such Account of rights
issued, tender offers or any other discretionary rights with respect to
such Securities, in each case, of which the Bank has received notice from
the issuer of the Securities, or as to which notice is published in
publications routinely utilized by the Bank for this purpose.
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FUND ADMINISTRATION AGREEMENT
THE ANALYTIC SERIES FUND
AGREEMENT made as May 16,1997 by and between The Analytic Series Fund. a
business trust organized under he laws of the State of Delaware (the "Fund"),
and UAM Fund Services, Inc., a Delaware corporation (the "Administrator").
W I T N E S S ET H:
WHEREAS, the Fund is registered as diversified, open-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund wishes to retain the Administrator to provide certain
transfer agent, fund accounting and administration services with respect to the
Fund, and the Administrator is willing to furnish or provide for the furnishing
of such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Administrator to provide
transfer agent, fund accounting and fund administration services to the Fund,
subject to the supervision of the Board of Trustees of the Fund (the "Board"),
for the period and on the terms set forth in this Agreement. The Administrator
accepts such appointment and agrees to furnish the services herein set forth in
return for the compensation as provided in Paragraph 4 of this Agreement. The
Fund presently issues shares of beneficial interest in one or more series each
representing separate interests in a portfolio of investments and cash.
Hereinafter, each such series shall be referred to as a "Portfolio." The term
"Portfolio" as hereinafter used shall be deemed to include not only separate
series of the Fund, but also separate classes of series of the Fund. The Fund
shall notify the Administrator in writing of each additional Portfolio
established by the Fund. Each new Portfolio shall be subject to the provisions
of this Agreement, except to the extent that said provisions (including those
relating to the compensation and expenses payable by the Fund and its
Portfolios) may be modified with respect to such new Portfolio in writing by the
Fund and the Administrator at the time of the addition of such new Portfolio.
2. Delivery of Documents. The Fund will upon request furnish the
Administrator with copies, properly certified or authenticated, of each of the
following in their most current form:
(a) Resolutions of the Fund's Board authorizing the appointment of
the Administrator to provide certain transfer agency, fund accounting and
administration services to the Fund and approving this Agreement;
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(b) The Fund's Agreement and Declaration of Trust ("Declaration of
Trust"),
(c) The Fund's Bylaws ("Bylaws");
(d) The Fund's Notification of Registration of Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission ("SEC");
(e) The Fund's Registration Statement, as amended, on Form N-1A
(the "Registration Statement") under the Securities Act of 1933 and the 1940
Act, as filed with the SEC; and
(f) The Fund's most recent Prospectuses and Statements of Additional
Information and supplements thereto (such Prospectuses and Statements of
Additional Information and supplements thereto, as presently in effect and as
from time to time hereafter amended and supplemented, herein called the
"Prospectuses").
The Fund will furnish the Administrator from time to time with
copies, properly certified or authenticated, of all amendments of or supplements
to the foregoing, if any.
3. Services Provided by the Administrator. The Administrator will provide
the following services subject to the control, direction and supervision of the
Board, and in compliance with the objectives, policies and limitations set forth
in the Fund's Registration Statement, Bylaws and applicable laws and
regulations.
(a) General Administration. Unless otherwise provided by the adviser
to the Fund, the Administrator shall manage, administer and conduct the general
business activities of the Fund other than those which have been contracted to
other third parties by the Fund as of the date hereof. The Administrator shall
provide the personnel and facilities necessary to perform such general business
activities. A detailed description of these services is included in Attachment A
to this Agreement.
(b) Fund Accounting. The Administrator shall provide the following
accounting services to the Fund: (i) maintenance of the books and records and
accounting controls for the Fund's assets, including records of all securities
transactions; (ii) calculation of the Portfolios' net asset values in accordance
with the Prospectuses and. if requested by the Fund, transmission of the net
asset values to the NASD for publication of prices; (iii) accounting for
dividends, interest and other income received and distributions made by the
Fund; (iv) preparation and filing of the Fund's state and federal tax returns
and Semi-Annual Reports on Form N-SAR; (v) production of transaction data,
financial reports and such other periodic and special reports as the Board may
reasonably request; (vi) the preparation of financial statements for the
semi-annual and annual reports and other shareholder communications; (vii)
liaison with the Fund's independent auditors; and (viii) monitoring and
administration of arrangements with the Fund's
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custodian and depository banks. A complete listing of reports that will be
available to the Fund is included in Attachment B of this Agreement.
(c) Transfer Agent. The Administrator shall:
(i) Maintain records showing for each Fund shareholder the
following: (A) name, address and tax identifying number; (B) number of shares
held of any Portfolio of the Fund; (C) historical information including
dividends paid and the date and price of all transactions including individual
purchases and redemptions; and (D) any dividend reinvestment order, application,
dividend address and correspondence relating to the current maintenance of the
account.
(ii) Record the issuance of shares of common stock of the Fund
and shall notify the Fund in case any proposed issue of shares by the Fund shall
result in an over-issue as identified by Section 8-104(2) of the Uniform
Commercial Code and in case any issue would result in such an over-issue, shall
refuse to countersign and issue, and/or credit, said shares. Except as
specifically agreed in writing between the Administrator and the Fund, the
Administrator shall have no obligation when countersigning and issuing and/or
crediting shares, to take cognizance of any other laws relating to the issue and
sale of such shares except insofar as policies and procedures of the Stock
Transfer Association recognize such laws.
(iii) Process all orders for the purchase of shares of the
Fund in accordance with the Fund's current Registration Statement. Upon receipt
of any check or other payment for purchase of shares of the Fund from an
investor, it will: (A) stamp the envelope with the date of receipt; (B)
forthwith process the same for collection; and (C) determine the amounts thereof
due the Fund, and notify the Fund of such determination and deposit, such
notification to be given on a daily basis of the total amounts determined and
deposited to the Fund's custodian bank account during such day. The
Administrator shall then credit the share account of the investor with the
number of shares to be purchased according to the price of the Fund's shares in
effect for purchases made on the date such payment is received by the
Administrator, determined as set forth in the Fund's current Prospectuses, and
shall promptly mail a confirmation of said purchase to the investor, all subject
to any instructions which the Fund may give to the Administrator with respect to
the timing or manner of acceptance of orders for shares relating to payments so
received by it.
(iv) Receive and stamp with the date of receipt all requests
for redemptions or repurchase of shares held in certificate or non-certificate
form and shall process redemptions and repurchase requests as follows: (A) if
such certificate or redemption request complies with the applicable standards
approved by the Fund, the Administrator shall on each business day notify the
Fund of the total number of shares presented and covered by such requests
received by the Administrator on such day; (B) on or prior to the seventh
calendar day succeeding any such request for redemption, the Administrator shall
notify the custodian, subject to the instructions from the Fund, to
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transfer monies to such account as designated by the Administrator for such
payment to the redeeming shareholder of the applicable redemption or repurchase
price; (C) if any such certificate or request for redemption or repurchase does
not comply with applicable standards, the Administrator shall promptly notify
the investor of such fact, together with the reason therefor, and shall effect
such redemption at the relevant Portfolio's price next determined after receipt
of documents complying with said standards or at such other time as the Fund
shall so direct.
(v) Acknowledge all correspondence from shareholders relating
to their share accounts and undertake such other shareholder correspondence as
may from time to time be mutually agreed upon.
(vi) Process redemptions, exchanges and transfers of Fund
shares upon telephone instructions from qualified shareholders in accordance
with the procedures set forth in the Fund's current Prospectuses. The
Administrator shall be permitted to act upon the instruction of any person by
telephone to redeem, exchange and/or transfer Fund shares from any account for
which such services have been authorized. The Fund hereby agrees to indemnify
and hold the Administrator harmless against all losses, costs or expenses,
including attorneys' fees and expenses suffered or incurred by the Administrator
directly or indirectly as a result of relying on the telephone instructions of
any person acting on behalf of a shareholder account for which telephone
services have been authorized. However, the Administrator shall not be liable to
the Fund for any returned checks or other order for the payment of money if it
follows reasonable procedures with respect thereto.
(vii) Transfer on the records of the Fund maintained by it,
shares represented by certificates, as well as issued shares held in
non-certificate form, upon the surrender to it of the certificate or, in the
case of non-certificated shares, comparable transfer documents in proper form
for transfer and, upon cancellation thereof, to countersign and issue new
certificates or other documents of ownership for a like amount of stock and to
deliver the same pursuant to the transfer instructions.
(viii) Supply, at the expense of the Fund. a supply of
continuous form blank stock certificates. Such blank stock certificates shall be
properly signed, manually or by facsimile, as authorized by the Fund, and shall
bear the Fund's corporate seal or facsimile thereof; and notwithstanding the
death, resignation or removal of any officers of the Fund authorized to sign
certificates of stock, the Administrator may, until otherwise directed by the
Fund, continue to countersign certificates which bear the manual or facsimile
signature of such officer.
(ix) Upon the request of a shareholder of the Fund who
requests a certificate representing his shares, countersign and mail by first
class mail a share certificate to the investor at his address as set forth on
the transfer books of the Fund.
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(x) In the event that any check or other order for the payment
of money is returned unpaid for any reason, take such steps, including
redepositing said check for collection or returning said check to the investor,
as the Administrator may, at its discretion, deem appropriate and notify the
Fund of such action, unless the Fund instructs otherwise. However, the
Administrator shall not be liable to the Fund for any returned checks or other
order for the payment of money if it follows reasonable procedures with respect
thereto.
(xi) Prepare, file with the Internal Revenue Service, and mail
to shareholders such returns for reporting payment of dividends and
distributions as are required by applicable laws to be so filed and/or mailed,
and the Administrator shall withhold such sums as are required to be withheld
under applicable Federal income tax laws, rules and regulations.
(xii) Mail proxy statements, proxy cards and other materials
and shall receive, examine and tabulate returned proxies. The Administrator
shall make interim reports of the status of such tabulation to the Fund upon
request, and shall certify the final results of the tabulation.
(d) Dividend Disbursing. The Administrator shall act as Dividend
Disbursing Agent for the Fund, and, as such, shall prepare and mail checks or
credit income and capital gain payments to shareholders. The Fund shall advise
the Administrator of the declaration of any dividend or distribution and the
record and payable date thereof at least five (5) days prior to the record date.
The Administrator shall, on or before the payment date of any such dividend or
distribution, notify the Fund's custodian of the estimated amount required to
pay any portion of said dividend or distribution which is payable in cash, and
on or before the payment date of such distribution, the Fund shall instruct its
custodian to make available to the Administrator sufficient funds for the cash
amount to be paid out. If a shareholder is entitled to receive additional shares
by virtue of any such distribution or dividend, appropriate credits will be made
to his account and/or certificates delivered where requested. A shareholder not
electing issuance of certificates will receive a confirmation from the
Administrator indicating the number of shares credited to his account.
(e) Miscellaneous. Unless otherwise provided by the adviser to the
Fund, the Administrator will also:
(i) Provide office facilities (which may be in the offices of
the Administrator or a corporate affiliate of them, but shall be in such
location as the Fund shall reasonably approve) and the services of a principal
financial officer to be appointed by the Fund;
(ii) Furnish statistical and research data, clerical services
and stationery and office supplies;
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(iii) Assist in the monitoring of regulatory and legislative
developments which may affect the Fund and, in response to such developments,
counsel and assist the Fund in routine regulatory examinations or investigations
of the Fund, and work with outside counsel to the Fund in connection with
regulatory matters or litigation.
(iv) In performing its duties: (A) will act in accordance with
the Fund's Declaration of Trust, Bylaws, Prospectuses and the instructions and
directions of the Board and will conform to, and comply with, except as
otherwise provided herein, the requirements of the 1940 Act and all other
applicable federal or state laws and regulations; and (B) will consult with
outside legal counsel to the Fund, as necessary or appropriate.
(v) Preserve for the periods prescribed by Rule 31a-2 under
the 1940 Act the records required to be maintained by Rule 31a-1 under said
Act in connection with the services required to be performed hereunder. The
Administrator further agrees that all such records which it maintains for the
Fund are the property of the Fund and further agrees to surrender promptly to
the Fund any of such records upon the Fund's request.
(vi) Upon request, provide a copy of all historical data
related to the Fund in a mutually agreeable electronic format.
(f) The Administrator may, at its expense and discretion,
subcontract with any entity or person concerning the provisions of the services
contemplated hereunder. The Administrator will provide prompt notice of such
delegation and provide copies of any such subcontract to the Fund; provided,
that such subcontract shall not discharge the Administrator from its obligations
hereunder or the delegation of its duties to another third party.
4. Fees; Expenses, Expense Reimbursement.
(a) For the services rendered for the Fund pursuant to this
Agreement, the Administrator shall be entitled to a fee based on the average net
assets of the Fund determined at the annual rate outlined in Attachment C of
this Agreement and applied to the average daily net assets of the Fund. Such
fees are to be computed daily and paid monthly on the first business day of the
following month. Upon any termination of this Agreement before the end of any
month, the fee for such part of the month shall be prorated according to the
proportion which such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement.
(b) For the purpose of determining fees payable to the
Administrator. the value of the Fund's net assets shall be computed as required
by its Prospectuses, generally accepted accounting principles and resolutions of
the Board.
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(c) The Administrator will from time to time employ or associate
with such person or persons as may be fit to assist them in the performance of
this Agreement. Such person or persons may be officers and employees who are
employed by both the Administrator and the Fund. The compensation of such person
or persons for such employment shall be paid by the Administrator and no
obligation will be incurred by or on behalf of the Fund in such respect.
(d) The Administrator will bear all expenses in connection with the
performance of its services under this Agreement except as otherwise expressly
provided herein. Other expenses to be incurred in the operation of the Fund will
be borne by the Fund or other parties, including taxes, interest, brokerage fees
and commissions, if any, salaries and fees of officers and members of the Board
who are not officers, directors, shareholders or employees of the Administrator,
or the Fund's investment adviser or distributor, SEC fees and state Blue Sky
fees, EDGAR filing fees, processing services and related fees, advisory and
administration fees, charges and expenses of pricing and data services,
independent public accountants and custodians, insurance premiums including
fidelity bond premiums, outside legal expenses, costs of maintenance of
corporate existence, typesetting and printing of prospectuses for regulatory
purposes and for distribution to current shareholders of the Fund, printing and
production costs of shareholders' reports and corporate meetings, cost and
expenses of Fund stationery and forms; costs of special telephone and data lines
and devices; trade association dues and expenses; and any extraordinary expenses
and other customary Fund expenses; provided, however, that, except as provided
in any distribution plan adopted by the Fund, the Fund will not bear, directly
or indirectly, the cost of any activity which is primarily intended to result in
the distribution of shares of the Fund. In addition, the Administrator may
utilize one or more independent pricing services, approved from time to time by
the Board, to obtain securities prices in connection with determining the net
asset values of the Fund, and the Fund will reimburse the Administrator for its
share of the cost of such services based upon its actual use of the services for
the benefit of the Fund.
5. Proprietary and Confidential Information. The Administrator agrees on
behalf of itself and its employees to treat confidentially and as proprietary,
information of the Fund, all records and other information relative to the
Fund's prior, present or potential shareholders, and not to use such records and
information for any purpose other than performance of their responsibilities and
duties hereunder, except after prior notification to and approval in writing by
the Fund, which approval shall not be unreasonably withheld and may not be
withheld where the Administrator may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Fund. Waivers of
confidentiality are automatically effective without further action by the
Administrator with respect to Internal Revenue levies, subpoenas and similar
actions, or with respect to any request by the Fund.
6. Duties Responsibilities and Limitation of Liability.
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(a) In the performance of its duties hereunder, the Administrator
shall be obligated to exercise due care and diligence and to act in good faith
in performing the services provided for under this Agreement. In performing its
services hereunder, the Administrator shall be entitled to rely on any oral or
written instructions, notices or other communications from the Fund and its
custodians, officers and directors, investors, agents. legal counsel and other
service providers which communications the Administrator reasonably believes to
be genuine, valid and authorized.
(b) Subject to the foregoing, the Administrator shall not be liable
for any error of judgment or mistake of law or for any loss or expense suffered
by the Fund, in connection with the matters to which this Agreement relates.
except for a loss or expense resulting from willful misfeasance, bad faith or
gross negligence on the Administrator's part in the performance of its duties or
from reckless disregard by the Administrator of its obligations and duties under
this Agreement. Any person, even though also an officer, director, partner,
employee or agent of the Administrator, who may be or become an officer,
director, partner, employee or agent of the Fund, shall be deemed when rendering
services to the Fund or acting on any business of the Fund (other than services
or business in connection with the Administrator's duties hereunder) to be
rendering such services to or acting solely for the Fund and not as an officer,
director, partner. employee or agent or person under the control or direction of
the Administrator even though paid by the Administrator. In no event shall the
Administrator be liable to the Fund or any other party for special or
consequential loss or damage of any kind whatsoever (including but not limited
to lost profits) even if the Administrator has been advised of such loss or
damage and regardless of the form of action.
(c) The Administrator shall not be responsible for, and the Fund
shall indemnify and hold the Administrator harmless from and against, any and
all losses, damages, costs, reasonable attorneys' fees and expenses, payments,
expenses and liabilities, except for a loss or expense resulting from willful
misfeasance, bad faith or gross negligence on the Administrator's part in the
performance of its duties or from reckless disregard by the Administrator of its
obligations and duties under this Agreement, arising out of or attributable to:
(i) All actions of the Administrator or its officers,
employers or agents required to be taken pursuant to this Agreement;
(ii) The reliance on or use by the Administrator or its
officers, employers or agents of information, records, or documents which are
received by the Administrator or its officers, employers or agents and furnished
to it or them by or on behalf of the Fund, and which have been prepared or
maintained by the Fund or its officers, employees, or agents;
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(iii) The Fund's refusal or failure to comply with the terms
of this Agreement or the Fund's lack of good faith, or its actions, or lack
thereof, involving gross negligence or willful misfeasance;
(iv) The taping or other form of recording of telephone
conversations or other forms of electronic communications with other agents of
the Fund, its investors and shareholders, in accordance with applicable laws, or
reliance by the Administrator on telephone or other electronic instructions of
any person acting on behalf of a shareholder or shareholder account reasonably
believed to be genuine for which telephone or other electronic services have
been authorized; and
(v) The offer or sale of shares by the Fund in violation of
any requirement under the Federal securities laws or regulations or the
securities laws or regulations of any state, or in violation of any stop order
or other determination or ruling by any Federal agency or any state agency with
respect to the offer or sale of such shares in such state resulting from
activities, actions, or omissions by the Fund or its officers, employees or
agents prior to the effective date of this Agreement.
(d) The Administrator shall indemnify and hold the Fund harmless
from and against any and all losses, damages, costs, charges, reasonable
attorneys' fees and expenses, payments, expenses and liability arising out of or
attributable to the Administrator's refusal or failure to comply with the terms
of this Agreement; the Administrator's breach of any representation or warranty
made by it herein; or the Administrator's lack of good faith, or acts involving
gross negligence, willful misfeasance or reckless disregard of its duties
hereunder.
7. Term. The Administrator will start the provision of the services
contemplated by this Agreement on the date first hereinabove written or whenever
the current service provider ceases to provide its services and the operative
terms of the Agreement will be effective for a period of one (1) year from such
date, unless sooner terminated as provided herein. Thereafter, unless sooner
terminated as provided herein, this Agreement shall continue in effect from year
to year provided such continuance is specifically approved at least annually by
the Board. This Agreement is terminable, without penalty, by the Board or by the
Administrator, on not less than ninety (90) days' written notice. Except as
provided in Section 8 hereof, this Agreement shall automatically terminate upon
its assignment by the Administrator without the prior written consent of the
Fund. Upon termination of this Agreement, the Fund shall pay to the
Administrator such compensation and any reimbursable expenses as may be due
under the terms hereof as of the date of termination or the date that the
provision of services ceases, whichever is later.
8. Non-Assignability. This Agreement shall not be assigned by either of
the parties hereto without the prior consent in writing of the other party;
provided, however, that the Administrator may in its own discretion and without
limitation or prior consent of the Fund, whenever and on such terms and
conditions as it deems necessary or
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appropriate. enter into subcontracts, agreements and understandings with
non-affiliated third parties; provided, that such subcontract, agreement or
understanding shall not discharge the Administrator from its obligations
hereunder or the delegation of its duties to another third party.
9. Force Majeure. The Administrator shall not be responsible or liable for
any failure or delay in performance of its obligations under this Agreement, any
damages, loss of data, or any other loss whatsoever, arising out of or caused.
directly or indirectly, by circumstances beyond its control, including without
limitation, acts of God, earthquakes, fires, floods, wars, civil or military
authority or governmental actions, nor shall any such failure or delay give the
Fund the right to terminate this Agreement, unless such failure or delay shall
result in the Fund's inability to comply with the requirements of state and
federal law. Administrator shall use its best efforts to minimize any such loss
of data or delay by all practicable steps. Administrator further agrees not to
discriminate against the Fund in favor of any other customer of Administrator in
making its computer time and personnel available to input and process
transactions hereunder when such a loss or delay occurs.
10. Use of Name. The Fund and the Administrator agree not to use the
other's name nor the names of such other's affiliates, designees or assignees in
any prospectus, sales literature or other printed material written in a manner
not previously expressly approved in writing by the other or such other's
affiliates, designees or assignees except where required by the SEC or any state
agency responsible for securities regulation.
11. Notice. Any notice required or permitted hereunder shall be in writing
to the parties at the following address (or such other address as a party may
specify by notice to the other):
If to the Fund: The Analytic Series Fund
700 South Flower Street
Los Angeles, CA 90017
Attention:____________________
If to Administrator: UAM Fund Services, Inc.
211 Congress Street
Boston, MA 02110
Attn: Gary L. French, President
Notice shall be effective upon receipt if by mail, on the date of personal
delivery (by private messenger, courier service or otherwise) or upon confirmed
receipt of telex or facsimile, whichever occurs first.
12. Waiver. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive
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such party of the right thereafter to insist upon strict adherence to that term
or any term of this Agreement. Any waiver must be in writing signed by the
waiving party.
13. Severability. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
14. Successor and Assigns. The covenants and conditions herein contained
shall, subject to the provisions as to assignment, apply to and bind the
successors and assigns of the parties hereto.
15. Governing Law. This Agreement shall be governed by Massachusetts law
including its choice of law provisions.
16. Amendments. This Agreement may be modified or amended from time to
time by mutual written agreement between the parties. No provision of this
Agreement may be changed, discharged, or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date indicated above.
THE ANALYTIC SERIES FUND
By /s/ Harindra De Silva
---------------------------
Name: Harindra De Silva
Title: President
UAM FUND SERVICES, INC.
By /s/ Michael DeFao
---------------------------
Name: Michael DeFao
Title: Vice President
C-45
<PAGE>
Attachment A
Fund Administration Services
Compliance
Prepare and update compliance manuals and procedures.
Assist in the training of portfolio managers, management and Fund accountants
concerning compliance manuals and procedures.
Monitor each Portfolio's compliance with investment restrictions (i.e.
issuer or industry diversification, etc.) listed in the current
Prospectuses and Statement of Additional Information. (Frequency - Daily)
Monitor each Portfolio's compliance with the requirements of Internal Revenue
Code (the "Code") Section 851 for qualification as regulated investment
companies. (Frequency - Monthly)
Calculate and recommend dividend and capital gain distributions in accordance
with distribution policies detailed in the Prospectuses.
(Frequency - Determined by Prospectus)
Prepare year-end dividend and capital gain distributions to establish Fund's
status as RIC under Section 4982 of the Code regarding minimum distribution
requirements. File Federal Excise Tax Return (Form 8613). (Frequency - Annually)
Mail quarterly requests for "Securities Transaction Reports" to the Fund's
Trustees/Directors and Officers and "access persons" under the terms of the
Fund's Code of Ethics and SEC regulations.
Monitor investment manager's compliance with Board directives such as
"Approved Issuers Listings for Repurchase Agreements" and provisions of
Rule 2a-7 for money market funds. (Frequency - Daily)
Review investments involving interests in any broker, dealer, underwriter
or investment adviser to ensure continued compliance with Section 12(d)(3)
of the 1940 Act. (Frequency - Quarterly)
Monitor the Fund's brokerage allocation and prepare quarterly brokerage
allocation reports for Board meetings (consistent with reporting from the
current service provider).
C-46
<PAGE>
Reporting
Prepare agreed upon management reports and Board materials such as unaudited
financial statements, distribution summaries and deviations of mark-to-market
valuation and the amortized cost for money market funds.
Report Fund performance to outside services as directed by Fund management.
Prepare and file Fund's Semi-Annual Reports on Form N-SAR with the SEC.
Prepare and file Portfolio Federal tax returns along with all state and local
tax returns and State Expense Limitation returns, where applicable.
Prepare and coordinate printing of Fund's Semi-Annual and Annual Reports to
shareholders.
File copies of every report to shareholders with the SEC under Rule 30b2-1 .
Notify shareholders as to what portion, if any, of the distributions made by the
Fund during the prior fiscal year were exempt-interest dividends under Section
852(b)(5)(A) of the Code.
Provide Form 1099-MISC to persons other than corporations (i.e.,
Trustees/Directors) to whom the Fund paid more than $600 during the year.
Prepare reports relating to the Fund's compliance with respect to Section 851 of
the Code.
Administration
Serve as officers of the Fund and attend Fund Board meetings.
Prepare Fund portfolio expense projections, establish accruals and review on a
periodic basis.
Expenses based on a percentage of Fund's average daily net assets (advisory and
administrative fees).
Expenses based on actual charges annualized and accrued daily (audit fees,
registration fees, directors' fees, etc.).
For new Portfolios, obtain Employer Identification Number and CUSIP number.
Estimate organization (offering) costs and monitor against actual disbursements.
C-47
<PAGE>
Provide financial information for Fund proxies and Prospectuses (Expense Table).
Coordinate all communications and data collection with regards to any regulatory
examinations and yearly audit by independent accountants.
Act as liaison to investment advisors concerning new products.
Legal Affairs
Assist with preparing and updating documents, such as Articles of
Incorporation/Declaration of Trust, foreign corporation qualification filings,
Bylaws and stock certificates.
Assist with updating and filing post-effective amendments to the Fund's
registration statement on Form N-1A and prepare supplements as needed.
Assist with preparing and filing Rule 24f-2 Notice.
Assist with preparing proxy materials and administer shareholder meetings.
Assist with the review of contracts between the Fund and its service providers
(must be sensitive to conflict of interest situations).
Research technical issues and questions arising out of a Fund's special status
under the tax and securities laws and monitor legal trends, developments and
changes.
Apprise and train management and staff with respect to important legal issues.
Prepare and maintain all state registrations and exemptions of the Fund's
securities including annual renewals, registering new Portfolios, preparing and
filing sales reports. filing copies of the registration statement and final
prospectus and statement of additional information, and increasing registered
amounts of securities in individual states.
Review and monitor fidelity bond and errors and omissions insurance coverage and
make any related regulatory filings.
Assist with preparation of agenda and Board materials, including materials
relating to contract renewals, for all Board meetings.
Assist with maintaining minutes of Board and shareholder meetings.
Act as liaison with Fund's distributor and outside Fund counsel: Coordinate and
monitor the work of outside counsel.
C-48
<PAGE>
Respond to questions from the investment advisors concerning legal
questions relating to investments
C-49
<PAGE>
Domestic Fund Accounting Daily Reports
A) General Ledger Reports
1. Trial Balance Report
2. General Ledger Activity Report
B) Portfolio Reports
1. Portfolio Report
2. Cost Lot Report
3. Purchase Journal
4. Sell/Maturity Journal
5. Amortization/Accretion Report
6. Maturity Projection Report
C) Pricing Reports
1. Pricing Report
2. Pricing Report by Market Value
3. Pricing Variance by % Change
4. NAV Report
5. NAV Proof Report
6. Money Market Pricing Report
D) Accounts Receivable/Payable Reports
1. Accounts Receivable for Investments Report
2. Accounts Payable for Investments Report
3. Interest Accrual Report
4. Dividend Accrual Report
E) Other
1. Dividend Computation Report
2. Cash Availability Report
3. Settlement Journal
C-50
<PAGE>
International Fund Accounting Daily Reports
A) General Ledger
1. Trial Balance Report
2. General Ledger Activity Report
B) Portfolio Reports
1. Portfolio Report by Sector
2. Cost Lot Report
3. Purchase Journal
4. Sell/Maturity Journal
C) Currency Reports
1 . Currency Purchase/Sales Journal
2. Currency Valuation Report
D) Pricing Reports
1. Pricing Report by Country
2. Pricing Report by Market Value
3. Price Variance by % Change
4. NAV Report
5. NAV Proof Report
E) Accounts Receivable/Payable Reports
1. Accounts Receivable for Investments Sold/Matured
2. Accounts Payable for Investments Purchased
3. Accounts Receivable for Forward Exchange Contracts
4. Accounts Payable for Forward Exchange Contracts
5. Interest Receivable Valuation
6. Interest Recoverable Withholding Tax
7. Dividends Receivable Valuation
8. Dividends Recoverable Withholding Tax
F) Other
1. Exchange Rate Report
C-51
<PAGE>
Monthly Fund Accounting Reports
A) Standard Reports
1. Cost Proof Report
2. Transaction History Report
3. Realized Gain/Loss Report
4. Interest Record Report
5. Dividend Record Report
6. Broker Commission Totals
7. Broker Principal Trades
8. Shareholder Activity Report
9. Fund Performance Report
10. SEC Yield Calculation Work Sheet
B) International Reports
1. Forward Contract Transaction History Report
2. Currency Gain/Loss Report
C-52
<PAGE>
Attachment C
Fee Schedule to the Fund Administration Agreement
I. Base Fee Schedule
Fees for the services under the Fund Administration Agreement:
19 Basis Points on the 1st $200 million of total net assets of the Fund
11 Basis Points on the next $800 million of total net assets
7 Basis Points on total net assets over $1 billion up to $3 billion
5 Basis Points on total net assets over $3 billion
II. Fund-Specific Fee Schedule
All portfolios will be billed a fee of Basis Points, in addition to
the Base fee in I, above.
III. Minimum Fee Schedule
All Portfolios will be billed per the above Fund-Specific Fee Schedule
plus an amount equal to the fees calculated under the Base fee schedule or
a minimum fee per the following schedule, whichever is greater:
Monthly Rate
1st 6 mos. $ 2,000
2nd 6 mos. $ 3,500
3rd 6 mos. $ 5,000
Thereafter $ 5,833
Except as otherwise indicated, all time periods are determined from the
date of a Portfolio's initial funding.
If a separate class of shares is added to an existing Portfolio, the
minimum annual fee would increase by $20,000. However, there would be no
extra charge for an additional class of shares where a Portfolio's fee
already exceeded the minimum applicable fee by $20,000.
These fees do not include out-of-pocket expenses, which under this
Agreement will be billed separately.
C-53
EXHIBIT 9.2
MUTUAL FUNDS SERVICE AGREEMENT
o FUND ADMINISTRATION SERVICES
o FUND ACCOUNTING SERVICES
o TRANSFER AGENCY SERVICES
THE ANALYTIC SERIES FUND
MAY 16, 1997
C-54
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
Table of Contents
-----------------
Section/Paragraph Page
- ----------------- ----
1. Appointment............................................ C-57
2. Representations and Warranties......................... C-58
3. Delivery of Documents.................................. C-59
4. Services Provided...................................... C-60
5. Fees; Expenses; Expense Reimbursement.................. C-61
6 Proprietary and Confidential Information............... C-64
7. Duties, Responsibilities and Limitation of Liability... C-64
8. Term................................................... C-66
9. Notices................................................ C-67
10. Assignability.......................................... C-67
11. Waiver................................................. C-68
12. Force Majeure.......................................... C-68
13. Amendments............................................. C-68
14. Severability........................................... C-69
15. Governing Law.......................................... C-69
Signatures.................................................. C-69
C-55
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
Table of Contents (continued)
Section/Paragraph
Page
----
Schedule A -- Fees and Expenses........................... C-70
Schedule B -- Fund Administration Services Description.... C-71
Schedule C -- Fund Accounting Services Description........ C-74
Schedule D -- Transfer Agency Services Description........ C-77
C-56
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
AGREEMENT made as of May 16, 1997 by and between UAM FUND SERVICES,
INC. ("UAMFSI"), a Delaware corporation, and CHASE GLOBAL FUNDS SERVICES COMPANY
("Chase"), a Delaware corporation.
W I T N E S S E T H:
WHEREAS, The Analytic Series Fund (the "Fund") is registered as an
open-end management, investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), and currently offers for sale to investors
its shares in several investment portfolios ("Portfolios") and classes of such
Portfolios ("Classes");
WHEREAS, UAMFSI is responsible for the provision of certain fund
administration, fund accounting and transfer agent services with respect to the
Fund pursuant to the Agreement between UAMFSI and the Fund dated , 1997 (the
"Administration Agreement"); and
WHEREAS, UAMFSI wishes to retain Chase to provide certain fund
administration, fund accounting and transfer agent services with respect to the
Fund, and Chase is willing to furnish such services;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. UAMFSI hereby appoints Chase to provide certain fund
administration, fund accounting and transfer agent services for the Fund,
subject to the supervision of UAMFSI and the Board of Trustees of the Fund (the
"Board"), for the period and on the terms set forth in this Agreement. Chase
accepts such appointment and agrees to furnish the services herein set forth in
return for the compensation as provided in Paragraph 5, of and Schedule A, to
this Agreement.
C-57
<PAGE>
2. REPRESENTATIONS AND WARRANTIES.
(a) Chase represents and warrants to UAMFSI that:
(i) Chase is a corporation existing under the laws of the State
of Delaware;
(ii) Chase is duly qualified to carry on its business in the
Commonwealth of Massachusetts;
(iii) Chase is empowered under applicable laws and by its
Certificate of Incorporation and By-Laws to enter into and perform this
Agreement;
(iv) all requisite corporate proceedings have been taken to
authorize Chase to enter into and perform this Agreement;
(v) Chase has, and will continue to have, access to the
facilities, personnel and equipment required to fully perform its duties and
obligations hereunder;
(vi) Chase is registered as a transfer agent pursuant to
Section 17A of the Securities Exchange Act of 1934;
(vii) no legal or administrative proceedings have been
instituted or threatened which would impair Chase's ability to perform its
duties and obligations under this Agreement; and
(viii) Chase's entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligation of Chase or any law or regulation applicable to Chase;
(b) UAMFSI represents and warrants to Chase that:
(i) UAMFSI is a corporation existing under the laws of the
State of Delaware;
(ii) UAMFSI is duly qualified to carry on its business in the
Commonwealth of Massachusetts;
(iii) UAMFSI is empowered under applicable laws and by its
Certificate of Incorporation and By-Laws to enter into and perform this
Agreement;
(iv) all requisite corporate proceedings have been taken to
authorize UAMFSI to enter into and perform this Agreement;
C-58
<PAGE>
(v) UAMFSI has, and will continue to have, access to the
facilities, personnel and equipment required to fully perform its duties and
obligations hereunder;
(vi) no legal or administrative proceedings have been
instituted or threatened which would impair UAMFSI's ability to perform its
duties and obligations under this Agreement; and
(vii) UAMFSI's entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligation of UAMFSI or any law or regulation applicable to UAMFSI;
(c) UAMFSI represents and warrants to Chase with respect to the Fund
that:
(i) the Fund is a Delaware business trust, duly organized and
existing and in good standing under the laws of the State of Delaware;
(ii) the Fund is an investment company properly registered
under the 1940 Act;
(iii) a registration statement for the Fund under the
Securities Act of 1933, as amended ("1933 Act") and the 1940 Act on Form N-1A
has been filed and will be effective and will remain effective during the term
of this Agreement, and all necessary filings under the laws of the states will
have been made and will be current during the term of this Agreement; and
(iv) to the best of the Fund's knowledge, the Fund's
registration statements comply in all material respects with the Securities Act
of 1933 ("1933 Act") and the 1940 Act (including the rules and regulations
thereunder) and none of the Fund's prospectuses contain any untrue statement of
material fact or omit to state a material fact necessary to make the statements
therein not misleading.
3. DELIVERY OF DOCUMENTS. UAMFSI will promptly furnish to Chase such
copies, properly certified or authenticated, of contracts, documents and other
related information that Chase may reasonably request or require to properly
discharge its duties. Such documents may include but are not limited to the
following:
C-59
<PAGE>
(a) Resolutions of the Fund's Board authorizing the appointment of
UAMFSI to provide certain fund administration, fund accounting and transfer
agency services to the Fund and approving this Agreement;
(b) UAMFSI's and the Fund's Declaration of Trust;
(c) UAMFSI's and the Fund's By-Laws;
(d) Authorization by the Fund contained in the Administration
Agreement allowing UAMFSI to make representations to Chase on its behalf;
(e) The Fund's Notification of Registration on Form N-8A under the
1940 Act, as filed with the Securities and Exchange Commission ("SEC");
(f) The Fund's registration statement including exhibits, as amended,
on Form N-1A (the "Registration Statement") under the 1933 Act and the 1940 Act,
as filed with the SEC;
(g) Copies of the Investment Advisory Agreements between the
Fund and its investment advisers (the "Advisory Agreements");
(h) Opinions of counsel and auditors' reports;
(i) The Fund's Prospectus(es) and Statement(s) of Additional
Information relating to all Portfolios and all amendments and supplements
thereto (such Prospectus(es) and Statement(s) of Additional Information and
supplements thereto, as presently in effect and as from time to time hereafter
amended and supplemented, herein called the "Prospectuses"); and
(j) Such other agreements as the Fund may enter into from time to
time which may be relevant to the performance of Chase's duties and obligations
under the terms of this Agreement, including securities lending agreements,
futures and commodities account agreements, brokerage agreements, and options
agreements.
4. SERVICES PROVIDED
(a) Chase will provide the following services subject to the control,
direction and supervision of UAMFSI and the Fund's Board and in compliance with
the objectives, policies and limitations set forth in the Fund's Registration
Statement, Articles of Incorporation and By-Laws; applicable laws and
regulations; and all resolutions and policies implemented by the Board:
C-60
<PAGE>
(i) Fund Administration
(ii) Fund Accounting
(iii) Transfer Agency
A description of each of the above services is contained in Schedules B, C, and
D respectively, to this Agreement.
(b) Chase will also:
(i) provide office facilities with respect to the provision of
the services contemplated herein (which may be in the offices of Chase or a
corporate affiliate of Chase );
(ii) provide the services of individuals to serve as officers
of the Fund who will be designated by Chase with the approval of UAMFSI, and
elected by the Board;
(iii) provide or otherwise obtain personnel sufficient for
provision of the services contemplated herein;
(iv) furnish equipment and other materials, which Chase
believes are necessary or desirable for provision of the services contemplated
herein; and
(v) keep records relating to the services provided hereunder in
such form and manner as set forth in Schedules B, C and D in accordance with the
1940 Act. To the extent required by Section 31 of the 1940 Act and the rules
thereunder, Chase agrees that all such records prepared or maintained by Chase
relating to the services provided hereunder are the property of UAMFSI and the
Fund and will be preserved for the periods prescribed under Rule 31a-2 under the
1940 Act, maintained at UAMFSI's and/or the Fund's expense, and made available
in accordance with such Section and rules. Chase further agrees to surrender
promptly to UAMFSI or the Fund upon its request and cease to retain in its
records and files those records and documents created and maintained by Chase
pursuant to this Agreement, unless otherwise required by law. Upon such request,
Chase will surrender such records in a mutual agreeable electronic format.
5. FEES; EXPENSES; EXPENSE REIMBURSEMENT.
(a) As compensation for the services rendered to the Fund and UAMFSI
pursuant to this Agreement, UAMFSI shall pay Chase monthly fees determined as
set forth in
C-61
<PAGE>
Schedule A to this Agreement. Such fees are to be billed monthly and shall be
due and payable upon receipt of the invoice. Upon any termination of this
Agreement before the end of any month, the fee for the part of the month before
such termination shall be prorated according to the proportion which such part
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement.
(b) For the purpose of determining fees calculated as a function of
the Fund's assets, the value of the Fund's assets and net assets shall be
computed as required by its currently effective Prospectus, generally accepted
accounting principles, and resolutions of the Fund's Board.
(c) Chase may, in its sole discretion, from time to time employ or
associate with such person or persons as may be appropriate to assist Chase in
the performance of this Agreement. Such person or persons may be officers and
employees who are employed or designated as officers by both Chase and the Fund.
The compensation of such person or persons for such employment shall be paid by
Chase and no obligation will be incurred by or on behalf of the Fund or UAMFSI
in such respect.
(d) UAMFSI may request additional services, additional processing, or
special reports on behalf of the Fund or itself. UAMFSI shall submit such
requests in writing together with such specifications and requirements
documentation as may be reasonably required by Chase. If Chase elects to provide
such services or arrange for their provision, it shall be entitled to reasonable
additional fees and expenses at its customary rates and charges, or such other
fees, if any, mutually agreed to by Chase and UAM FSI.
(e) Chase will bear all of its own expenses in connection with the
performance of the services under this Agreement except as otherwise expressly
provided herein. UAMFSI agrees to promptly reimburse Chase for any equipment and
supplies specially ordered by or for UAMFSI or the Fund through Chase and for
any other expenses not contemplated by this Agreement that Chase may incur on
the Fund's and/or UAMFSI's behalf at the Fund's and/or UAMFSI's request or as
consented to by the Fund and/or UAMFSI, provided that Chase will notify the Fund
and/or UAMFSI of the approximate amount of such expenses prior to incurring
C-62
<PAGE>
them. Such other expenses to be incurred in the operation of the Fund and to be
borne by the Fund and/or UAMFSI, include, but are not limited to: taxes;
interest; brokerage fees and commissions; salaries and fees of officers and
trustees who are not officers, directors, shareholders or employees of Chase, or
the Fund's investment advisers or distributor; SEC and state Blue Sky
registration and qualification fees, levies, fines and other charges; EDGAR
filing fees, processing services and related fees; advisory and administration
fees; charges and expenses of pricing and data services, independent public
accountants and custodians; insurance premiums including fidelity bond premiums;
auditing and legal expenses; costs of maintenance of trust existence; expenses
of typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of the Fund (the Fund's distributor to bear
the expense of all other printing, production, and distribution of prospectuses,
statements of additional information, and marketing materials); expenses of
printing and production costs of shareholders' reports and proxy statements and
materials; costs and expenses of Fund stationery and forms; costs and expenses
of special telephone and data lines and devices; costs associated with
corporate, shareholder, and Board meetings; trade association dues and expenses;
and any extraordinary expenses and other customary Fund expenses. In addition,
Chase may utilize one or more independent pricing services, approved from time
to time by the Fund's Board, to obtain securities prices and to act as backup to
the primary pricing services, in connection with determining the net asset
values of the Fund, and UAMFSI and/or the Fund will reimburse Chase for the
Fund's share of the cost of such services based upon the actual usage, or a
pro-rata estimate of the use, of the services for the benefit of the Fund.
(f) All fees, out-of-pocket expenses, or additional charges of Chase
shall be billed on a monthly basis and shall be due and payable upon receipt of
the invoice.
Chase will render, after the close of each month in which services
have been furnished, a statement reflecting all of the charges for such month.
Charges remaining unpaid after thirty (30) days of receipt shall bear interest
in finance charges equivalent to, in the aggregate, the Prime Rate (as
determined by Chase) plus two percent per year and all costs and expenses of
effecting collection of any such sums, including reasonable attorney's fees,
shall be paid by UAMFSI to Chase.
C-63
<PAGE>
In the event that UAMFSI is more than sixty (60) days delinquent in
its payments of monthly billings in connection with this Agreement (with the
exception of specific amounts which may be contested in good faith by UAMFSI),
this Agreement may be terminated upon thirty (30) days' written notice to UAMFSI
by Chase. UAMFSI must notify Chase in writing of any contested amounts within
thirty (30) days of receipt of a billing for such amounts. Disputed amounts are
not due and payable while they are being disputed. The fees set forth in
Schedule A may be changed from time to time upon agreement of the parties.
6. PROPRIETARY AND CONFIDENTIAL INFORMATION. Chase agrees on behalf of
itself and its employees to treat confidentially and as proprietary information
of the Fund, all records and other information relative to the Fund's prior,
present or potential shareholders, and to not use such records and information
for any purpose other than performance of Chase's responsibilities and duties
hereunder. Chase may seek a waiver of such confidentiality provisions by
furnishing reasonable prior notice to the Fund and UAMFSI and obtaining approval
in writing from the Fund and UAMFSI, which approval shall not be unreasonably
withheld and may not be withheld where Chase may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities. Waivers of confidentiality are
automatically effective without further action by Chase with respect to Internal
Revenue Service levies, subpoenas and similar actions, or with respect to any
request by the Fund or UAMFSI.
7. DUTIES, RESPONSIBILITIES, AND LIMITATION OF LIABILITY.
(a) In the performance of its duties hereunder, Chase shall be
obligated to act in good faith in performing the services provided for under
this Agreement. In performing its services hereunder, UAMFSI represents and
warrants that Chase shall be entitled to rely on any oral or written
instructions, notices or other communications, including electronic
transmissions, from UAMFSI and the Fund and its custodians, officers and
directors, investors, agents, legal counsel and other service providers which
Chase reasonably believes to be genuine, valid and authorized, and that Chase
shall also be entitled to consult with and rely on the advice and opinions of
outside legal counsel retained by UAMFSI and/or the Fund, as necessary or
appropriate. Also, Chase shall be entitled to rely on any financial, regulatory,
tax or other records or information provided by the Fund or third parties prior
to the date of this Agreement without verification by Chase.
C-64
<PAGE>
(b) Chase shall not be liable for any error of judgment or mistake of
law or for any loss or expense suffered by the Fund or UAMFSI, in connection
with the matters to which this Agreement relates, except for a loss or expense
solely caused by or resulting from willful misfeasance, bad faith or gross
negligence on Chase's part in the performance of its duties or from reckless
disregard by Chase of its obligations and duties under this Agreement. Any
person, even though also an officer, director, partner, employee or agent of
Chase, who may be or become an officer, director, partner, employee or agent of
the Fund, shall be deemed when rendering services to the Fund or acting on any
business of the Fund (other than services or business in connection with Chase's
duties hereunder) to be rendering such services to or acting solely for the Fund
and not as an officer, director, partner, employee or agent or person under the
control or direction of Chase even though paid by Chase. In no event shall Chase
be liable to the Fund, UAMFSI or any other party for special, indirect or
consequential loss or damage of any kind whatsoever (including but not limited
to lost profits), even if Chase has been advised of the likelihood of such loss
or damage and regardless of the form of action.
(c) Subject to Paragraph 7 (b) above, Chase shall not be responsible
for, and UAMFSI shall indemnify and hold Chase harmless from and against, any
and all losses, damages, costs, reasonable attorneys' fees and expenses,
payments, expenses and liabilities arising out of or attributable to:
(i) all actions of Chase or its officers or agents required to
be taken pursuant to this Agreement;
(ii) the reliance on or use by Chase or its officers or agents
of information, records, or documents which are received by Chase or its
officers or agents and furnished to it or them by or on behalf of UAMFSI and/or
the Fund, and which have been prepared or maintained by UAMFSI and/or the Fund
or any third party on behalf of UAMFSI and/or the Fund;
(iii) UAMFSI's refusal or failure to comply with the terms of
this Agreement or UAMFSI's lack of good faith, or its actions, or lack thereof,
involving negligence or willful misfeasance;
C-65
<PAGE>
(iv) the breach of any representation or warranty of UAMFSI
hereunder;
(v) the taping or other form of recording of telephone
conversations or other forms of electronic communications with investors and
shareholders, or reliance by Chase on telephone or other electronic instructions
of any person acting on behalf of a shareholder or shareholder account for which
telephone or other electronic services have been authorized;
(vi) the reliance on or the carrying out by Chase or its
officers or agents of any proper instructions reasonably believed to be duly
authorized, or requests of the Fund or UAMFSI, or recognition by Chase of any
share certificates which are reasonably believed to bear the proper signatures
of the officers of the Fund and the proper countersignature of any transfer
agent or registrar of the Fund;
(vii) any delays, inaccuracies, errors in or omissions from
data provided to Chase by data, pricing and/or corporate action services;
(viii) the offer or sale of shares by the Fund in violation of
any requirement under the Federal securities laws or regulations or the
securities laws or regulations of any state, or in violation of any stop order
or other determination or ruling by any Federal agency or any state agency with
respect to the offer or sale of such shares in such state (1) resulting from
activities, actions, or omissions by the Fund or its other service providers and
agents, or (2) existing or arising out of activities, actions or omissions by or
on behalf of the Fund prior to the effective date of this Agreement;
(ix) any failure of the Fund's registration statement to comply
with the 1933 Act and the 1940 Act (including the rules and regulations
thereunder) and any other applicable laws, or any untrue statement of a material
fact or omission of a material fact necessary to make any statement therein not
misleading in a Fund's prospectus; and
(x) the actions taken by UAMFSI, its investment advisers, and
its distributor in compliance with applicable securities, tax, commodities and
other laws, rules and regulations, or the failure to so comply.
8. TERM. This Agreement shall become effective on the date first
hereinabove written and shall continue for an initial term of one year,
unless sooner terminated, as provided herein.
C-66
<PAGE>
Thereafter, unless so terminated, this Agreement shall continue in effect from
year to year provided such continuance is specificially approved by UAMFSI. This
Agreement may be modified or amended from time to time by mutual agreement
between the parties hereto. This Agreement may be terminated by either party on
90 days' prior written notice; subject to renegotiation after the initial term.
Upon termination of this Agreement, UAMFSI shall pay to Chase such compensation
and any out-of-pocket or other reimbursable expenses which may become due or
payable under the terms hereof as of the date of termination or after the date
that the provision of services ceases, whichever is later.
9. NOTICES. Any notice required or permitted hereunder shall be in
writing to the parties at the following address (or such other address as a
party may specify by notice to the other):
If to UAMFSI:
UAM Fund Services, Inc.
211 Congress Street, 4th Floor
Boston, MA 02110
Attention: Gary L. French, President
Fax: (617) 542-7440
If to Chase:
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108
Attention: Karl O. Hartmann, General Counsel
Fax: (617) 557-8616
Notice shall be effective upon receipt if by mail, on the date of personal
delivery (by private messenger, courier service or otherwise) or upon confirmed
receipt of telex or facsimile, whichever occurs first.
10. ASSIGNABILITY. This Agreement shall not be assigned by either of the
parties hereto without the prior consent in writing of the other party;
provided, however, that Chase may in its own discretion and without limitation
or prior consent of the Fund or UAMFSI, whenever and on such terms and
conditions as Chase deems necessary or appropriate, subcontract, delegate
C-67
<PAGE>
or assign its rights, duties, obligations and liabilities to subsidiaries or
affiliates of Chase; provided, further, that any such subcontract, agreement or
understanding shall not discharge Chase or its affiliates or subsidiaries, as
the case may be, from its obligations hereunder. Similarly, Chase or its
affiliated subcontractor, designee, or assignee may at its discretion, without
notice to the Fund or UAMFSI, enter into such subcontracts, agreements and
understandings, whenever and on such terms and conditions as Chase or they deem
necessary or appropriate to perform services hereunder, with non-affiliated
third parties; provided, that such subcontract, agreement or understanding shall
not discharge Chase, or its subcontractor, designee, or assignee, as the case
may be, from Chase's obligations hereunder. Chase or its affiliated
subcontractor, designee, or assignee shall, however, be discharged from Chase's
obligations hereunder, if UAMFSI, the Fund or its sponsor, investment advisers
or distributor require Chase or its affiliated subcontractor, designee, or
assignee to enter into any subcontract, agreement or understanding to perform
services hereunder with any non-affiliated third party; and UAMFSI shall
indemnify and hold harmless Chase and its affiliated subcontractor, designee, or
assignee from and against, any and all losses, damages, costs, reasonable
attorneys' fees and expenses, payments, expenses and liabilities arising out of
or attributable to such subcontract, agreement or understanding.
11. WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
12. FORCE MAJEURE. Chase shall not be responsible or liable for any
failure or delay in performance of its obligations under this Agreement arising
out of or caused, directly or indirectly, by circumstances beyond its control,
including without limitation, acts of God, earthquakes, fires, floods, wars,
acts of civil or military authorities, or governmental actions, nor shall any
such failure or delay give the Fund the right to terminate this Agreement.
13. AMENDMENTS. This Agreement may be modified or amended from time to
time by mutual written agreement between the parties. No provision of this
Agreement may be changed, discharged, or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought.
C-68
<PAGE>
14. SEVERABILITY. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all other persons and circumstances.
15. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE SUBSTANTIVE
LAWS OF THE STATE OF NEW YORK, INCLUDING THE DETERMINATION OF WHEN AN
"ASSIGNMENT" HAS OCCURRED.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
UAM FUND SERVICES, INC.
By: /s/ Gary L. French
-----------------------------
Name: Gary L. French
---------------------------
Title: President
--------------------------
CHASE GLOBAL FUNDS
SERVICES COMPANY
By:/s/ B. Dagnall
-----------------------------
Name:/s/ B. Dagnall
---------------------------
Title: President
--------------------------
C-69
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
SCHEDULE A
FEES AND EXPENSES
Fees for Fund Accounting, Fund Administration, and Transfer Agency Services for
The Analytic Series Fund and all other UAM affiliated mutual funds for which
Chase provides services (the "Funds")
o 19 Basis Points on the first $200 million of total net assets of the Funds,
o 11 Basis Points on the next $800 million of total net assets of the Funds,
o 7 Basis Points on the next $2 billion of total net assets of the Funds,
o 5 Basis Points on total net assets of the Funds in excess of $3 billion.
A minimum annual fee of $70,000 per Portfolio will apply and shall be phased in
according to the following schedule:
o $2,000 per month per Portfolio for the first six months of service,
o $3,500 per month per Portfolio for the second six months of service,
o $5,000 per month per Portfolio for the third six months of service,
o $5,833 per month per Portfolio thereafter.
All Portfolios will have an additional minimum annual charge of $20,000 per
Portfolio class of shares. However, there will be no extra charge for an
additional class of shares where the Portfolio's fees already exceed the minimum
applicable fee by $20,000.
These fees do not include out-of-pocket expenses, which under the terms of this
Agreement will be billed monthly and due upon billing. In addition to the
out-of-pocket expenses set forth in Section 5(e), there will be a charge of
$35.00 per hour for services relating to option tax accounting.
C-70
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
SCHEDULE B
GENERAL DESCRIPTION OF FUND ADMINISTRATION SERVICES
I. Financial and Tax Reporting
A. Prepare agreed upon management reports and Board of Trustees
materials such as unaudited financial statements and distribution
summaries.
B. Report Fund performance to outside services as directed by Fund
management or UAMFSI.
C. Calculate dividend and capital gain distributions in accordance with
distribution policies detailed in the Fund's prospectus(es). Assist
UAMFSI in making final determinations of distribution amounts.
D. Estimate and recommend year-end dividend and capital gain distributions
necessary to establish the Portfolio's status as a regulated investment
company ("RIC") under Section 4982 of the Internal Revenue Code of
1986, as amended (the "Code") regarding minimum distribution
requirements.
E. Working with the Fund's public accountants or other professionals,
prepare and file Fund's Federal tax return on Form 1120-RIC along with
all state and local tax returns where applicable. Prepare and file
Federal Excise Tax Return (Form 8613).
F. Prepare and file Fund's Form N-SAR with the SEC.
G. Prepare and coordinate printing of Fund's Semiannual and Annual
Reports to Shareholders.
H. Notify shareholders as to what portion, if any, of the distributions
made by the Fund's during the prior fiscal year were exempt-interest
dividends under Section 852 (b)(5)(A) of the Code.
I. Provide Form 1099-MISC to persons other than corporations (i.e.,
Trustees to whom the Fund paid more than $600 during the year).
J. Prepare and file California State Expense Limitation Report, if
applicable.
K. Provide financial information for Fund proxies and prospectuses
(Expense Table).
C-71
<PAGE>
II. Portfolio Compliance
A. Assist with monitoring each Portfolio's compliance with investment
restrictions (e.g., issuer or industry diversification, etc.) listed in
the current prospectus(es) and Statement(s) of Additional Information,
although primary responsibility for such compliance shall remain with
the Fund's investment adviser or investment manager.
B. Assist with monitoring each Portfolio's compliance with the
requirements of Section 851 of the Code for qualification as a RIC
(i.e., 90% Income, 30% Income - Short Three, Diversification Tests) and
provide reports regarding such compliance although primary
responsibility for such compliance shall remain with the Fund's
investment adviser or investment manager.
.
C. Assist with monitoring investment manager's compliance with Board
directives such as "Approved Issuers Listings for Repurchase
Agreements", Rule 17a-7, and Rule 12d-3 procedures, although primary
responsibility for such compliance shall remain with the Fund's
investment adviser or investment manager.
D. Mail quarterly requests for "Securities Transaction Reports" to the
Fund's Trustees and Officers and "access persons" under the terms of
the Fund's Code of Ethics and SEC regulations.
E. Prepare and update compliance manuals and procedures.
III. Regulatory Affairs and Corporate Governance
A. Prepare and file post-effective amendments to the Fund's
registration statement on Form N-1A and supplements as needed.
B. Prepare and file proxy materials and administer shareholder meetings.
C. Prepare and file all state registrations of the Fund's securities
including annual renewals, registering new Portfolios, preparing and
filing sales reports, filing copies of the registration statement and
final prospectus and statement of additional information, and
increasing registered amounts of securities in individual states.
D. Prepare Board materials for all Board meetings.
E. Assist with the review and monitoring of fidelity bond and errors
and omissions insurance coverage and make any related regulatory
filings.
F. Prepare and update documents such as charter document, by-laws,
foreign qualification filings.
C-72
<PAGE>
G. Prepare and file Rule 24f-2 Notice.
H. Assist in identifying and monitoring pertinent regulatory and
legislative developments which may affect the Fund and, in response
to the results of such monitoring, coordinate and provide support to
UAMFSI, the Fund and the Fund's investment adviser with respect to
those developments and results, including support with respect to
routine regulatory examinations or investigations of the Fund, and
with respect to such matters, to work in conjunction with outside
counsel, auditors and other professional organizations engaged by
the Fund.
I. File copies of financial reports to shareholders with the SEC under
Rule 30b2-1.
J. Liaison with the Fund's Distributor and outside counsel.
IV. General Administration
A. Furnish officers of the Fund, subject to reasonable UAMFSI and Board
approval.
B. Prepare Fund or Portfolio expense projections, establish accruals and
review on a periodic basis, including expenses based on a percentage of
Fund's average daily net assets (advisory and administrative fees) and
expenses based on actual charges annualized and accrued daily (audit
fees, registration fees, trustees' fees, etc.).
C. For new Portfolios, obtain Employer or Taxpayer Identification
Number and CUSIP numbers. Estimate organizational costs and
expenses and monitor against actual disbursements.
D. Coordinate all communications and data collection with regard to any
regulatory examinations and yearly audits by independent accountants.
C-73
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
SCHEDULE C
GENERAL DESCRIPTION OF FUND ACCOUNTING SERVICES
I. General Description
Chase shall provide the following accounting services to the Fund:
A. Maintenance of the books and records and accounting controls for
the Fund's assets, including records of all securities transactions;
B. Calculation of each Portfolio's Net Asset Value in accordance with
the prospectus and once the Portfolio meets eligibility
requirements, transmission to NASDAQ and to such other entities as
directed by the Fund and/or UAMFSI;
C. Accounting for dividends and interest received and distributions
made by the Fund;
D. Production of transaction data, financial reports and such other
periodic and special reports as UAMFSI and/or the Board may
reasonably request;
E. Liaison with the Fund's independent auditors; and
F. A listing of reports that will be available to UAMFSI and the Fund
is included below.
II. Domestic Fund Accounting Daily Reports
A. General Ledger Reports
1. Trial Balance Report
2. General Ledger Activity Report
B. Portfolio Reports
1. Portfolio Report
2. Cost Lot Report
3. Purchase Journal
4. Sell/Maturity Journal
5. Amortization/Accretion Report
6. Maturity Projection Report
C-74
<PAGE>
C. Pricing Reports
1. Pricing Report
2. Pricing Report by Market Value
3. Pricing Variance by % Change
4. NAV Report
5. NAV Proof Report
6. Money Market Pricing Report
D. Accounts Receivable/Payable Reports
1. Accounts Receivable for Investments Report
2. Accounts Payable for Investments Report
3. Interest Accrual Report
4. Dividend Accrual Report
E. Other Reports
1. Dividend Computation Report
2. Cash Availability Report
3. Settlement Journal
III. International Fund Accounting Daily Reports
A. General Ledger
1. Trial Balance Report
2. General Ledger Activity Report
B. Portfolio Reports
1. Portfolio Report by Sector
2. Cost Lot Report
3. Purchase Journal
4. Sell/Maturity Journal
C. Currency Reports
1. Currency Purchase /Sales Journal
2. Currency Valuation Report
D. Pricing Reports
1. Pricing Report by Country
2. Pricing Report by Market Value
3. Price Variance by % Change
4. NAV Report
5. NAV Proof Report
C-75
<PAGE>
E. Accounts Receivable/Payable Reports
1. Accounts Receivable for Investments Sold/Matured
2. Accounts Payable for Investments Purchased
3. Accounts Receivable for Forward Exchange Contracts
4. Accounts Payable for Forward Exchange Contracts
5. Interest Receivable Valuation
6. Interest Recoverable Withholding Tax
7. Dividends Receivable Valuation
8. Dividends Recoverable Withholding Tax
F. Other Reports
1. Exchange Rate Report
IV. Monthly Fund Accounting Reports
A. Standard Reports
1. Cost Proof Report
2. Transaction History Report
3. Realized Gain/Loss Report
4. Interest Record Report
5. Dividend Record Report
6. Broker Commission Totals
7. Broker Principal Trades
8. Shareholder Activity Report
9. Fund Performance Report
B. International Reports
1. Forward Contract Transaction History Report
2. Currency Gain/Loss Report
C-76
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
SCHEDULE D
GENERAL DESCRIPTION OF TRANSFER AGENCY SERVICES
The following is a general description of the transfer agency
services Chase shall provide to the Fund.
A. Shareholder Recordkeeping. Maintain records showing for each Fund
shareholder the following: (i) name, address, appropriate tax
certification and tax identifying number; (ii) number of shares of
each Portfolio and/or Class; (iii) historical information including,
but not limited to, dividends paid and date and price of all
transactions, including individual purchases and redemptions, with
appropriate supporting documents; and (iv) any dividend reinvestment
order, application, dividend to a specific address and correspondence
relating to the current maintenance of the account.
B. Shareholder Issuance. Record the issuance of shares of common stock of
each Portfolio and/or Class and notify the Fund in case any proposed
issue of shares by the Fund shall result in an over-issue as
identified by Section 8-104(2) of the Uniform Commercial Code and in
case any issue would result in such an over-issue, shall refuse to
countersign and issue, and/or credit, said shares. Except as
specifically agreed in writing between Chase and the Fund, Chase shall
have no obligation when countersigning and issuing and/or crediting
shares to take cognizance of any other laws relating to the issue and
sale of such shares except insofar as policies and procedures of the
Stock Transfer Association recognize such laws.
C. Purchase Orders. Process all orders for the purchase of shares of the
Fund in accordance with the Fund's current prospectus, including
electronic transmissions, which the Fund acknowledges it has
authorized. Upon receipt of any check or other payment for purchase of
shares of the Fund from an investor, Chase will (i) stamp the order or
other documentation with the date and time of receipt, (ii) forthwith
process the same for collection, (iii) determine the amounts thereof
due the Fund, and notify the Fund of such determination and deposit,
such notification to be given on a daily basis of the total amounts
determined and deposited to the Fund's custodian bank account during
such day. Chase shall then credit the share account of the investor
with the number of Fund shares to be purchased according to the price
of the Fund's shares in effect for purchases made on the date such
payment is received by Chase, as set forth in the Fund's current
prospectus and shall promptly mail a confirmation of said purchase to
the investor, all subject to any instructions which the Fund may give
to Chase with respect to the timing or manner of acceptance of orders
for shares relating to payments so received by it. Any purchase order
received by Chase, which is deemed not in good order by Chase, will be
rejected immediately.
C-77
<PAGE>
D. Redemption Orders. Receive and stamp with the date and time of receipt
all requests for redemptions or repurchase of shares held in
certificate or non-certificate form, and process redemptions and
repurchase requests as follows: (i) if such certificate or redemption
request complies with the applicable standards approved by the Fund,
Chase shall on each business day notify the Fund of the total number
of shares presented and covered by such requests received by Chase on
such day; (ii) on or prior to the seventh calendar day succeeding any
such requests received by Chase, Chase shall notify the Custodian,
subject to instructions from the Fund, to transfer monies to such
account as designated by Chase for such payment to the redeeming
shareholder of the applicable redemption or repurchase price; and
(iii) if any such certificate or request for redemption or repurchase
does not comply with applicable standards, Chase shall promptly notify
the investor of such fact, together with the reason therefor, and
shall effect such redemption at the Portfolio's price next determined
after receipt of documents complying with said standards or, at such
other time as the Fund shall so direct.
E. Telephone Orders. Process redemptions, exchanges and transfers of Fund
shares upon telephone instructions from qualified shareholders in
accordance with the procedures set forth in the Fund's current
prospectus. Chase shall be permitted to redeem, exchange and/or
transfer Fund shares from any account for which such services have
been authorized, including electronic transmissions.
F. Transfer of Shares. Upon receipt by Chase of documentation in proper
form to effect a transfer of shares, including in the case of shares
for which certificates have been issued, the share certificates in
proper form for transfer, Chase will register such transfer on the
Fund's shareholder records maintained by Chase pursuant to
instructions received from the transferor in good form, cancel the
certificates representing such shares, if any, and if so requested,
countersign, register, issue and mail by first class mail new
certificates for the same or a smaller whole number of shares.
G. Shareholder Communications. Address and mail all communications by the
Fund to its shareholders promptly following the delivery by the Fund
of the material to be mailed.
H. Proxy Materials. Prepare shareholder lists, mail and certify as to the
mailing of proxy materials, receive the tabulated proxy cards, render
periodic reports to the Fund on the progress of such tabulation, and
provide the Fund with inspectors of election at any meeting of
shareholders.
I. Share Certificates. If a shareholder of the Fund requests a
certificate representing his shares, Chase as Transfer Agent, will
countersign and mail, a share certificate to the investor at his/her
address as it appears on the Fund's transfer books. Chase shall
C-78
<PAGE>
supply, at the expense of the Fund a supply of blank share
certificates. The certificates shall be properly signed, manually or
by facsimile, as authorized by the Fund, and shall bear the Fund's
seal or facsimile; and notwithstanding the death, resignation or
removal of any officers of the Fund authorized to sign certificates,
Chase may, until otherwise directed by the Fund, continue to
countersign certificates which bear the manual or facsimile signature
of such officer.
J. Returned Checks. In the event that any check or other order for the
payment of money is returned unpaid for any reason, Chase will take
such steps, including redepositing the check for collection, returning
the check to the investor, or redeeming appropriate shares as Chase
may, at its discretion, deem appropriate and notify the Fund of such
action, or as the Fund may instruct. However, the Fund remains
ultimately liable for any returned checks of its shareholders.
K. Shareholder Correspondence. Acknowledge all correspondence from
shareholders relating to their share accounts and undertake such other
shareholder correspondence as may from time to time be mutually agreed
upon.
L. Tax Reporting. Chase shall issue appropriate shareholder tax forms on
an annual basis.
M. Escheatment. All Fund assets shall be subject to the escheatment laws
of the Commonwealth of Massachusetts, including those which relate to
reciprocal agreements with other states.
N. Dividend Disbursing. Chase will serve as the Fund's dividend
disbursing agent. Chase will prepare and mail checks, place wire
transfers and credit income and capital gain payments to shareholders.
UAMFSI and/or the Fund will advise Chase of the declaration of any
dividend or distribution and the record and payable date thereof at
least five (5) days prior to the record date. Chase will, on or before
the payment date of any such dividend or distribution, notify the
Fund's Custodian of the estimated amount required to pay any portion
of such dividend or distribution payable in cash, and on or before the
payment date of such distribution, the Fund will instruct its
Custodian to make available to Chase sufficient funds for the cash
amount to be paid out. If a shareholder is entitled to receive
additional shares by virtue of any such distribution or dividend,
appropriate credits will be made to each shareholder's account.
C-79
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Post-Effective Amendment No. 7 to Registration
Statement No. 33-55758 on Form N-1A of our report dated February 1997, on the
statement of assets and liabilities of The Analytic Series Fund including the
schedule of investments, as of December 31, 1996, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended appearing in Part B, the
Statement of Additional Information of such Registration Statement, (b) the
reference to us under the heading "Financial Highlights" in the Prospectus,
which are a part of such Registration Statement, and (c) the reference to us
under the headings "Independent Auditors" and "Financial Statements" in the
Statement of Additional Information of such Registration Statement.
DELOITTE & TOUCHE LLP
Los Angeles, California
August 21, 1997
C-80
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> SHORT-TERM GOVERNMENT PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 706,577
<INVESTMENTS-AT-VALUE> 698,547
<RECEIVABLES> 14,518
<ASSETS-OTHER> 310,584
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,023,629
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,050
<TOTAL-LIABILITIES> 16,050
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,809,522
<SHARES-COMMON-STOCK> 102,458
<SHARES-COMMON-PRIOR> 2,794,994
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (793,913)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (8,030)
<NET-ASSETS> 1,007,579
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,875,376
<OTHER-INCOME> 0
<EXPENSES-NET> 154,351
<NET-INVESTMENT-INCOME> 1,521,025
<REALIZED-GAINS-CURRENT> (444,657)
<APPREC-INCREASE-CURRENT> (8,088)
<NET-CHANGE-FROM-OPS> (452,745)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,521,025)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (12,345)
<NUMBER-OF-SHARES-SOLD> 115,424
<NUMBER-OF-SHARES-REDEEMED> (2,957,142)
<SHARES-REINVESTED> 149,181
<NET-CHANGE-IN-ASSETS> (26,872,491)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 78,404
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 194,441
<AVERAGE-NET-ASSETS> 25,487,874
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> 0.82
<PER-SHARE-GAIN-APPREC> (0.10)
<PER-SHARE-DIVIDEND> 0.88
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.01
<PER-SHARE-NAV-END> 9.83
<EXPENSE-RATIO> 0.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> MASTER FIXED INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 24,319,186
<INVESTMENTS-AT-VALUE> 24,648,796
<RECEIVABLES> 386,482
<ASSETS-OTHER> 4,513,894
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 29,449,151
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 523,612
<TOTAL-LIABILITIES> 523,612
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,845,091
<SHARES-COMMON-STOCK> 2,815,970
<SHARES-COMMON-PRIOR> 2,387,766
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,929)
<ACCUM-APPREC-OR-DEPREC> 82,377
<NET-ASSETS> 28,925,539
<DIVIDEND-INCOME> 53,120
<INTEREST-INCOME> 1,657,612
<OTHER-INCOME> 0
<EXPENSES-NET> 193,393
<NET-INVESTMENT-INCOME> 1,517,339
<REALIZED-GAINS-CURRENT> 388,620
<APPREC-INCREASE-CURRENT> (351,052)
<NET-CHANGE-FROM-OPS> 1,554,907
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,517,896)
<DISTRIBUTIONS-OF-GAINS> (355,905)
<DISTRIBUTIONS-OTHER> (1,929)
<NUMBER-OF-SHARES-SOLD> 1,071,233
<NUMBER-OF-SHARES-REDEEMED> (655,512)
<SHARES-REINVESTED> 22,483
<NET-CHANGE-IN-ASSETS> 4,057,794
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 120,578
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 258,959
<AVERAGE-NET-ASSETS> 26,795,202
<PER-SHARE-NAV-BEGIN> 10.41
<PER-SHARE-NII> 0.58
<PER-SHARE-GAIN-APPREC> (0.01)
<PER-SHARE-DIVIDEND> 0.58
<PER-SHARE-DISTRIBUTIONS> 0.12
<RETURNS-OF-CAPITAL> 0.01
<PER-SHARE-NAV-END> 10.27
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> ENCHANCED EQUITY FUND
<S> <C>
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